Standard Bank of South Africa Ltd v Sahara Freight South (Pty) Ltd (16771/2023 ; 16770/2023) [2024] ZAWCHC 447 (25 March 2024)

begin wrapper begin container begin header begin slogan-floater end slogan-floater - About SAFLII About SAFLII - Databases Databases - Search Search - Terms of Use Terms of Use - RSS Feeds RSS Feeds end header begin main begin center # South Africa: Western Cape High Court, Cape Town South Africa: Western Cape High Court, Cape Town You are here: SAFLII >> Databases >> South Africa: Western Cape High Court, Cape Town >> 2024 >> [2024] ZAWCHC 447 | Noteup | LawCite sino index ## Standard Bank of South Africa Ltd v Sahara Freight South (Pty) Ltd (16771/2023 ; 16770/2023) [2024] ZAWCHC 447 (25 March 2024) Standard Bank of South Africa Ltd v Sahara Freight South (Pty) Ltd (16771/2023 ; 16770/2023) [2024] ZAWCHC 447 (25 March 2024) Download original files PDF format RTF format make_database: source=/home/saflii//raw/ZAWCHC/Data/2024_447.html sino date 25 March 2024 SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy IN THE HIGH COURT OF SOUTH AFRICA (WESTERN CAPE DIVISION, CAPE TOWN CASE NO: 16771/2023 In the matter between: THE STANDARD BANK OF SOUTH AFRICA LTD Applicant and THE SAHARA FREIGHT SOUTH (PTY) LTD Respondent And CASE NO:16770/2023 THE STANDARD BANK OF SOUTH AFRICA LTD Applicant and PURPLE RAIN PROPERTIES NO 348 (PTY) LTD Respondent Court :            Acting Justice R Barendse Delivered :     Electronically on 25 March 2024 JUDGMENT BARENDSE AJ Introduction [1]        This judgment follows on an application by The Standard Bank of South Africa Limited ("Standard Bank" or "applicant") for the winding up of Sahara Freight South (Pty) Ltd ("Sahara") under case number 16771/23 and an application for the winding up of Purple Rain Properties NO 348 (Pty) Ltd ("Purple Rain") under case number 16770/23. Purple Rain guaranteed the liabilities of Sahara to the applicant to a maximum amount of R3million. [2]        The facts underpinning both applications are largely similar, the applications were heard together and for that reason both matters are dealt with in a single judgment. [3]        The references to page numbers in the record should be regarded references to the record in case number 16771/23 unless express reference is made to case number 16770/23. Factual Background [4]        The applicant brough an application for the provisional winding up of Sahara and ancillary relief on the basis that Sahara is unable to pay its debts as and when they fall due for payment in the ordinary course of its business. Reliance is placed on the provisions of sections 344(f) read with section 345 of the Companies Act, 61 of 1973 and item 9 of schedule 5 to the Companies Act, 71 of 2008 . [5]        In its founding affidavit ("FA") applicant alleged that it entered into six written credit agreements with Sahara to wit: 1.         an overdraft agreement; 2.         a fleet management agreement; 3.         four instalments sale agreements ("ISA's"). [6]        Applicant alleged that Sahara breached the overdraft agreement and the fleet management agreement by exceeding the limits thereof. [7]        Insofar as the overdraft agreement was concerned, it contained an express provision that Sahara was not permitted to exceed the overdraft limit and that Sahara would be in breach thereof if it failed to remedy a breach within a time specified in a written notice to that effect or if there was in the opinion of the applicant a material deterioration in Sahara's financial position. Default or the said material deterioration of Sahara's financial position would entitle applicant to terminate the overdraft facility on written notice and claim payment of all amounts due thereunder. [8]        The fleet management agreement likewise contained provisions entitling applicant to cancel same on notice to Sahara and claim all amounts owing to it thereunder. [9]        The ISA's related to four different vehicles and specific monthly instalments were payable to applicant under each. Default would entitle applicant to require Sahara to rectify such default on written notice within 10 business days failing which, and if the default remains for a further 20 business days, applicant would be entitled to commence legal proceedings for the recovery of all amounts owing thereunder. [10]      According to applicant it noticed a decline in the amounts flowing through Sahara's current account. Sahara breached the overdraft agreement and fleet management agreement by exceeding the limits thereof. [11]      On 3 June 2023 a representative of the applicant addressed a letter to Sahara requesting it to repay the excess amount on the overdraft and the overdue amount on the fleet management account by 17 June 