THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Not reportable
Case No: 1323/2018

In the matter between:

THOMAS CHRISTOPHER VAN ZYL NO                                             FIRST APPELLANT
LAILA ENVER MOTALA NO                                                            SECOND APPELLANT

and

OFF THE SHELF INVESTMENTS
SEVENTY EIGHT (PTY) LIMITED                                                                              RESPONDENT

Neutral citation: Van Zyl & another v Off the Shelf Investments Seventy Eight (Pty) Ltd
(1323/2018) [2019] ZASCA 175 (2 December 2019)

Coram:
Navsa, Mbha and Van der Merwe JJA and Tsoka and Koen AJJA
Heard:
21 November 2019
Delivered:
2 December 2019

Summary:   Companies – provisional liquidation – creditor relied on a debt owed to it
by respondent as reflected in the latter’s financial statements – respondent disputed
accuracy of its financial statements – held that financial statements correctly reflected
debt owed to creditor – provisional liquidation ordered.

_____________________________________________________________________

ORDER

On appeal from: Western Cape Division of the High Court, Cape Town (Langa AJ
sitting as court of first instance):
1  The appeal is upheld.
2  The order of the court a quo is set aside and replaced with the following:
‘(a)  The respondent is placed under a provisional order of winding-up in the hands of
the Master of the Western Cape Division of the High Court, Cape Town (high court).
(b)  A rule nisi is issued calling upon the respondent and all interested parties to show
cause, if any, to the high court on 13 January 2020 at 10h00, as to why:
(i)   the respondent should not be placed under a final order of winding-up; and
(ii)  the costs of this application (including the costs of two counsel) should not be costs
in the winding-up of the respondent.
(c)  Service of this order shall be effected:
(i)  by the sheriff of the high court or his lawful deputy on the registered office of the
respondent;
(ii)  on the South African Revenue Services;
(iii)  by publication in one edition each of the Cape Times and Die Burger newspapers
and in the Government Gazette;
(iv)  by registered post on all known creditors of the respondent with claims in excess
of R25 000;
(v)  on the employees of the respondent in terms of s 346A(1)(b) of Act 61 of 1973; and
(vi)  on any registered trade union that the employees of the respondent may belong
to.’

JUDGMENT

Van der Merwe JA (Navsa and Mbha JJA and Tsoka and Koen AJJA concurring)
[1] The appellants are the liquidators of Cinmark Twelve (Pty) Ltd (Cinmark). In that
capacity, the appellants applied in the Western Cape Division of the High Court, Cape

Town for the provisional liquidation of the respondent, Off The Shelf Investments
Seventy Eight (Pty) Ltd. The respondent opposed the application and the court a quo
(Langa AJ) dismissed it with costs. It refused leave to appeal. The appeal is before us
with the leave of this court. As I shall show, the principal issue in the appeal is whether
the respondent is indebted to Cinmark.

[2] Cinmark and the respondent are subsidiaries of Skipness Société Anonyme, a
company registered in Luxembourg (Skipness). Mr Christian Renè Dauriac is a director
of Skipness and the ‘controlling mind’ thereof. During 2003 Skipness invested in wine
farming in South Africa through the respondent, Cinmark and another of its subsidiaries,
Natanna (Pty) Ltd (Natanna).

[3] Since 2003 Skipness held 88 per cent of the shares in the respondent. The
remaining 12 per cent was held by the trustees of the Hopefull Trust. The directors of
the respondent were Mr Dauriac, his daughter and one of the trustees of the Hopefull
Trust. The respondent acquired a wine farm, portion 27 of the farm Natte Valleij no 747
(the farm). The Marianne Wine Estate was established on the farm. After April 2017,
Skipness acquired the shares of the Hopefull Trust and the respondent became a wholly
owned subsidiary of Skipness.

[4] At all relevant times, Cinmark was wholly owned by Skipness and its directors
were Mr Dauriac, his daughter and his son. Cinmark was created exclusively to make
and sell red wine. The reason for this was that the Department of Trade and Industry
(the DTI) offered incentives to attract investment in the production of red wine in South
Africa. Natanna was involved in the farming activities, that is the production of the
grapes for winemaking. It also produced white wine. The grapes were grown on the
farm and the wine was made in the wine cellar on the farm. The development of the
wine cellar on the farm is a central feature of the case and I shall shortly return thereto.

