RESERVED JUDGMENT Delivered on: 28 March 2008

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1 IN THE HIGH COURT OF SOUTH AFRICA NATAL PROVINCIAL DIVISION 1659/07 MEHMOOD SADER APPLICANT versus WARDA BUTCHERY CC T/A RS BUTCHERY RESPONDENT RESERVED JUDGMENT Delivered on: 28 March 2008 NTSHANGASE, J [1] This is an application for the liquidation of the respondent, a close corporation in terms of section 68(d) of the Close Corporations Act No. 69 of 1984 [ the Act ] on the ground that a deadlock between members of the respondent makes it just and equitable that the respondent be wound up. In opposition to the application it is contended that there are no grounds for liquidating the respondent in terms of section 68(d) of the Act. Certain points in limine taken on behalf of the respondent in respect of non joinder of the members of respondent, lack of notice to creditors and urgency yielded to argument advanced by Mr Snyman on behalf of the applicant. [2] The sole members of the respondent are applicant, his brother Imran Abdool Kader Sader [ Imran ] and their mother. The applicant and his brother Imran each have a 33% members interest in the respondent, and their mother s is 34%. This position has prevailed from 17 August

2 when applicant s and Imran s father died. [3] The respondent operates a butchery business. Applicant s and Imran s father had operated that business in sole ownership for some time until the end of 1992 when the respondent was founded and assumed its ownership. After the death of their father applicant and Imran engaged in specific operations in the conduct of the business. Their wives, Shanaaz and Sarah were also engaged as employees of the respondent. [4] It is common cause that there presently exists a deadlock between applicant and Imran. There may have been an undercurrent of discord based on applicant s averred earlier perception that Imran and his wife Sarah had become greedy and wanted the whole business for themselves and made it clear that applicant and his wife were not welcome in the business. Although such discord may have simmered within the applicant it did not ignite. What was to culminate in the present deadlock in the relationship between applicant and Imran started in 2003 when applicant entered into a clandestine love relationship with another woman who, some time later, became his second wife in terms of Islamic laws. It is common cause that Imran s wife, Sarah discovered the clandestine relationship and confronted the applicant about it and insisted on disclosing its existence to Shanaaz for the reason given by Imran to be that it obviously affected the relationship between applicant and Shanaaz in the business. How it affected the relationship when Shanaaz at that stage did not even know about it was not stated. As it appears that Shanaaz was not yet aware of the relationship, the purpose of her intended disclosure thereof to Shanaaz is difficult to understand. It is equally difficult to understand how it would help to eliminate the clandestine relationship s adverse effect, if any at all, in 2

3 the conduct of the business. I find no acceptable reason for what applicant aptly describes as her nosiness in his personal affairs. [5] Applicant states that Imran and Sarah kept on arguing, interfering and fighting with (him) and it later became unbearable in the shop. He also states that because of the tension in the butchery he eventually left the business at the end of March The applicant again does not provide detail as to what applicant and Sarah argued about; nor does he provide detail of the nature of interference and the fights with him. Whether such fighting took the form of physical evidence or some other form is not disclosed. The detail about his arguments, interference and fighting with him should have been disclosed for assessment of the reasonableness or otherwise of his reaction thereto. Sarah s prying into his clandestine relationship, vexatious through it could have been, cannot properly be regarded as reasonable cause for applicant s decision to leave respondent s business; nor can any turbulence in applicant s relationship with his wife which may have resulted from the later revelation of the clandestine relationship be regarded as reasonable cause for doing so. It clearly lends force to Imran s contention that the applicant forsook his fiduciary duties with respondent as a result of a displacement of focus and interest in order to nurture his new found love. Therein lies the cause of the deadlock. When the applicant, without just cause, forsook his fiduciary duties as a member of the respondent he acted in violation of the following provisions of section 42(2) of the Act: Without prejudice to the generality of the expression fiduciary relationship, the provisions of subsection (1) imply that a member a) shall in relation to the corporation act honestly and in good faith, and in particular 3

4 i) shall exercise such powers as he or she may have to ii) manage or represent the corporation in the interest and for the benefit of the corporation; and shall not act without or exceed the powers aforesaid [6] The applicant sates that he thought he would just take some time and sort out his personal and domestic problems before returning to the business. In regard to his absence Imran states that what the applicant does not inform the court about is that from October 2004 to October 2005 he was employed by their other brother Ebrahim Abdool Kader Sader at KwaManzini Butchery, which, according to Imran, confirmed his loss of interest in working in the business of the respondent. In reply, applicant states that the reason for working at KwaManzini Butchery was that Imran made it impossible for (him) to go back to the respondent. I shall deal with this specific response later. [7] Applicant charges Imran and his wife with excluding him from running the business, contrary to the following provisions of section 46(a) and (b) of the Act: Every member shall be entitled to participate in the carrying on of the business of the corporation; b) subject to the provisions of section 47, members shall have equal rights in regard to the management of the business of the corporation and in regard to the power to represent the corporation in the carrying on of its business [8] It is correct that when the applicant returned to the business Imran by his 4

