THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable
Case No: 542/2016

In the matter between:

AFGRI OPERATIONS LIMITED

APPELLANT

and

HAMBA FLEET (PTY) LIMITED

RESPONDENT

Neutral citation:
Afgri Operations Ltd v Hamba Fleet Management (Pty) Ltd
(542/16) [2017] ZASCA 24 (24 March 2017)
Coram:

Leach, Theron, Petse, Willis and Dambuza JJA

Heard:

10 March 2017

Delivered:

24 March 2017

Summary: Company law : application for a final order of liquidation :  underlying
debt admitted by the respondent : no allegation that respondent solvent : respondent
not trading or conducting any business : respondent’s indebtedness  prima facie
established : onus on respondent  to show that indebtedness disputed on bona fide
and reasonable grounds : a counterclaim not in itself a reason for refusing an order
for the winding up of the respondent : final order winding-up the respondent granted.

ORDER

On appeal from: The Gauteng Division, Pretoria (Mabuse J sitting as the court of
first instance).

(a) The appeal is upheld.
(b) The order of the High Court is set aside and replaced with the following:
‘The respondent is placed under a final winding-up order in the hands of the
Master.’
(c) The appellant’s costs in the appeal and in the application before the High
Court are to be costs in the liquidation of the respondent.

JUDGMENT
___________________________________________________________________
Willis JA (Leach, Theron, Petse and Dambuza JJA concurring):

[1] The appellant, the applicant in the court a quo, applied for a final order of
liquidation of the respondent. That court (Mabuse J) dismissed the application with
costs but granted leave to appeal to this court.

[2] The appellant had obtained a judgment for costs against the respondent on 4
February 2014. These costs were, by agreement between consultants employed by
the parties, taxed in an amount of R156 796.64. The respondent failed to discharge
this debt owed to the appellant. The appellant then brought an application to wind up
the respondent on the basis that the respondent was unable to pay its debts within
the meaning of s 345(1)(a), read with s 344(f) of the Companies Act 61 of 1973 (the
old Companies Act). Other than to present a bald denial that it is insolvent, the
respondent did not dispute the underlying debt and that it had failed to pay it. In
addition, the issues of whether demand had been given by the appellant to the

respondent in terms of s 345 of the old Companies Act and the failure of the
respondent to satisfy that demand, were not in dispute.

[3] The court a quo dismissed the application for the winding-up of the
respondent solely on the basis that it had a counterclaim against the appellant. The
counterclaim arises from allegedly unlawful transfers in an amount in excess of
R22 million that the appellant had made from the respondent’s bank account during
the period 12 November 2003 to 22 March 2006. These transfers were alleged to
have taken place while the appellant had been managing the affairs of the
respondent in terms of a ‘Management Agreement’. The summons in respect of this
claim had been issued on 10 March 2009 but had not been pursued by the
respondent. Not only is the claim illiquid but also the summons was not even
attached to the respondent’s answering affidavit.

[4] The respondent made no allegation that it was either factually or
commercially solvent. It is common cause that the respondent was not trading or
conducting any business at the time of the application for its winding-up. The
respondent also admits that it has no assets but places the blame for this on the
appellant. Most significantly, as previously mentioned, the underlying debt, giving
rise to the application for the winding-up of the respondent, was not in dispute.
Indeed, it was admitted by the respondent.

[5] In dismissing the application for the winding-up of the respondent, the court a
quo relied upon the exercise of its discretion. In its judgment it said:
‘To conclude on this point I accept that in South African law, as in English law, the power of
the Court to grant a winding-up order is discretionary, irrespective of the grounds on which
such order is sought.’
A little later on, it said:
‘Quite clearly the applicant has a number of concerns against the respondent’s action. I have
noted those concerns but under the circumstances this Court is not at liberty to deal with
them or the respondent’s claims at this stage and in this proceedings.’ (Emphasis added.)
The questions that therefore arise in this appeal are: (a) may this court interfere with
the exercise of its discretion and, if so (b) should it do so?

