Court a quo:
In 2014 the Appellant obtained a judgment for costs against the Respondent. The Respondent failed to discharge this debt owed to the Appellant. Accordingly, the Appellant brought an application to wind up the Respondent on the basis that the Respondent was unable to pay its debts within the meaning of s 345(1)(a), read with s 344(f) of the Companies Act 61 of 1973 (the old Companies Act). The Respondent did not dispute the underlying debt and that it had failed to pay it. In addition, the issue of whether demand had been given by the Appellant to the Respondent in terms of s 345 of the old Companies Act and the failure of the Respondent to satisfy that demand, was not in dispute.
The court a quo, relying upon the exercise of its discretion, dismissed the application for the winding-up of the Respondent solely on the basis that the Respondent had a counterclaim against the Appellant.
The SCA held that winding-up proceedings must not be used as a method to enforce payment of a debt that is disputed on bona fide and reasonable grounds (known as the ‘Badenhorst rule’). Where, however, the Respondent’s indebtedness has, prima facie, been established, the onus is shifted to the Respondent to show that this indebtedness is indeed disputed on bona fide and reasonable grounds.
The SCA further held that the existence of a counterclaim which, if established, would result in a discharge by set-off of an applicant’s claim for a liquidation order is not, in itself, a reason for refusing to grant an order for winding-up but it may, however, be a factor to be taken into account in exercising the court’s discretion. The court a quo did not keep in view the specific principle that, generally speaking, an unpaid creditor has a right, to a winding-up order against the Respondent company that has not discharged its debt. The court a quo also did not heed the principle that, in practice,
The discretion of a court to refuse to grant a winding-up order where an unpaid creditor applies is a ‘very narrow one’ that is rarely exercised and in special or unusual circumstances only.
Therefore, a mere recourse to a counterclaim will not, in itself, enable a Respondent to resist an application for its winding-up. The SCA considered: that the Summons in respect of the Respondent’s claim was issued in 2009 but had not been pursued by the Respondent; the Respondent failed to attach the Summons to its Answering Affidavit in the application; the Respondent made no allegation that it was either factually or commercially solvent and it was common cause that the Respondent was not trading at the time of the application. In these respects, the SCA held that the court a quo applied ‘the wrong principle(s)’ and the onus was not discharged by the Respondent merely by claiming the existence of a counterclaim.
Considering the above, the SCA held that the Respondent’s counterclaim “generated a sense of unease about the genuineness of its contestation” and various other factors such as: the illiquidity of the claim, failure to attach the Summons, failure to respond to the s 345 demand, the lack of any indication that the Respondent may be solvent and that the Respondent did not appear to be trading consequently led to the Respondent’s failure discharge the onus. Accordingly, the SCA ordered that the appeal is upheld, that the Respondent be placed under a final winding-up order and costs are awarded to the Appellant in the liquidation of the Respondent.