5 own admission took steps to prevent applicant s resumption of participation in the carrying on of the business. When Imran did so, he simply acted in terms of an acceptance of applicant s repudiation of the understanding between members that applicant, as is expected of respondent s members, would participate in the running of the business. He had abandoned the business for approximately 2½ years. The potential casualty to that abandonment was the business. Acting as he did in terms of the acceptance of applicant s repudiation, Imran s conduct was, in my view, not wrongful. [9] I now revert to his response in regard to his employment at KwaManzini Butchery in 2004 to The applicant is being untruthful when, in reply to Imran s averment that he worked from 2004 to 2005 at KwaManzini Butchery he states that Imran made it impossible for (him) to go back to the respondent as, in that period, applicant had neither shown a desire to return to the business nor attempted to return to the business until Referring to the impasse and the destruction of trust between them the applicant states: This occurred at the time when I left the business in 2004 and gained momentum again when I attempted to get back into the business in (my emphasis) Applicant states that he decided to go back to the business in February 2006 after Imran had told Shanaaz that he (Imran) could no longer provide for her and applicant s four children and that she had to leave the business. In that regard the applicant, in his founding affidavit further states: I cannot support her and the four children because I am also without 5

6 an income, and therefore I decided to go back to the business to work and to earn an income, with which I could support Shanaaz and our four children. (my emphasis). That decision was in From the foregoing it is quite clear that the applicant, contrary to his contention, excluded himself from participating in the carrying on of the business of the respondent. In that regard applicant was clearly wrongfully responsible for the resultant deadlock. This is one reason why the applicant s application must fail for, as stated by Leon J in Emphy and Another v Pacer Properties (Pty) Ltd 1979(3) SA 363(D) at 368H: an applicant who relies upon the first and equitable provision must not have been wrongfully responsible for the situation which has arisen. [10] In regard to the question of entitlement to a winding up order under the just and equitable provision by reason of the existence of a deadlock, I am in respectful agreement with the following dictum from the judgment of Leon J in Emphy and Another supra at 369A: I am satisfied that the mere existence of a deadlock does not per se entitle an applicant to a winding up order under the just and equitable provision. What requires to be emphasised is that the court is concerned with what is just and equitable and not with whether there is a deadlock or not. The existence of a deadlock is one example of what might be regarded in a proper case as just and equitable but a court must always have regard to all the circumstances of the case. (my emphasis) 6

7 [11] This brings me to the second reason why the application must fail. The following are some of the factors worthy of consideration: i) The desire to wind up the respondent is applicant s alone to suit his circumstances. There is no mistrust, tension or deadlock between Imran and their mother who, together hold a 67% members interest in the respondent. Such an order as is sought would unfairly prejudice Imran and their aged mother by nullifying the financial benefit that their mother derives from her member s interest as well as that which Imran, his wife and children derive from the operation of the business. The employee breadwinners families and their dependants would suffer a similar fate; ii) It appears that the business has, for a considerable time, been conducted soundly and in solvent circumstances with a benefit of a pricing structure which makes it accessible even to the disadvantaged sector of the community. That too will be lost. [12] Another reason why the application must fail is that if the applicant has just cause for complaint he is not without a remedy alternative to a winding up order. The provisions of s36 and s49 of the Act are available to him. They read as follows: 36(1) On application by any member of a corporation a Court may on any of the following grounds order that any member shall cease to be a member of the corporation: (a) subject to the provisions of the association agreement (if any), that the member is permanently incapable, because of unsound mind or any other reason, of 7

8 performing his part in the carrying on of the business (b) of the corporation; that the member has been guilty of such conduct as, taking into account the nature of the corporation s business, is likely to have a prejudicial effect on the carrying on of the business; (c) that the member so conducts himself in matters relating to the corporation s business that it is not reasonably practicable for the other member or members to carry on the business of the corporation with him; or (d) that circumstances have arisen which render it just and equitable that such member should cease to be a member of the corporation; Provided that such application to a Court on any ground mentioned in paragraph (a) or (d) may also be made by a member in respect of whom the order shall apply. (2) A Court granting an order in terms of subsection (1) may make such further orders as it deems fit in regard to a) the acquisition of the member s interest concerned by the corporation or by members other than the member concerned; or b) the amounts (if any) to be paid in respect of the 8

9 member s interest concerned or the claims against the corporation of that member, the manner and times of such payments and the persons to whom they shall be made; or c) any other matter regarding the cessation of membership which the Court deems fit. 49(1) Any member of a corporation who alleges that any particular act or omission of the corporation or of one or more other members is unfairly prejudicial, unjust or inequitable to him, or to some members including him, or that the affairs of the corporation are being conducted in a manner unfairly prejudicial, unjust or inequitable to him, or to some members including him, may make an application to a Court for any order under this section. (2) If on any such application it appears to the Court that the particular act or omission is unfairly prejudicial, unjust or inequitable as contemplated in subsection (1), or that the corporation s affairs are being conducted as so contemplated, and if the Court considers it just and equitable, the Court may with a view to settling the dispute make such order as it thinks fit, whether for regulating the future conduct of the affairs of the corporation or for the purchase of the interest of any member of the corporation by other members thereof or by the corporation. [13] In the result I make the following order: 9

10 The application is dismissed with costs. 10

11 Date of Hearing: 3 March 2008 Date of Judgment: 28 March 2008 Counsel for the applicant: Instructed by: Adv CJ Snyman Steenkamp Weakley Ngwane Counsel for the first respondent: Instructed by: Adv AE Potgieter Bayat Sader and Partners c/o Ayoob Attorneys 11

Sectional Titles Schemes Management Act, 8 of and. Sectional Titles Schemes Management Regulations, 2016

Sectional Titles Schemes Management Act, 8 of 2011 and Sectional Titles Schemes Management Regulations, 2016 This Act and the associated Regulations have been reproduced by ANGOR Property Specialists (Pty)