[6] It is trite that winding-up proceedings are not to be used to enforce payment
of a debt that is disputed on bona fide and reasonable grounds.1 This is known as
the so-called ‘Badenhorst rule’.2 Where, however, the respondent’s indebtedness
has, prima facie, been established, the onus is on it to show that this indebtedness is
indeed disputed on bona fide and reasonable grounds.3

[7] The existence of a counterclaim which, if established, would result in a
discharge by set-off of an applicant’s claim for a liquidation order is not, in itself, a
reason for refusing to grant an order for the winding-up of the respondent but it may,
however, be a factor to be taken into account in exercising the court’s discretion as
to whether to grant the order or not.4

[8] The court a quo was much influenced by a series of English cases in which it
has been held that a ‘genuine’ cross-claim, the equivalent of our counterclaim,  is a
matter which may justify the exercise of a discretion against making a winding-up
order. It relied, in particular, on Re: Portman Provincial Cinemas Ltd5 and Re: Bay
Oil Seawind Tankers Corp v Bay Oil SA6 and the authorities therein cited. The
difficulty is, of course, encapsulated in Plascon-Evans Paints Ltd v Van Riebeeck
Paints (Pty) Ltd,7 with which every lawyer must be familiar: how does one decide

1 See Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T) at 347-348 and
Kalil v Decotex (Pty) Ltd & another 1988 (1) SA 943 (A) at 980D.
2 Ibid. See also  ‘Winding-up proceedings ought not to be resorted to in order by means thereof to
enforce payment of a debt, the existence of which is bona fide disputed by the company on
reasonable grounds; the procedure for winding-up is not designed for the resolution of disputes as to
the existence or non-existence of a debt.’ P M Meskin et al; Henochsberg on the Companies Act 5 ed
Vol 1 at 693-694.
3 See for example Kalil v Decotex (supra) at 980C; Meyer NO v Bree Holdings (Pty) Ltd 1972 (3) SA
353 (T) at 354-355;  Badenhorst v Northern Construction Enterprises (Pty) Ltd (supra)  at 348B;
Machanick Steel & Fencing v  Wesrhodan (Pty) Ltd;  Machanick Steel & Fencing v Transvaal Cold
Rolling  (Pty) Ltd  1979 (1) SA  265 (W) at  269B; Kyle v Maritz & Pieterse Inc [2002] 3 All SA 223 (T)
at 226; Exploitatie- en Beleggingsmaatschappij Argonauten 11 BV & another v Honig 2012 (1) SA 247
(SCA) at para 11 and  Ricoh South Africa (Pty) Ltd v Bula Document Solutions (Pty) Ltd (31095/2012)
[2014] ZAGPPHC 187 (2 April 2014) para 22.
4 See Re: LHF Woods Ltd [1970] Ch 27 (CA); [1969] 3 All ER 882 (CA); Ter Beek v United Resources
CC & another 1997 (3) SA 315 (C) at 333H and Ricoh v Bula Document Solutions (supra) para 25.
5 Re: Portman Provincial Cinemas Ltd (1964) 108 SJ 581, CA.
6 Re: Bay Oil Seawind Tankers Corp v Bay Oil SA (1969) 3 All ER 882.
7 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A) at 634-635. See also
Fakie NO v CCII Systems (Pty) Ltd 2006 (4) SA 326 (SCA) para 55; Thint (Pty) Ltd v National Director
of Public Prosecutions & others; Zuma v National Director Public Prosecutions & others 2009 (1) SA
(CC) paras 8 to 10; Zuma National Director of Public Prosecutions 2009 (2) SA 277 (SCA) para 26.

whether a disputed counterclaim is ‘genuine’, when applications for winding-up are,
in the ordinary course, brought by way of motion proceedings?8

[9] Indeed, it is precisely by reason of the fact that a court may first make a
provisional order of liquidation that in Kalil v Decotex (Pty) Ltd,9 a different test was
applied from that in Plascon-Evans when setting out the circumstances that would be
sufficient to justify the making of such an order of liquidation.10 It is that the affidavits
must demonstrate a prima facie case in favour of the applicant.11 It may bear
repeating that Plascon-Evans is the locus classicus as to the test in the factual
enquiry before a final order can be made in motion proceedings.12

[10]  Ms Stein, who appeared for the appellant, submitted that Portman Provincial
Cinemas had been wrongly decided (in the sense that it did not correctly reflect the
position in English law) and that, in any event, it would be incorrect for a South
African court to apply the English law in the matter, as our law is already clear in this
regard. It is unnecessary, in the present case, to decide either point because the
respondent does not even get past the post: its desultory pursuit of its counterclaim
has the consequence that is has failed to discharge the onus of satisfying the court
of the ‘genuineness’ thereof.

[11] As to the general principles concerning the exercise of a discretion by a court,
the Constitutional Court’s judgment in National Coalition for Gay and Lesbian
Equality & others v the Minister of Home Affairs & others has made it clear that an
appeal court will not interfere with a lower court’s discretion unless that court was
influenced by wrong principles or a misdirection of the facts or if that court reached a
decision the result of which could not reasonably have been made by the court
properly directing itself to all the relevant facts and principles.13 The court a quo was
mindful of the fact that its discretion must be ‘exercised on judicial grounds’.