[5] The audited financial statements of the respondent for the year ended
31 December 2015, which also reflected the corresponding figures for the year ended
31 December 2014, were signed by its auditor and by or on behalf of all three directors
of the respondent on 16 March 2016. According to the financial statements the assets
of the respondent included ‘investment properties’. Under ‘investment properties’, the

farm and improvements thereto were listed. It contained an entry ‘Improvements: Wine
cellar – Cinmark’, which indicated that during the period from 2004 to 2006 a wine cellar
had been developed on the farm at a total cost of R11 907 092. The financial statements
also reflected, as a long term liability, a loan of R11 907 092 owed by the respondent
to Cinmark. The following note accompanied the entry in respect of the loan:
‘The loan bears no interest as agreed upon by the parties and has no fixed terms of repayment.’
This meant that the loan was repayable within a reasonable time or on demand.
The corresponding figures as at 31 December 2014 were exactly the same. The fons
et origo of the appellants’ application for the provisional liquidation of the respondent
was the failure of the respondent to repay this loan.

[6] Item 9(1) of Schedule 5 to the Companies Act 71 of 2008 provides that until a
date to be determined, Chapter 14 of the Companies Act 61 of 1973 (the 1973 Act)
continues to apply ‘with regard to the winding-up and liquidation of companies under
this Act’. Chapter 14 of the 1973 Act comprises s 337 to s 426 thereof. In terms of
item 9(2) of Schedule 5, the provisions of s 344 of the 1973 Act, amongst other
provisions of Chapter 14, do not, however, apply to a solvent company. In Boschpoort
Ondernemings (Pty) Ltd v Absa Bank Ltd [2013] ZASCA 173 (SCA); 2014 (2) SA 518
(SCA), this court held that the word ‘solvent’ in item 9(2) means commercially solvent.
In the result, commercially insolvent companies may only be wound up under
Chapter 14 of the 1973 Act. See also Murray & others NNO v African Global Holdings
(Pty) Ltd & others [2019] ZASCA 152 (22 November 2019) para 23.

[7] On 22 March 2017 the sheriff of the court a quo delivered a letter of demand in
terms of s 345(1)(a)(i) of the 1973 Act to the respondent, requiring it to pay the amount
of R11 907 092 to the appellants. Despite the effluxion of a period of three weeks
thereafter, the respondent did not make payment nor attempted to secure payment to
the satisfaction of the appellants. It follows that should it be held that the appellants
established the aforesaid liability of the respondent to Cinmark, the respondent would
be deemed to be unable to pay its debts and the appellants would therefore be entitled
to a provisional liquidation order.

[8] The main theme of the answering affidavit on behalf of the respondent, deposed
to by Mr Dauriac, was that the entry in the respondent’s financial statements that

reflected the liability to Cinmark was simply an accounting fiction that had been made
in error. He said that it was merely a book entry that did not reflect an actual loan or
actual flow of funds.

[9] The first question is whether the appellants furnished the required proof of the
debt that they relied upon. As they moved for a provisional order of liquidation, they only
had to provide prima facie proof thereof. However, as this court explained in
Kalil v Decotex (Pty) Ltd & another [1988] 2 All SA 159 (A); 1988 (1) SA 943 (A) at
978-979, where real and fundamental disputes arise in an opposed application for
provisional liquidation, the necessary prima facie proof is established on a balance of
probabilities on all the affidavits. The well-known ordinary rules in respect of disputes
of fact in motion proceedings apply when a final liquidation order is sought on the return
date of the provisional order.

[10] The evidence established beyond doubt that Cinmark had expended the precise
amount of R11 907 092 to develop the wine cellar on the farm. Cinmark entered into a
written contract with the DTI in terms of which the DTI would provide incentives to it in
respect of investment in the production of red wine. In terms of the contract, the
incentives would be calculated on investments made in ‘qualifying assets’ during the
period from 1 March 2005 to 29 February 2008. The development of the wine cellar was
completed by 29 February 2008. Cinmark, inter alia, claimed and received incentives
from the DTI based on the investment of the amount of R11 907 092 in the development
of the wine cellar on the farm. It received at least R3 261 120 in incentives.

[11] One of the various suppliers used by Cinmark to develop the wine cellar was
Rullier Agro Equipement SARL (Rullier), a company registered in France. Rullier
supplied winemaking equipment to Cinmark. Cinmark, however, did not make payment
of what was due to Rullier. A balance of € 203 308,43 remained outstanding. Rullier
sued Cinmark in the Commercial Court of Bordeaux for payment of that amount, interest
thereon and costs. On 20 November 2009 that court gave judgment in favour of Rullier.
Rullier successfully applied for the recognition and enforcement of the judgment in
South Africa. Because it was unable to obtain satisfaction of the judgment, Cinmark
was finally liquidated by the Western Cape Division of the High Court at the instance of
Rullier on 24 May 2016. The appellants therefore seek payment from the respondent of

the amount of R11 907 092, in order to distribute it amongst the creditors of Cinmark,
including Rullier.

