In November 2016, the Supreme Court of Appeal reiterated that if a respondent in a liquidation application disputes the indebtedness on bona fide and reasonable grounds, the liquidation application should be refused. Liquidation proceedings are not designed for the enforcement of disputed debts.
In the case of Freshvest Investments (Pty) Ltd v Marabeng (Pty) Ltd, the court concluded that the lower court had erred in referring the liquidation application to oral evidence after finding that the debt was disputed on bona fide and reasonable grounds. Once the court concluded that there was a bona fide dispute about the debt, the application should have been dismissed.
Rather oddly in this case, because Freshvest Investments had in the meantime instituted an action against Marabeng for payment of its claim, the court postponed the application for winding up indefinitely and ordered that if Freshvest Investments was successful in its action, it could set the winding-up application down for hearing again. The difficulty with this approach is that it may take many months, if not a few years, before a trial court determines liability. If at the end of the trial, the court holds that Marabeng is liable to pay the debt and it does not have sufficient assets to pay, Freshvest Investments can proceed with the liquidation application again.
This is an undesirable outcome, particularly because section 348 of the Companies Act 1973 (which still applies to company liquidations) deems the date of liquidation to be the date the application was presented to court and not the date when the liquidation order is granted. Consequently, the date of liquidation will be retrospective to when the liquidation application was first issued by the court but in the interim Marabeng will, perhaps for years, continue to operate and presumably will be making payments to its creditors. Disputes could therefore arise later about the status of those payments, because if Marabeng is subsequently liquidated, the payments will have been made after the date of liquidation.
A better outcome would have been to uphold the dismissal of the liquidation application. If, after the trial, Marabeng was found to be liable and fails to pay the judgment, a fresh liquidation application could be launched at that stage and the complications which will arise by virtue of the deeming provision in section 348 would be less severe.