When is it “otherwise just and equitable” to wind up a solvent company (or close corporation) in terms of section 81(1)d(iii) of the Companies Act, 2008? Generally, section 81(1)d of the Act provides that a company may be wound up by a court at the instance of a director or a shareholder, or the company itself.
Three instances are specified in the Act under this section, the first being where the directors are deadlocked in the management of the company, which shareholders are unable to break and which could result in irreparable harm, or where the company’s business cannot be conducted to the benefit of shareholders. The second is where the shareholders are deadlocked and have failed for at least two consecutive annual general meetings to elect successors to directors whose terms have expired.
The third instance is where it is otherwise just and equitable for the company to be wound up. In the case of De SA Miranda v True Ruby Trading 1035 CC and another heard in the Western Cape High Court, True Ruby was a close corporation with 2 members, De Jesus (78% members interest) and De Sa Miranda (22% members interest).
De Sa Miranda applied for the winding up of True Ruby alleging that:
• The parties did not communicate for approximately a decade, and the CC did not comply with its basic tax and accounting obligations;
• De Jesus disputed his entitlement to be a member of the CC and purported the parties had signed an agreement in terms of which De Sa Miranda had to exit the CC and transfer his members interest to him (the court did not agree with De Jesus’ version).
• De Jesus had refused to allow him to participate in the management of True Ruby and failed to pay the De Sa Miranda’s share of True Ruby’s income for more than a decade.
The court considered that when a provisional winding up order is sought, an applicant is only required to show that his version is more probable. In making a determination for winding up, however, that a court should be satisfied that all alternatives have been investigated and have failed. De Jesus could also not buy out De Sa Miranda’s member’s share.
The court found, on the balance of probabilities, that De Sa Miranda had made a case for the just and equitable winding up of True Ruby, as it appeared the trust relationship between the parties had been irremediably destroyed. A provisional order of winding up was granted and a rule nisi was issued calling on interested persons to show cause as to why it should not be made final.
Telephone: +27 31 570 5371, email: rishal.bipraj@gb.co.za