[12] It is clear that Skipness provided the amount of R11 907 092 to Cinmark to fund
the development of the cellar as part of a total loan of approximately R21 million.
The mainstay of the respondent’s case (that the loan relied upon by Cinmark was
merely an erroneous book entry), was Mr Dauriac’s evidence that Skipness had
advanced the amount of R11 907 092 on loan to the respondent and not to Cinmark.
In this regard he stated that the advance had been made to the respondent, ‘perhaps
via Cinmark’ and ‘utilising Cinmark as a conduit’. The court a quo, however, rejected
this contention and held that Skipness had loaned that amount to Cinmark. This finding
was rightly not challenged before us.

[13] It is common cause that the wine cellar was permanently attached to the farm
and thus acceded to the immovable property owned by the respondent. However,
because Cinmark was designated to claim incentives from the DTI based on the
investment in the development of the wine cellar, its financial statements had to reflect
this wine cellar as an asset of Cinmark. By the same token, the wine cellar could not be
shown as an asset of the respondent in its financial statements. This was quite wrong,
of course, and is perhaps best illustrated by the manner in which the ‘investment’ was
reflected in Cinmark’s financial statements during the relevant period. They reflected
the amount of R11 907 092 simply as ‘Buildings’ that formed part of Cinmark’s
non-current assets. But Cinmark owned no land or buildings and in this manner it
misrepresented its financial affairs to the DTI and others.

[14] When the contract in respect of incentives between the DTI and Cinmark had
run its course, there was no further need for Cinmark and Natanna to operate
separately. Therefore it was decided, so Mr Dauriac said, to ‘restructure’ or ‘consolidate’
the businesses of Cinmark and Natanna by combining them within Natanna. On the
probabilities this also led to the adjustment of the financial statements of the
respondent, in order to reflect the wine cellar as part of its assets as well as the liability
of the respondent to Cinmark for the amount it had expended to develop the wine cellar.

[15] The respondent placed a lot of emphasis on the fact that it did not advance the
amount of R11 907 092 to Cinmark and that no such funds passed from the respondent
to Cinmark. Regrettably, the court a quo was persuaded by this oversimplification. As I
have demonstrated, the directors of the respondent, no doubt on the advice of its
auditors, deliberately approved the financial statements of the respondent that reflected
these changes. These entries were perfectly in accordance with what actually
happened, namely that the respondent obtained a wine cellar that was paid for by
Cinmark with funds that it had borrowed from Skipness. Clearly the directors of the
respondent, which included two of the directors of Cinmark, resolved that the position
stated in these financial statements was true and correct. Thus, there is no reason to
doubt the accuracy of the respondent’s financial statements for the year ended
31 December 2015 (nor for the year ended 31 December 2014).

[16] The respondent owed the amount of R11 907 092 to Cinmark on loan account.
That, in fact, is what the directors of the respondent certified on 27 November 2014
under the signature of one of them, as follows:
‘CERTIFICATE OF LOAN ACCOUNT
THE DIRECTORS of OFF THE SHELF INVESTMENTS 78 (PTY) LTD certifies hereby that the
amount of R11 907 092 was due to CINMARK TWELVE (PTY) LTD on loan account by OFF
THE SHELF INVESTMENTS 78 (PTY) LTD.’

[17] I find that the appellants established on a preponderance of probabilities that the
respondent is liable to Cinmark in the amount of R11 907 092. It has not in any way
been suggested that the amount is not due and payable.

[18] The respondent, however, had a further string to its bow. Mr Dauriac said that
ancillary to the aforesaid ‘restructuring’ or ‘consolidation’, the respondent accepted
liability for the repayment of the loan owed by Cinmark to Skipness. This, he said,
resulted in the ‘netting off’ of the entries in the books of account, including the entry that
reflected the liability of the respondent to Cinmark.

[19] On Mr Dauriac’s own evidence, however, this proposition was nothing other than
an ex post facto reconstruction that was not based on any facts. He said:

‘99.5
As between Respondent and Cinmark, the “restructuring” or “consolidation” referred to
above has achieved nothing more than effecting a correction of these entries and to the
extent necessary, a setting-off of the book entries made.