2023. It does not appear from the copy of the letter to which address it was sent or how it was delivered to Sahara. [12]      The breaches complained of in the said letter continued and on 5 July 2023 representatives of applicant met with representatives of Sahara. Following this meeting applicant's representative sent an email to representatives of Sahara recording that all facilities have been cancelled and that a repayment proposal was awaited by 11 July 2023 as undertaken at the meeting. One Bennecke of Sahara replied to this email on 11 July 2023 and essentially undertook to revert to applicant by the next day. According to applicant no further responses from Sahara were forthcoming. [14]      The FA was deposed to on 26 September 2023 and applicant averred that as at that date Sahara was indebted to it in the following amounts: 1.         R6,490,500.45 plus interest from 25 June 2023 to date of payment in respect of the overdraft on the current account; 2.         R2,177,031.58 plus interest thereon from 25 June 2023 to date of payment in respect of the fleet facility; 3.         arrears of R34,776,26 ; R67,988.08 ; R23,287,08 and R155,426.40 plus interest from 2 July 2023 to date of payment in respect of the four ISA's. [15]      Applicant acknowledged that the full outstanding balances on the ISA accounts were not yet accelerated and that no formal letters of demand were sent to Sahara in respect of the ISA's. However, the total amounts outstanding (including the arrears mentioned above) as at the date of the FA under the ISA's were stated as R34,661.26; R492,491.06; R23,287.08 and R2,103,635.22 respectively. [16]      On 2 August 2023 a letter of demand in terms of section 345(1)(a) of the Companies Act of 1973 was sent to Sahara by applicant's attorneys. The letter was sent by email and was served on Sahara's registered address at 3[…] H[…] Boulevard, Wellington by the sheriff. [17]      Applicant avers that by virtue of the section 345(1)(a) demand, given the provisions of the said section and Sahara's failure to comply therewith, Sahara was deemed to be unable to pay its debts and this justified a winding-up order. [18]      In addition to the section 345(1)(a) ground, applicant also averred that Sahara is unable to pay its debts when they fall due in the ordinary course of its business and is as such, commercially insolvent as envisaged in section 344(f) read with section 345(1)(c) of the Companies Act of 1973. [19]      Sahara's answering affidavit ("AA") provided insight into the challenges that it faced post 2020 during the Covid-19 pandemic and resultant national lockdown as well as through a prolonged strike from November 2021 to October 2022 by the employees of Clover SA, its largest customer. The Clover business accounted for between 50% and 60% of Sahara's income. The effect of the strike was compounded by Clover closing its Cape Town plant after the strike. [20) Sahara averred that it managed to negotiate a new contract with Clover and secured agreements with ten other entities mentioned in the AA. Sahara submitted that its financial performance improved over time. While its turnover was R2.3million in August 2023 this increased to over R3.5million by October 2023. It annexed bank statements for September 2023 and October 2023 in support of this submission. [21]      Sahara emphasised that while navigating the challenges outlined above it managed to avoid retrenching any employees and prioritised payment of salaries to employees above its own financial well-being. In doing so it was admittedly unable to keep up with certain of its obligations. Legal Disputes [22]      On the papers applicant asks for the provisional liquidation of Sahara on the basis that it is deemed to be unable to pay its debts in that it failed to pay the amounts owing to applicant within the 21 day period envisaged in section 345(1)(a) of the Companies Act of 1973. This is not the only ground on which it seeks the said relief. [23]      Applicant contends that Sahara is commercially insolvent and is unable to pay its debts as they fall due in the ordinary course of its business and that in terms of section 344(f) read with section 345(1)(c) of the aforesaid act it is entitled to the relief sought. [24]      Sahara opposes the application on the basis that its alleged indebtedness to applicant is disputed, that the application constitutes an abuse and that it is commercially solvent. [25]      Sahara resists a finding of deemed insolvency for the reason that the debt claimed from it in applicant's section 345(1)(a) notice is not due in that applicant did not serve default notices at the registered address of Sahara as it was required to do in terms of all the credit agreements entered into between the parties. Applicant admitted not having done so and hence, the main issue for determination is whether applicant made out a case that Sahara is commercially insolvent. If so, the court has to decide whether it is just and equitable to place Sahara in provisional liquidation. [26]      It is apposite to refer to the relevant sections in the Companies Act of 1973 ("The Act") on which applicant relies. Section 344(f) provides that: "A company may be wound up by the Court if- (a).      .............................. (b).      ............................. (c).       .......·············......... (d)       .............................. (e)       .............................. (f)        the company is unable to pay its debts as described in section 345; (g)       .............................. (h)       it appears to the Court that it is just and equitable that the company should be wound up." [27]      Given that applicant is not relying on section 345(1)(a), the remaining relevant provisions of this section are that: "345  When company deemed unable to pay its debts (1)       A company or body corporate shall be deemed to be unable to pay its debts if- (a)       ...................... (b)       ...................... (c)        it is proved to the satisfaction of the Court that the company is unable to pay its debts. (2)       In determining for the purpose of subsection (1) whether a company is unable to pay its debts, the Court shall also take into account the contingent and prospective liabilities of the company." [28]      Given that applicant did not serve default notices on Sahara in terms of which liability for all amounts due to it by Sahara under the agreements is accelerated, the question is whether, by regarding Sahara's potential liability to applicant as contingent or prospective liabilities, the court is satisfied that Sahara is unable to pay its debts. [29]      In its AA Sahara tendered to applicant payment of R500,000.00 by December 2023 and R1million per month from January 2024 onwards untill all amounts have been paid in full. During argument Sahara's counsel pointed out that this tender was aimed at severing the relationship between the parties. It was not an acknowledgement that applicant was entitled to payment of the full amount under the credit agreements given that default notices were not issued by applicant.The tender was not accepted and no payments in terms thereof were therefor made. [30]      Both parties refererd to Sahara's bank statements for September and October 2023. On behalf of applicant it was submitted that the First National Bank ("FNB") statement of September 2023 reflects credits of R2,808,847,21 and debits of R2,707,944,30. According to applicant the income that flowed into this account should have been paid into Sahara's current account with applicant, given that applicant took cession of Sahara's book debts as security. The bank statement reflects that during September 2023 Sahara's income exceeded its expenditure by only R100,606.01. The FNB statement for October 2023 reflects a surplus of income over expenditure of only around R76,000.00. [31]      The Nedbank statement for October 2023 reflects that expenses/debits exceeded income/credits by just under R1000.00. Applicant's submissions were that the bank statements demonstrate that Sahara is unable to pay its debts as they fall due. Payments appearing on the bank statements made available did not include payments to applicant. [32]      Applicant also queried certain payments to one "Burger" whom it suspected of being the husband of a director of Sahara. These payments appeared from the FNB bank statements and total some R144,000.00 over the two month period. It was submitted that these payments could be irregular and should be investigated by a liquidator, once appointed. Sahara's counsel pointed out that the list of employees which was included in the papers, reflects a Martin Burger as an employee of Sahara and that applicant's submissions on this point amounted to speculation. [33]      Sahara annexed annual financial statements for the years ending on 28 February 2022 and 28 February 2023 to its AA. These were not signed by directors of Sahara. Applicant argued that these financial statements therefor do not assist the court. These financial statements reflect a profit (after income tax) of around R1.6million as at 28 February 2022 and around R3.7million as at 28 February 2023. Both amounts exclude retained earnings at the start of each financial year. [34]      While applicant based its case for a provisional winding up order on Sahara's commercial insolvency, Sahara denied that applicant issued and served default notices/letters of demand as required by the credit agreements. Sahara therefor