by DIRK KOTZE
The use of a statutory letter of demand in terms of section 345 (1)(a) of the old Companies Act 61 of 1973 (“the Act”) to collect outstanding debts of R100.00 (one hundred rand) or more payable by Companies is an established commercial recovery procedure which has survived the new Companies Act 71/2008. Its effectiveness lies in the threat of a liquidation application based on the deeming provisions of section 345 relating to commercial insolvency.
It is trite law that commercial insolvency, being the inability of a company to pay its debts as it becomes due and payable, justifies the liquidation of a company. Factual solvency in itself is not a bar to an application to wind-up a company on the ground that it is commercially insolvent. When faced with a section 345 demand based on an amount that is allegedly due and payable, the options of a company are limited. Either pay, secure or settle the amount claimed to the satisfaction of the creditor or alternatively, show on a balance of probability that the alleged indebtedness is disputed on bona fide and reasonable grounds. If the company neglects to adequately respond to a secton 345 demand it will run the risk of being deemed to be unable to pay its debts and ultimately face a liquidation application based on its deemed commercial insolvency.
If a company elects to dispute the alleged indebtedness it must send a detailed response within the three weeks allowed for under section 345 (1) (a) of the Act recording the basis upon which the alleged liability to pay is disputed, mindful also of the legal principles that will apply, if a liquidation application is to follow. What are these legal principles?
First and foremost is the Badenhorst rule, which rule finds its application in a scenario where a claim is disputed. Under this rule, liquidation proceedings are not intended to be used as a means of deciding claims which are bona fide and reasonably disputed. Its foundation lies in the fact that court will not entertain factual disputes in application proceedings because of the need to hear oral evidence to properly adjudicate the factual disputes. An application for liquidation will thus fail if the alleged liability to pay is disputed on bona fide and reasonable grounds.
What constitutes a bona fide and reasonable defence will be determined by the relevant facts presented to Court. Insofar as presenting facts in support of its defence, it is important for the debtor company to “allege facts which, if approved at a trial, would constitute a defence to the claims against the company.. subject of course to the qualifications.. and in particular, to the Court being satisfied of their bona fides..”.
Insofar as assesment of bona fides by a Court is concerned, it is important to bear in mind that, “..if the defence is averred in a manner which appears in all the circumstances to be needlessly bald, vague or sketchy, that will constitute material for the Court to consider in relation to the requirement of bona fides.”
It is important to distinguish between two of the defences which a debtor may raise in opposition to a creditor’s claim. The one being an attack upon the substance of the creditor’s claim which is disputed on bona fide and reasonable grounds and the other, to raise a genuine and serious counterclaim in excess of the creditor’s claim which will extinguish the claim. A factual foundation must of course exist for a debtor company to even consider using such a defence or counterclaim.
In the event of an alleged counterclaim, the creditor’s claim is not in issue and the purpose of such a defence will be to extinguish the debt by virtue of set-off. If the counterclaim is a bone fide and reasonable liquid claim then the use of it to oppose a liquidation application will succeed.
The question however is what happens when the debtor company raises a un-liquidated counterclaim for damages to oppose a liquidation application? An un-liquidated claim for damages will only become due and payable once judgement has been pronounced on it pursuant to a trial. Does this preclude the use of this defence to oppose a liquidation application? The answer is NO. It is however important to bear in mind that if such a defence is raised, it should be set-out with sufficient particularity for a Court to find that there exists a reasonable possibility that it will extinguish the creditors’s claim. In such circumstances it would be prudent to provide a breakdown or quantification of the un-liquidated counterclaim together with supporting vouchers. As Davis J pointed out in the recent case of Tiador CC and Other vs Rock Construction CC, the key point to consider is how genuine is the counterclaim.
Directors of debtor companies who neglect to give section 345 letters of demand the respect and attention it deserves, do so at their own peril and may ultimately end up having to fight for the commercial life of the Company by having to prepare and file court papers to oppose a liquidation application based upon the deeming provision in section 345.
Dirk Kotze (BA LLB, LLM) is an attorney at Dirk Kotze Attorneys in Stellenbosch www.dirkkotze.co.za
See Scania Finance Southern Africa (Pty)Ltd v Thomi-Gee Road Carriers CC & Another 2013(2) SA 439
See Firstrand Bank Limited vs Vecto Trade 68 (Pty) Ltd
See wording of section 345
Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T) at 347H-348C
See Hulse Reutter & Another vs HEG Consulting Enterprises (Pty)Ltd 1998 (2) SA 208 (C) at 219F-220C
The often quoted words of Colman J in Breitenbach v Fiat SA (Edms) Bpk 1976(2) SA 226 (T) at 228
See ABSA Bank Ltd vs Erf 1252 Marine Drive (Pty)Ltd 2012 ZAWCHC 43
2014 ZAWCHC case no 21088/2013
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.