By Snazo Tuswa and checked by Jordan Dias
The matter is premised on the provisions of section 345(a)(i) of the repealed Companies Act 61 of 1973 (“the Act”), which provides that a company will be deemed to be unable to pay its debts if the creditor of said company has served a demand on the company, requiring the company to pay the amount due, and the company fails to make payment of the amount owed.
The above section provides that a company is required to pay the amount within 3 (Three) weeks; failing which, and according to section 344 (f) of the Act, a company may be wound up by a Court.
In accordance with section 344(f) of the Act, DH Construction Technologies CC (“the Applicant”) as a creditor, launched an application for the winding up of Chad Construction (“the Respondent”). On or about 14 March, and in terms of section 345(a)(i) of the Act, the Applicant served a Notice on the Respondent requesting it to pay a total of R168,150,000 in monies owed to the Applicant.
The above amount is made up of three invoices which were sent to the Respondent, namely: invoice number 1028 (“invoice 1028”), invoice number 1029 (“invoice 1029”), and invoice number 1033 (“invoice 1033”). All three invoices pertain to work rendered by the Applicant.
The Respondent made payment in terms of invoice 1028, however it denied its indebtedness in terms of invoice 1029 as the work done in respect thereof was on a contingency basis. The Respondent further denied its indebtedness in respect to invoice 1033.
The Applicant contended that, since the Respondent did not pay the amount of R168,150,000 within 21 (Twenty-One) days of service of the section 345 Notice, the Respondent is deemed to be unable to pay its debts, and is therefore, commercially insolvent.
Another creditor of the company (“the landlord”), applied for leave to intervene in the matter. The landlord contended that the company owes it a total of R300,000 in unpaid monthly rent, of an immovable property situated in Kathu, Northern Cape.
The landlord also served a section 345 Notice on the Respondent, requiring the Respondent to pay the outstanding monies under the lease agreement. Since the Respondent was given 21 (Twenty-One) days to effect payment, and subsequently failed to make such payment, the landlord contended that the Respondent is therefore commercially insolvent.
In response to the landlord’s contention, the Respondent stated it had reached an oral agreement with the landlord. This agreement stated that since the Respondent was unable to make payment of the monthly rental, it would make improvements on the property in lieu of rent. Therefore, the Respondent denied its indebtedness in respect of the landlord’s claim.
In a liquidation application, brought under section 344 and 345 of the Act, where prima facie proof of the indebtedness exists, the onus is on the company to show that the indebtedness is disputed on bona fide and reasonable grounds.
Further to the above, a Court is required to determine whether an Applicant’s claim is disputed on bona fide and reasonable grounds.
The court held that the Respondent’s defence to invoice 1029 was untenable and far-fetched and therefore, rejected same.
In considering the Badenhorst principle, the court held that the debt arising in respect of invoice 1029 was not disputed on bona fide and reasonable grounds.
In determining whether the Applicant’s claim, in respect of invoice 1033, was disputed on bona fide and reasonable grounds, the court held that the Applicant knew the work in respect of invoice 1033 was done for tender purposes and that the Respondent may not obtain the tender. Therefore, it did not appear unreasonable that the parties would agree that payment for services rendered would only occur if the tender was successful.
Lastly, the court found that it is highly unlikely that the landlord and the Respondent would conclude a further agreement regarding the substitution of rent, especially after the landlord had sent the Respondent correspondence stating that the Respondent owes it monies under the lease agreement. The Court held that this defence does not make sense and it is far-fetched.
The court held that the landlord’s debt is not disputed on reasonable and bona fide grounds. Further, that the Respondent should be wound up on the basis of section 345(1)(a)(i), and section 344(f) of the 1973 Companies Act.
The case highlights the importance of setting out a bona fide and reasonable defence in respect of debts raised against a party, in the context of a liquidation application.
The primary issue that the Court had to determine in this matter was whether the defences, raised by the Respondent, qualify as bona fide and reasonable defences in the context of a liquidation application
Companies Act 61 of 1973, Section 344 (f), Section 345 (1) (a) (i), Notice in terms of section 345, Liquidation Application.