CIV/APN/433/2005
IN THE HIGH COURT OF LESOTHO
In the matter between:
MONAHENG LETOOANE Applicant
and
MALUTI WHOLESALERS (PTY) LTD 1st Defendant
MASTER OF THE HIGH COURT 2nd Defendant
JUDGMENT
Delivered by the Hon. Mrs Justice A. M. Hlajoanc on 3rd November, 2006.
This is an Application to put the first Respondent under Judicial Management in terms of section 265 (2) of the Company's Act No.25 of 1967. Applicant is alleging mismanagement of the Affairs of the Company. He is a shareholder in first Respondent's Company. The Application is opposed.
An answering affidavit has been filed by one Peter Letsota who declared himself as secretary of Board of Directors of the first Respondent. He has raised three points in limine:-
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Urgency
Non-compliance with section 265 of Companies Act 1967
Notice of set down. On urgency the first Respondent showed that no grounds for urgency have been stated in the founding affidavit. It was not enough to have just stated the grounds of urgency in the certificate of urgency only. The Court of Appeal has repeatedly emphasized that the discretion to allow an application to be heard on an urgent basis requires a discriminating exercise of judicial discretion. The court went on in Vice Chancellor NUL & NUL vs Putsoa C of A (CIV) No.28/2002 to say that a proper case for urgency has to be made out in the founding papers, and that the certificate of urgency states the grounds.
In casu counsel for the Applicant has filed a certificate of urgency showing his grounds for urgency. The Applicant has signed as petitioner making out a case for such urgency and even filed a verifying affidavit to such petition- surely that satisfied the requirements stated above in NUL v Putsoa. Para 6 of the Petition proclaimed urgency. See also Qhobela & Another v BCP & Another 1999 - 2000 LLR & LB 243.
The first Respondent has also shown that the Company had been operating in the manner it is operating now since 1985. But the reading of the present application shows that 1985 March, was when the lease for Company's premises was registered. At paragraph 5 of the Petition, it has been stated that the Lesotho National Development Corporation only handed over the premises to first Respondent after it had recovered funds it had used for developing the site. This happened years after first Respondent's incorporation. So that it could not be true that first Respondent started operating in 1985.
On the issue of Prejudice the first Respondent showed that they were prejudiced by an order that was given ex parte, but because I have already indicated above that grounds for urgency have been stated and a case made out in the petition for such urgency, the applicant was justified to move the Court as he did as one of the shareholders of first Respondent. Section 265 (2) of Companies Act 1967.
Non-Compliance with Section 265 of the Act
First Respondent is saying that Applicant has not complied with the provisions of Section 265 of the Companies Act 1967 in that
Salary for Judicial Manager has not been fixed
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Not stated period for which company should be under judicial management in terms of Section 265 (1)
Judicial Manager has not fixed security bond.
Section 265 has not made a specific reference to salary of a Judicial Manager. Subsection (8) of that Section is the only one
dealing with costs. It reads:-
"The Court may make any order it considers just for the payment of the costs of any investigation or inspection made under this section, including the costs of the report."
Again Section 265 (1) clearly shows that the Court may grant an order of judicial management for a stated period or for an indefinite period. This gives the Court the discretion of whether or not to fix such period.
It was also not for the Judicial Manager to have fixed the security bond. The section referred to does not say that, but such could be taken care of by the Master of the High Court after the matter will have been referred to him for that specific purpose.
Notice of Set Down
First Respondent is saying that the Notice of Set Down was not filed together with the petition. The Applicant has rightly pointed
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out that since the notice of motion already provided a date on which the petition would be moved on an urgent basis, there was therefore no need to file a separate notice of set down as the date on the petition operated as a set down to the Registrar. The points in
limine have all been dismissed.
On the merits, the Applicant is saying that the object of the first Respondent has been to operate as a wholesale in Thaba-Tseka, but contrary to that part of it operates as a retail business for Chinese nationals. Another part has been leased out to businesswomen who have brought shacks and caravans to run a variety of businesses. Applicant further alleges that the place is ill-maintained, dirty, ugly and noisy.
Applicant has also given other reasons which prompted him to bring this application. That shareholders have not been issued with share certificates, failure to register with the tax authorities, in this case the Lesotho Revenue Authority, no annual returns, forms, resolutions and statutory meetings. He is also alleging embezzlement of the company's funds and an increase in the number of shareholders beyond the maximum limit in the Memorandum and Articles of Association. Applicant is thus
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asking that the company be placed under judicial management as it is operating outside the objects of the company.
