THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
Case No:  64/07
NOT REPORTABLE

In the matter between:

MACRU FARMING CC                                                        APPELLANT

v

THE STANDARD BANK OF SOUTH AFRICA LTD      RESPONDENT

Coram:
Farlam, Van Heerden, Cachalia JJA

Heard:
11 March 2008

Delivered:  27 March 2008

Summary:
Appeal against the grant of a final winding-up order – whether High Court had failed
to investigate the surrounding circumstances that applicant had been improperly induced to institute
winding-up proceedings. Held that the facts showed no such inducement. Appeal dismissed.

Neutral citation:  This judgment may be referred to as Macru Farming CC v Standard Bank of
South Africa Ltd (64/2007) [2008] ZASCA 20 (27 March 2008).

CACHALIA JA
[1] This is an appeal against an order granted by Landman J in the Mmabatho
High Court confirming a provisional order for the appellant’s final winding-up.

[2] The respondent, as the appellant’s creditor, instituted urgent proceedings on 24
October 2005 to wind-up the appellant. It based its application on the appellant’s
inability to pay its debts as contemplated in s 68(c), read with s 69(1)(c) of the Close
Corporations Act 69 of 1984 (the CC Act). The matter came before Zwiegelaar AJ,
who granted a provisional winding-up order on 31 October 2005.

[3] When the matter came before Landman J on 15 December 2005, counsel for
the appellant conceded that the appellant was commercially insolvent and unable to
pay its debts. It nevertheless opposed confirmation of the rule on the ground that the
court should, in the exercise of its discretion in terms of s 347(1)1 of the Companies
Act 61 of 1973, read with s 66 of the CC Act, postpone the hearing to give it the
opportunity to sell its assets on its own and use the proceeds of the sale to settle its
debts. In effect, what the respondent contended for was an order entitling it to
liquidate its assets and to distribute the proceeds thereof amongst its creditors.

[4] The court below refused the request for a postponement and confirmed the
provisional order on 23 January 2006. The reasons given were:

‘(a)
The two major creditors, the applicant and Agri Feed Operations Limited, are opposed to the
request. They seek confirmation of the rule.
(b)
The realisation of the respondent’s immovable and movable assets is likely to be a complex
exercise which will take some time to be implemented.
(c)
More importantly, the exercise involving the realisation of those assets will be executed
privately and outside the control of the creditors.
(d)
The respondent has attempted to hold an auction on 10 November 2005. This was in conflict

1 Section 347(1):  ‘The Court may grant or dismiss any application under section 346, or adjourn the hearing thereof,
conditionally or unconditionally, or make any interim order or any other order it may deem just, but the Court shall not
refuse to make a winding-up order on the ground only that the assets of the company have been mortgaged to an amount
equal to or in excess of those assets or that the company has no assets.’

with the provisional liquidation order. The respondent’s actions support the proposition that
the realisation of the respondent’s assets should be done under the supervision of the Master
and in accordance with the procedure provided for the winding-up of estates.
(e)
There appears to be no prospect of saving the close corporation. Respondent intends selling
the land upon which farming operations are conducted as well as its farming implements and
equipment.’

[5] In the light of the appellant’s concession in the court below that it was
commercially insolvent and unable to pay its debts, it could not attack these reasons.
Instead, leave to appeal was sought and granted by Zwiegelaar AJ primarily on the
ground that Landman J, in exercising his discretion to grant the final winding-up
order, had failed to investigate the surrounding circumstances leading to the
appellant’s liquidation. The appellant contends that, had the court below done this
investigation, it would have established that the respondent had been improperly
induced to bring the application. If this contention were correct, it would follow that
by disregarding such circumstances, the court below had not properly exercised its
discretion when it placed the appellant under a final winding-up order. This court
would accordingly be at large to substitute its own discretion for that of the court
below.