99.6
As I have indicated, the book entries did not reflect the true position between the parties
and thus do not require any legal explanation.

99.7
To the extent that I may be wrong in that regard and some legal construction is required,
then what has clearly happened is that the Respondent has undertaken to repay the
loan directly to Skipness in return for which Skipness has waived any claim against
Respondent [Cinmark].

99.8
It is clear that no written agreement to this effect is required and this has been achieved
by the directors of the holding company who are also directors of and/or control the
subsidiaries agreeing to no doubt instructing the preparation of the financial statements
on this basis. As the controlling mind of the holding company, I confirm this.
. . .

109.7 It appears that the restatement of the financial affairs of the companies was agreed
between their directors as evidenced by the basis upon which the financial statements
themselves in particular insofar as they have been signed by the directors.
. . .

109.9 To extent that any underlying agreement is required in terms whereof the liability to
repay the funds advanced by Skipness for the improvement of the wine cellar is to be
undertaken directly by the Respondent to Skipness, such agreement may be oral or
even tacit, but is clearly evidenced by the financial statements of Skipness and those of
the Respondent, which evidence such agreement.
. . .

110.2 Again, the agreement is evidenced by the financial statements prepared at the behest
of the directors, both of the holding company being the creditor and of the Respondent
subsidiary, being the debtor.’

[20] Despite the fact that Mr Dauriac was said to be the controlling mind of Skipness
and was a director of its subsidiaries, he was clearly unable to provide any factual
evidence as to how, when and by whom such agreement had been reached. And he
only produced draft financial statements of the respondent for the subsequent years

ended 31 December 2016 and 31 December 2017, without offering an explanation for
the absence of approved financial statements.

[21] Moreover, even if it is accepted that para 99.7 quoted above was intended to
convey that in return for the respondent’s undertaking to repay the loan owed by
Cinmark to Skipness, Skipness waived any claim against Cinmark, this in any event did
not involve any agreement or decision by Cinmark to relinquish its claim against the
respondent. According to the aforesaid evidence, only Skipness and the respondent
would have been parties to the alleged arrangement.

[22] For the sake of completeness it should be mentioned that even if Cinmark
relinquished its right to claim the amount of R11 907 092 from the respondent in
accordance with what Mr Dauriac said, that could not avail the respondent. Such
abandonment of rights would clearly constitute a disposition within the meaning of
s 341(2) of the 1973 Act, which provides:
‘Every disposition of its property (including rights of action) by any company being wound-up
and unable to pay its debts made after the commencement of the winding-up, shall be void
unless the Court otherwise orders.’
In terms of s 348 of the 1973 Act the date of commencement of the winding-up of
Cinmark was the date of presentation of that application to the court. That took place
during November 2015. It follows that such abandonment of rights by Cinmark would
have been void.

[23] In the result the court a quo should have issued an order of provisional liquidation
of the respondent. The appellants’ costs of appeal, including the costs of two counsel,
shall form part of the costs of the administration of the respondent.

[24] The following order is issued:
1  The appeal is upheld.
2  The order of the court a quo is set aside and replaced with the following:
‘(a)  The respondent is placed under a provisional order of winding-up in the hands of
the Master of the Western Cape Division of the High Court, Cape Town (high court).
(b)  A rule nisi is issued calling upon the respondent and all interested parties to show
cause, if any, to the high court on 13 January 2020 at 10h00, as to why:

(i)   the respondent should not be placed under a final order of winding-up; and
(ii)  the costs of this application (including the costs of two counsel) should not be costs
in the winding-up of the respondent.
(c)  Service of this order shall be effected:
(i)  by the sheriff of the high court or his lawful deputy on the registered office of the
respondent;
(ii)  on the South African Revenue Services;
(iii)  by publication in one edition each of the Cape Times and Die Burger newspapers
and in the Government Gazette;
(iv)  by registered post on all known creditors of the respondent with claims in excess
of R25 000;
(v)  on the employees of the respondent in terms of s 346A(1)(b) of Act 61 of 1973; and
(vi)  on any registered trade union that the employees of the respondent may belong
to.’

________________________
C H G van der Merwe
Judge of Appeal

APPEARANCES

For Appellants:

A Kantor SC, with him B Wharton

Instructed by:

Rubensteins Attorneys, Cape Town

Lovius Block Attorneys, Bloemfontein

For Respondent:

I C Bremridge SC

Instructed by:

Strauss Attorneys, Somerset West

Symington De Kok Inc, Bloemfontein