LIQUIDATION OF CLOSE CORPORATIONS (CCs)

Bank WHK v Fair View Properties CC (Registration No. 2022/1575) NAHCMD (25 January 2023) andBank Windhoek Limited v Rehoboth Properties CC (Registration No. 2000/1028) NAHCMD (25 January 2023)

 – When can a court order the winding up of a CC?

Bank Windhoek (applicant) brought winding-up applications to wind up two sister close corporations, namely, Fair View Properties CC and Rehoboth Properties CC (the respective respondents). Fair View Properties CC admitted under oath that the respondent had no defence to the applicant’s claim for payment in a rescission application that has a direct bearing on, and is relevant to, the instant winding-up application. Rehoboth Properties CC became indebted to the applicant in virtue of a series of loan agreements whereby the applicant loaned money to the respondent and an overdraft facility the applicant had extended to the respondent. Additionally, Rehoboth Properties CC concluded a written suretyship in favour of the applicant for the debts of Fair View Properties CC. The court found in each matter that the respondent failed to pay its debt when it became due and payable and when payment was demanded in terms of the Close Corporation Act 26 of 1988 (the Act). The court found further that the respondents were deemed to be unable to pay their debts in terms of section 69(1) Act. Consequently, on the facts and in the circumstances of the case, the court concluded that the applicant had made out a case for the final winding-up of both respondents, and held that:

The use of the verb ‘deemed’ in section 69(1) of the Act lays the intention of the Parliament which is this:  If any of the circumstances contained in paragraphs (a), (b) and (c) of section 69(1) existed, it would be ‘deemed’, that is, considered, that the corporation was unable to pay its debt; not that the corporation was, in fact, unable to pay its debt.

Further that the Act does not require a nulla bona return to be filed with the court for the purposes of the winding up of a close corporation under the Act.

Further that the ex-debito justitiae (from what is owed; as of right) rule does not apply where the unpaid debt which is relied on is bona fide disputed by the respondent.

In opposing the application, the respondents raised six points which the High Court extensively discussed and dismissed, thus laying down the requirements in an application for liquidation:

Security bond and service on the Master of the High Court and Master’s Certificate

The security should be provided prior to the hearing and not prior to the launching of the application and the Master’s Certificate may be filed even after hearing of the application but before judgment is delivered (Van Wyk v Windhoek Renovations [2021] NAHCMD 545 (23 November 2021). 

Service of process:  On the respondent and respondent’s employees and their trade unions and on the Receiver of Revenue

The court found that the respondent was duly served, and the application was properly before it. The court further found that the respondent made no allegations as to the existence of any employees and whether they were unionised.  It should be remembered, the requirement that such application is served on employees and trade unions is to protect any rights or benefits – whether preferential or not – that could enure in favour of employees upon the winding up of their employer.  Service of process on the employees or trade unions is therefore not for the benefit of the employer respondent.  The employees or their trade unions could do nothing in law – nothing at all – to stop the judicial winding up of the employer respondent. 

Considering the aforementioned purpose that service of process in such applications on employees or trade unions is to achieve, who better than the Labour Commissioner to receive such service? The Labour Commissioner has the appropriate resources to enquire and determine whether the respondent has employees and whether they are unionised.  And more importantly, the Labour Commissioner is well placed to advise any employees and trade unions free of charge as to their rights and benefits upon the winding up of the respondent.  Besides, the Receiver of Revenue and the Ministry of Finance were accordingly served.

The court further rejected the argument that although those public authorities were served, they were not cited as being weak. The respondent simply failed to resist the application on the merits.  The applicant sought no order against those public authorities; and what is more, an order to wind up the respondent will not be brutum fulmen (an ineffectual legal judgment), albeit the public authorities have not been cited but served with process.  For completeness, the court ordered that the order granted in this proceeding be served on the public authorities for their information.  

Absence of nulla bona return in respect of disposable property

The Act does not require a nulla bona return to be filed with the court for the purposes of the winding up of a close corporation under it.  What is relevant and required is income sufficient to satisfy the debt owed by the respondent to the applicant.  In its answering papers, the respondent made out no case tendering to establish that there was any cash or viable cash flow available to satisfy the debt. The court already found that the respondent was deemed unable to pay its debts. Despite allegations that it has been receiving rental on its property, none of those funds – if, indeed, they were received, were being paid to the respondent to be used to satisfy the debt.  Doubtless, a liquidator will be in a better position to investigate to whom the funds have been paid or by whom they have been dissipated, and then recover those funds for the benefit of the creditors (Laicatti Trading Capital Inc and Others v Greencoal (Namibia) (Pty) Ltd 2016 (2) NR 363 (HC) paras 31-32). 

Lis alibi pendens

In her submission, counsel for the respondents listed a number of matters involving the parties that were withdrawn and argued that the matters were not prosecuted ‘until their finality’.  The court stated that it does not lie in the province of the court to concern itself with counsel’s worry.  If the applicant qua plaintiff withdrew matters without tendering costs that should not bother the court.  The respondent qua defendant has an adequate remedy in terms of the rules of court.