[6] In this court counsel for the appellant had difficulty explaining the appellant’s
reliance on this ground of appeal when the remedy it had sought in the court below
was a postponement of the proceedings, not a discharge of the rule. For if the
respondent’s predominant motive or purpose was something other than the bona fide
bringing about of the appellant’s liquidation for its own sake, the appropriate remedy
to seek would have been that the rule be discharged.

[7] Be that as it may, the appellant now relies on the following ‘facts’ to support
its contention that the respondent obtained the winding-up order improperly:
7.1
The appellant’s former attorney disclosed privileged information to a
liquidator as a result of which rumours regarding the appellant’s financial

affairs circulated, causing the respondent to call up the overdraft facility;

7.2
the respondent failed to comply with its ‘Code of Banking Practice’,
which required it to take reasonable steps to develop a plan to assist the
appellant with its financial difficulties before resorting to liquidation.

[8] With regard to the first complaint, there is no suggestion on the papers that the
respondent procured any information from the errant attorney. Once it is accepted
that the appellant had indeed exceeded its overdraft facility with the respondent on
more than one occasion, and this is not disputed, the respondent was entitled to call it
up. The fact that there may have been ‘rumours’ circulating regarding the appellant’s
parlous financial situation does not detract from this entitlement.

[9] I turn to the second complaint – the respondent’s alleged failure to comply
with its ‘Code of Banking Practice’. The Code commits the bank to assist its clients
to develop a plan to deal with their financial difficulties, consistent with the bank’s
interest and its clients. It does not prevent the respondent from instituting liquidation
proceedings. The facts show that before instituting winding-up proceedings, the
respondent held a meeting with the appellant on 23 August 2005 to discuss the
latter’s precarious financial position. The appellant acknowledged its indebtedness to
the respondent and further agreed to the respondent perfecting the general notarial
bond which it had registered over all the appellant’s movable property in 2003. This
was done on 25 August 2005.

[10] On 29 August 2005 the appellant advised the respondent that it wished to sell
some of its movable assets so that it might liquidate amounts owed to its creditors.
The respondent subsequently advised the appellant’s attorneys that it was not
amenable to the appellant alienating any of its assets and also that it intended
launching winding-up proceedings. On 17 October 2005 the respondent learnt that
Agri Feed Operations Limited, the appellant’s other major creditor, had also launched

urgent proceedings to perfect its notarial bond.

[11] Against this background the respondent, on 24 October 2005, instituted urgent
winding-up proceedings, the urgency being created by the fact that the appellant
intended to sell certain of its assets. Had the impending sale gone ahead and the
movable assets which were the subject matter of the respondent’s notarial bond been
sold, the respondent would have lost its security. In addition, the general body of
creditors would have been prejudiced. In these circumstances it would have been
irresponsible for the respondent not to liquidate the appellant. The appellant’s
reliance on the Code is therefore misplaced.

[12] In my view the appellant’s attempt to impugn the conduct of the respondent
has no merit. Had the court below given consideration to the ‘facts’ referred to in
para 7 above, it would doubtless have come to the same conclusion.

[13] The appeal is dismissed with costs.

__________________
A CACHALIA
JUDGE OF APPEAL

CONCUR:

FARLAM JA
VAN HEERDEN JA

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal

Date:
27 March 2008

Status:
Immediate

Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal.

Macru Farming CC v Standard Bank of SA

The Supreme Court of Appeal today dismissed an appeal by Macru Farming
CC against an order of the Mmabatho High Court placing it under final winding-
up.

The facts, briefly, are that Macru had become commercially insolvent and was
unable to pay its debts. And because it had defaulted in meeting its payments to
Standard Bank the bank called up its overdraft facility. Thereafter the bank
learnt that Macru intended selling its assets on its own, which would have
meant that had the sale of the assets proceeded, the security which the bank
held over the Macru’s assets might have been lost. The bank therefore applied
for Macru to be liquidated.

On appeal Macru argued that the bank had been improperly induced to apply
for the liquidation. The Supreme Court of Appeal held that there had been no
evidence of such inducement. It accordingly dismissed the appeal.