8 See also Paarwater v South Sahara Investments (Pty) Ltd [2005] 4 All SA 185 (SCA) para 4.
9 Kalil v Decotex (Pty) Ltd 1988 (1) SA 943 (A).
10 At 979.
11 Ibid.
12 At 634H-I.
13 National Coalition for Gay and Lesbian Equality & others v Minister of Home Affairs & others 2000
(2) SA 1 (CC) para 11.

[12] Notwithstanding its awareness of the fact that its discretion must be
exercised judicially, the court a quo did not keep in view the specific principle that,
generally speaking, an unpaid creditor has a right, ex debito justitiae, to a winding-up
order against the respondent company that has not discharged that debt.14 Different
considerations may apply where business rescue proceedings are being considered
in terms of Part A of chapter six of the new Companies Act 71 of 2008.15 Those
considerations are not relevant to these proceedings. The court a quo also did not
heed the principle that, in practice, the discretion of a court to refuse to grant a
winding-up order where an unpaid creditor applies therefor is a ‘very narrow one’ that
is rarely exercised and in special or unusual circumstances only.16

[13] As mentioned above, mere recourse to a counterclaim will not, in itself, enable
a respondent successfully to resist an application for its winding-up. Moreover, as set
out above, the discretion to refuse a winding-up order where it is common cause that
the respondent has not paid an admitted debt is, notwithstanding a counterclaim, a
narrow and not a broad one. In these respects the court a quo applied ‘the wrong
principle[s]’. There must be no room for any misunderstanding: the onus is not
discharged by the respondent merely by claiming the existence of a counterclaim.
The principles of which the court a quo lost sight are: (a) as set out in Badenhorst
and Kalil, once the respondent’s indebtedness has prima facie been established, the
onus is on it to show that this indebtedness is disputed on bona fide and reasonable
grounds and (b) the discretion of a court not to grant a winding-up order upon the
application of an unpaid creditor is narrow and not wide.

14 See De Waard v Andrew & Thienhaus Ltd 1907 TS 727 at 733;  Service Trade Supplies ltd v Dasco
& Sons Ltd 1962 (3) SA 424 (T) at  428B-D, to which reference was made, with approval, by this court
in Sammel & others v President Brand Gold Mining Company Ltd 1969 (3) SA 629 (A) at 662F. Ex
debito justitiae means ‘as a right arising out of the justice of the matter’. As Rogers J said in
Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investment Holdings (Pty) Ltd & another 2015 (4)
SA 449 (WCC) para 18, a court ‘does not sit under a palm tree’ - per Warner J in Re Cade & Son Ltd
[1992] BCLC 213 at 227.
15 See for example Absa Bank Ltd v New City Group (Pty) Ltd (45670/2011); Cohen v New City Group
(Pty) Ltd and Another (28615/2012) [2013] 3 All SA 146 (GSJ) . See also Richter v Absa Bank Ltd
2015 (5) SA 57 (SCA). Safari Thatching Lowveld CC v Misty Mountain Trading 2 (Pty) Ltd 2016 (3)
SA 209 (GP) at para 16; Standard Bank of South Africa v A-Team Trading CC 2016 (1) SA 503 (KZP)
para 14.
16  See for example Service Trade Supplies (Pty) Ltd v Dasco & Sons (Pty)  Ltd 1962 (3) SA 424 (T)
at 428B;  First Rand Bank Ltd v Evans 2011 (4) SA 597 (KZD) para 28; Orestisolve (supra)  para 18
and Victory Parade Trading 74 (Pty) Ltd t/a Agri-Best Sa v Tropical Paradise 93 (Pty) Ltd t/a Vari
Foods (13641/2006) [2007] ZAWCHC 32; [2007] JOL 200096 (C) para 28.

[14] Mr Omar, who appeared for the respondent, accepted that this was a correct
statement of the law. In other words, he accepted that once the appellant had
demonstrated that the respondent was prima facie indebted to it, it was for the
respondent to establish that it disputed that indebtedness on bona fide and
reasonable grounds. He also accepted that, once the respondent’s indebtedness to
the appellant had been shown, the discretion to refuse a winding-up order was a
narrow one. He submitted, however, that by reason of the Bill of Rights in the
Constitution and, in particular s 22 (the right to trade) and s 34 (the right to a fair
hearing before a court) contained therein, it would be ‘unconstitutional’ for a court to
apply a narrow discretion, rather than a broad one, when it comes to deciding
whether or not to grant a final order of liquidation. For the reasons that follow it is
unnecessary to reach a decision on the issue.