Disputed claim amount

All that the applicant was required to establish is a debt of not less than N$200.  The debt proved to the satisfaction of the court was way higher than the prescribed minimum amount based on the loan agreement and the mortgage bond which were common cause between the parties.  The respondent did not place one iota of evidence before the court to dispute the debt which it owed to the applicant; neither did it allege that the debt was less than N$200.  Moreover, it did not dispute that the debt was owed and payable. It is not about the debt being disputed, but it is about the amount being disputed on bona fide and reasonable grounds for the court to take note of it and consider it (Klein v Caramed Pharmaceuticals (Pty) Ltd). The respondent did not dispute the indebtedness on bona fide and reasonable grounds.  The fact that the exact amount is disputed does not affect the situation unless there is proof that the indebtedness itself is disputed (Prudential Shippers SA Ltd v Tempest Clothing Co (Pty) Ltd and Others 1976 (2) SA 856 (W)). 

As to the charge of unconstitutionality of the balance certificate, the certificate is prima facie proof of indebtedness (Standard Bank of Namibia Ltd v Schameerah Court Number Seven CC and Others [2018] NAHCMD 378 (27 November 2018)). The bare denials of the amount owed cannot amount to bona fide and reasonable dispute of indebtedness. There was no sufficient and satisfactory proof of what in the respondent’s view it owed the applicant. The prima facie proof, in that regard, became conclusive and there was nothing ‘unconstitutional’ about that.

In any case, there are some 70 basic human rights protected by the Namibian Constitution. The respondent failed to prove in what manner the balance certificate violated all the 70 constitutional rights, or which one or which ones, in relation to it (Kauesa v Minister of Home Affairs and Others 1995 NR 175 (SC). In other words, the respondent failed to establish which constitutional right or rights it approached the court to vindicate. 

In this regard, the court stated that: 

‘[31] Without beating about the bush, I should say this.  Such absurd, ill-conceived and self-serving constitutional attack should be condemned by the court.  It is labour lost.  It does not conduce to a development of our constitutional law which has served us well in promoting the vindication of constitutional rights of individuals.  Such futile constitutional challenge is not permissible. And what [counsel for the respondent] overlooks is that the principle pacta sunt servanda is part of our law (Erongo Regional Council and Others v Wlotzkasbaken Home Owners Association and Another 2009 (1) NR 252 (SC). Indeed, what the respondent ‘avers is not established; it becomes a mere irrelevance’ ( Klein v Caramed Pharmaceuticals (Pty) Ltd footnote 1 para 13). In sum, the charge of unconstitutionality is unproven.  It is roundly rejected.’

Sabotage by the applicant

It was argued that the applicant sabotaged the Respondent in that there had been wrongful, unauthorized and fraudulent or unlawful deductions on the respondent’s accounts held with the applicant. Doubtless, the allegations of fraudulent and unlawful conduct against a Bank are serious.  The court, in fairness to both the respondent and the applicant, requires sufficient and satisfactory evidence from the accuser to prove what it alleges. On the evidence, it was unsafe and unsatisfactory to put any currency on the unproved allegations.  They are incapable of resisting the applicant’s claim.  

As a result, all the points in limine were rejected and the respondents in each matter were placed under final liquidation in the hands of the Master of the High Court. 

TiAuto Wholesalers (Pty) Ltd v Van Rensburg Holdings CC NAHCMD 1 July 2022 – Provisional liquidation of close corporation for failing to pay debts.  

The applicant launched an application whereby it sought the provisional liquidation of the respondent on the grounds that the respondent was unable to pay its debts and relied on section 68(1)(c) of the Close Corporation Act, 26 of 1988. The root of the application arose from a credit facility, whereby the applicant sold wheels and tyres to the respondent. The respondent allegedly breached the payment obligation to the applicant. The respondent opposed the application and in doing so raised three points, being firstly that the applicant failed to show that the respondent was indebted to it, secondly, that the respondent was unable to pay its debts as contemplated under section 68 of the Act and finally that the applicant failed to comply with section 69(1)(a) of the Act. The High Court discussed the provisional liquidation of CCs; being unable to pay debts in terms of section 68 (1) (c); the onus to show indebtedness and the consequences of failure to prove same in provisional liquidation proceedings (section 69 (1)(a), and held that.  

The provisions of section 69(1)(a) of the Act are peremptory (i.e., must) in requiring service of the demand by delivering it at the registered office of the CC and had the legislature intended to sanction other forms of service it would have made provision for them. 

strict compliance regarding service was a prerequisite for deeming the corporation to be unable to pay its debts.

The applicant failed to make out a prima facie case for the granting of a provisional order of winding up of the respondent on the ground that the respondent was unable to pay its debt.

As a result, the application for provisional liquidation was dismissed. 

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