does not accept that the agreements have been cancelled and that the outstanding balances under the agreements are due. It accordingly denies that the debt referred to in the section 345(1)(a) notice is due and submitted that there is a bona fide dispute on reasonable grounds that it is indebted to applicant. It further denied being commercially solvent and submitted that while it faced commercial challenges it was in financial recovery. Reasoning and Conclusions [35]      As was mentioned previously, applicant conceded that formal letters of demand were not sent to Sahara under the credit agreements although written notification was sent by email on 5 July 2023. Applicant accordingly conceded (correctly so) that in the absence of the default notices/letters of demand specifically required by the credit agreements, the full balances payable thereunder did not fall due yet. Accordingly, the section 345(1)(a) notice in which the outstanding balances were claimed was not a valid basis for a provisional winding up order. [36]      The court accepts Sahara's argument and applicant's admission to the effect that the full balances under the credit agreements did not yet become due and payable. That being said, in its AA Sahara admitted that it was in arears with its instalments under the ISA's by one month. The AA was signed on 23 November 2023. The current position is not known. Under the ISA's the instalments for one month total around R280,000.00. [37]      This application is not only based on Sahara's indebtedness to applicant and the finding above is not the end of the matter. If a winding-up order is sought for the reason that a company is unable to pay its debts, a denial by the company that a debt is due and payable will be of no avail to it. [38]      Applicant referred the court to The Law of South Africa by Joubert, third edition, Volume 6 Part 3 at pages 46 and further for a detailed discussion on the winding-up of a company on the basis of being unable to pay its debts, as envisaged by section 345(1)(c) read with section 345(2) of the Act. [39]      It is clear from the above provisions that when determining this question a court shall (not may) have regard to a company's contingent and prospective liabilities. These are liabilities that exist because of a vinculum iuris between a claimant and the company, and which may become enforceable debts on the happening of a future event or at some future point in time. (See Wiseman v Ace Table Soccer (Pty) Ltd [1991) 4 All SA 317(W)). [40]      Although contingent and prospective liabilities are not "debts", the obligation on the court to take them into account when determining whether a company is unable to pay its debts, gives the words "unable to pay its debts" an extended meaning (See LAWSA supra p46). A prospective creditor further has locus standi to apply for a winding-up order (See LAWSA, p28). [41]      The following passage at p 46 of LAWSA and the authorities referred to there are insightful: "It seems clear that the purpose of the provision is to ensure that the court is not obliged to dismiss an application for the winding-up of a company in the circumstances where, although the company is able to pay its debts (being liabilities presently due and payable), it is reasonably certain that the company will not be able to meet its other liabilities when they fall due - and where, by dismissing the application, the court would merely be postponing the evil day." [42]      The court is not obliged to regard contingent and prospective liabilities as if they are immediately due and payable. It must weigh them as they are as facts in the present situation having a bearing on whether the company is at present unable to pay its debts. The question always concerns the company's ability to pay its contingents liabilities should they become debts and its prospective liabilities when they become debts. (LAWSA supra p 47 and the cases referred to there). [43]      While the applicant did not yet serve formal default notices on Sahara under the six credit agreements it may do so anytime. The contingent and prospective liabilities to applicant will become actually due and payable as a reasonable certainty. [44]      The court had regard to Sahara's papers and arguments. It is obliged to take its contingent and prospective liabilities into account under section 345(2). The bank statements and unsigned financial statements made available by Sahara created little doubt that its financial position is such that, by only taking into account the contingent and prospective liabilities towards the applicant, the court has to come to the conclusion that it is unable to pay its debts within the meaning of section 345(1)(c) and (2) of the Companies Act of 