In response to this first Respondent has denied everything and indicated that during September, 2005 an amount of M232,000.00 was shared amongst the shareholders including the Applicant. He has also shown a credit balance of M61,974.23 as at 3rd February, 2006. He has attached the bank statement to that effect. According to the first Respondent all these were indicative of the fact that he was still able to manage the affairs of the company.
Applicant in replying to all these has shown that first Respondent makes bare denials in his answering affidavit. One Peter Letsota who claims to be the secretary of the Board of Directors deposed to an affidavit and showed he has been duly authorized to depose to that affidavit. He has however attached neither a resolution nor minutes for such authorization. Applicant has cited numerous decisions showing that where a juristic personality such as a company is concerned there has to be shown a resolution authorizing a litigant to represent it or depose to an affidavit. See Nqojane v NUL 1985-89 LAC 369 at 383 and Wing-on-Garment v LNDC & Another 1999-2000 LLR &LB 72.
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Though there have been several affidavits filed by people who claimed to be members of the Board of Directors, no authority has been established for the deponent Peter Letsota to depose to the answering affidavit. The supporting affidavits only confirm what Peter Letsota has deposed to in his answering affidavit without advancing any further facts in support of Letsota's assertion.
In Mall (Cape) (Pty) ltd v Merino Ko-operasie Beperk 1957 (2) S.A 347 (c) cited in Wing-on-Garment above, Watermeyer J (delivering a judgment of the full bench) showed that with an artificial person like a company or co-operative society, an objection may be taken if there is nothing before the Court to show that a litigant has been authorized to institute proceedings. The Wing-on-Garment supra stated that, "unlike an individual, an artificial person can only function through its agents and it can only take decisions by the passing of resolutions in the manner provided by its constitution. Even an attorney who has instructions to commence proceedings by say, the secretary or General Manager of a company would not necessarily know whether the company had resolved to do so, nor whether the necessary formalities had been complied with in regard to the passing of the resolution."
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First Respondent does not deny that there is no resolution from the company but says the supporting affidavits indicate that there was authorization to defend the case. But on the authority of Wing-on-Garment supra that would not be good enough. Relying on those
supporting affidavits would be like presuming that there has been authorization. Reliance has to be on facts not presumptions.
According to first Respondent its like Applicant ought to have rallied for support in bringing this Application, but section 265 (2) of Companies Act 25 of 1967 allows any member or shareholder of a company to apply for Judicial Management. The section reads:
"A judicial management order may also be granted by the Court in respect of any company on the application if any member (my emphasis) or creditor, if it appears to the Court that, by reason of mismanagement or any other cause, it is desirable that the company should be placed under judicial management."
It does not require a group of members but any member if he feels threatened.
First Respondent submitted that it was still managing well the affairs of the company and that a given amount was shared amongst members as dividends. Also that the company still has a credit balance. But the Applicant showed that giving bare denials
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without providing any audited financial statement would not be permissible. The Bank Statement attached to the answering affidavit amounted to hearsay and therefore inadmissible. Peter Letsota was not the one who compiled the statement.
The first Respondent has just also made a bare denial in regard to the issuance of share certificates to members. Also in regard to registering with the tax authorities, submitting annual returns, forms, resolutions and statutory meetings. Had he filed an audited financial Statement those doubts which are left lingering in ones mind would have been cleared.
As rightly pointed out by the Applicant, in terms of Rule 20 (4) of the High Court Rules first Respondent has not clearly stated the facts upon which he relies for his defence, except just making bare denials. His answers are framed thus:
Contents denied
Contents not admitted.
Rule 20 (5) of the High Court Rules demands that a part denying an allegation of fact in the previous pleading, "he shall not do so evasively but shall answer issuably and to the point."
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I have already shown that the Respondent has only made bare denials. The section under which the Applicant relied for bringing this
Application does not say should only be when company seems not able to pay its debts. It also covers mismanagement according to one of the shareholders like the Applicant.
I therefore find that Applicant has made out a case for judicial management as was the right person to have lodged such Application. I had an occasion to see the Memorandum and Articles of Association of 1st Respondent's company, and I have found nothing wrong with Applicant's counsel being appointed the Judicial Manager of 1st Respondent. The Application is thus granted in terms of the prayers 1(a) to (i) in the notice of motion with costs. The appointment is for an indefinite period.
M. HLAJOANE
JUDGE
For Applicant: Mr Ntlhoki
For Respondents: Mr Nteso