[15] There may indeed be cogent reasons for the doors of the courts to be wide
open when it comes to any matter affecting human rights. One searches the
respondent’s affidavit in vain, however, for any human right that may be adversely
affected by the grant of a final order for its liquidation. It does not appear to be
trading. There is not even an allegation that jobs will be lost as a result of its
liquidation. Indeed, in its answering affidavit, the respondent did not assert any of the
rights contained in the Bill of Rights.

[16] In coming to its conclusion, the court a quo was influenced by Ter Beek v
United Resources CC & another.17 In that case, the court affirmed that the applicant
bore the onus of showing that the respondent was indebted to it and that the
respondent bears the onus of demonstrating that the indebtedness was disputed on
bona fide and reasonable grounds.18 It then went on to find that  it was not satisfied
that the applicant had  discharged the onus of showing that the respondent should
be wound up on the basis that it was just and equitable but nevertheless granted a
final order of liquidation.19 To the extent that Ter Beek is inconsistent with the
reasoning in this judgment, it should not be followed.

17 Ter Beek v United Resources CC & another 1997 (3) SA 315 (C).
18 At 337I-J.
19 At 341C-D.

[17]  The question of onus is indeed critically relevant in a case such as this. It
bears repeating that once the respondent’s indebtedness to the applicant for a
winding-up order has, prima facie, been established, the onus is on it, the
respondent, to show that this indebtedness is indeed disputed on bona fide and
reasonable grounds.20 If one accepts the test set out in the English cases upon
which the respondent has relied, the respondent would have to show that its
counterclaim was ‘genuine’.

[18] As mentioned earlier, in this particular case the inertia of the respondent in
pursuing its right of action alleged in the counterclaim generates a considerable
sense of unease about the genuineness of its contestation. There are other relevant
factors too: the illiquidity of the claim, the failure even to attach the summons, the
failure to respond to the s 345 demand, the lack of any indication that the respondent
may be solvent and the fact that the respondent does not appear to be trading. It has
therefore failed to discharge the onus of demonstrating that its indebtedness to the
appellant has indeed been disputed on bona fide and reasonable grounds. This court
is therefore entitled to interfere with the discretion exercised by the court a quo. The
correct order would have been to have placed the respondent in liquidation.

[19]   There was a short debate before us as to whether it would have been the
better exercise of its discretion for the high court to have preceded the making of a
final order of liquidation with a provisional one. Incontestably, the appellant had
established a prima facie case for the liquidation of the respondent and therefore a
right to a provisional order. As to the extent to which the courts will incline to taking
the precaution of first granting a provisional order of liquidation, rather than a final
one, it would seem that there is some degree of regional variance and that the
matter is perhaps even affected by the individual preferences among judges.21 The
passage of time since the original hearing of this matter and the full ventilation of the
issues that has since taken place render it inappropriate for this court now to
substitute the order of the high court with a provisional order. Above all, the appellant
has satisfied the requirements for the grant of a final order of liquidation, which was

20 See, for example, Badenhorst v Northern Construction Enterprises (Pty) Ltd (supra) at 347-348
Kalil v Decotex  (supra) at 980B-C.
21 See Johnson v Hirotec (Pty) Ltd 2000 (4) SA 930 (SCA) para 9.

the relief that it had sought in the first instance. Following Johnson v Hirotec (Pty)
Ltd,22 it will be appropriate for this court to direct the issue of a final order.

[20] Ms Stein asked that the costs of two counsel be allowed, in the event that the
appeal was successful. The matter is not complex. The record is short. The amount
in question is not particularly large. A fair exercise of the discretion in regard to costs
would not be to allow the costs of two counsel.

[21]  The following order is made:
(a)
The appeal is upheld.
(b)
The order of the High Court is set aside and replaced with the
following:
‘The respondent is placed under a final winding-up order in the hands of the
Master.’
(c)
The appellant’s costs in the appeal and in the application before the
High Court are to be costs in the liquidation of the respondent.

______________________

N P WILLIS
Judge of Appeal

22 Johnson v Hirotec (Pty) Ltd 2000 (4) SA 930 (SCA) para 9. See also Kalil v Decotex (supra) at
976A-B.

APPEARANCES:

For Appellant:
S Stein SC (with her L Sisilana)
Instructed by:
Fluxmans Inc, Johannesburg
Lovius Block, Bloemfontein

For Respondent:

Mr Z Omar
Instructed by:
Zehir Omar Attorneys,
c/o Liebenberg Malan Liezel Horn Inc, Pretoria
EG Cooper Majiedt Attorneys, Bloemfontein