1973. [45]      Having come to the aforesaid conclusion in respect of the application against Sahara, it remains for the application against Purple Rain to be dealt with. [46]      Purple Rain provided a continuing covering guarantee to applicant for the due, punctual and full payment of all debt which Sahara now owes or may in the future owe to applicant to a maximum amount of R3million. [47]      The court found that applicant did not yet trigger Sahara's indebtedness to it by cancelling the credit agreements and claiming the full balances owing thereunder. The section 345(1)(a) notice by applicant to Sahara did not serve as a valid basis for the winding-up of Sahara and equally cannot serve such a purpose for the winding-up of Purple Rain. [48]      In his heads of argument relating to case number 16770/2023 counsel for Purple Rain raised a point in limine on the basis that clause 8.2 of the guarantee conferred upon applicant the right to institute action against Purple Rain in the magistrates court for any claim arising from the guarantee. The same clause contains a provision that the applicant may bring legal proceedings in a high court that has jurisdiction. The contention was that the guarantee only made provision for action proceedings and not for motion proceedings. The court was referred to the well known judgment in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) on the rules of interpretation in our law. [49]      The court does not accept that the jurisdiction clause prevents applicant from bringing motion proceedings such as the present in the high court. The clause is not ambiguous. The ordinary meaning of the words used, considered in the context and purpose for which the agreement was concluded does not prevent the applicant from bringing these proceedings in the high court. To hold the opposite will produce an unbusinesslike result with no regard for the commercial purpose for which the guarantee was concluded. [50]      The uncontested allegations in the FA are that Purple Rain is not a trading entity and that it owns one residential immovable property situated at Wellington, Western Cape. It appears from the FA that the property is worth just over R5million and that it is mortgaged in favour of Nedbank for R4,950,000.00. [51]      Purple Rain's contingent and prospective liability towards applicant will become actually due and payable as a reasonable certainty for the same reasons applicable to Sahara. [52]      In the circumstances this court is satisfied that the applicant made out a prima facie case for the provisional winding up of both Sahara and Purple Rain. Orders [53]      The following Order is made in respect of case number 16771/2023: 1.         The respondent is placed under provisional liquidation; 2.         A rule nisi is issued calling upon all persons interested to show cause, if any, on 21 May 2024. 2.1       why the respondent should not be placed under final liquidation and; 2.2       why the costs of this application should not be costs in the liquidation 3.         That service of this Order be effected: 3.1       by one publication in each of The Cape Times and Die Burger newspapers 3.2       by service upon the respondent at its registered address; 3.3       by service on the South African Revenue Services at 22 Hans Strijdom Avenue, Cape Town 3.4       by service on the employees of the respondent; and 3.5       by service on all registered trade unions representing the employees of the respondent, if any. 3.6       That the costs of this application shall be costs in the liquidation. [54]      The following order is made in respect of case number 16770/2023. 1          The respondent is placed under provisional liquidation; 2.         A rule nisi is issued calling upon all persons interested to show cause, if any, on 21 May 2024. 2.1       why the respondent should not be placed under final liquidation and; 2.2       why the costs of this application should not be costs in the liquidation 3.         That service of this Order be effected: 3.1       by one publication in each of The Cape Times and Die Burger newspapers 3.2       by service upon the respondent at its registered address; 3.3       by service on the South African Revenue Services at 2[…] H[…] S[…] Avenue, Cape Town 3.4       by service on the employees of the respondent; and 3.5       by service on all registered trade unions representing the employees of the respondent, if any. 3.6       That the costs of this application shall be costs in the liquidation. R BARENDSE Acting Judge of the High Court Appearances: For Applicant:                       Adv. Kate Reynolds and Adv. Jo-Anne Moodley For Respondent:                  Adv. Johan Scheepers sino noindex make_database footer start