IN THE HIGH COURT OF LESOTHO
In the matter between:
MANUEL DA SILVA ABREU …..............................................................................APPLICANT
LETA SECURITY GUARDS (PTY) LTD …......................................................1ST RESPONDENT
LEHLOHONOLO EISENHOWER TSEKA …................................................2ND RESPONDENT
MASTER OF THE HIGH COURT …............................................................3RD RESPONDENT
DELIVERED BY THE HONOURABLE MRS JUSTICE K.J. GUNI
ON THE 8TH DAY OF FEBRUARY 2011
The petitioner in this matter is one MANUEL DA SILVA ABREU of MAPUTSOE in the District of LERIBE. The 2nd respondent is one LEHLOHONOLO EISHENHOWER TSEKA of MAPOTENG in the district of BEREA. These two parties formed and registered a company – the 1st respondent herein LETA SECURITY GUARDS (PTY) LTD, in 1999. In terms of article 72 of the articles of the association of this company – [1st respondent herein] there are only two (2) directors – [the petitioner and the 2nd respondent herein]. The petitioner owns 740 shares which are fully paid up. The 2nd respondent owns 380 shares which are still to be paid up.
The 2nd respondent is the managing director of the Company – LETA SECURITY (PTY) LTD, the 1st respondent in this matter. It is in the common cause that it is the petitioner who provided the financial muscle of this company for it to be able to commence its operations. It is also a matter of common cause that presently this same company – 1st respondent, is a viable and an on-going concern. This belief is shared by both parties. To support this common observation of these two parties the 2nd respondent as the managing director and as such has the custody, care and control of the finances of the 1st respondent herein, confirms that this company is an ongoing viable concern because it is presently able to meet all its financial obligations. It is also in the common cause that despite claims that this company is actually making money, no dividends have been declared in the whole period of its existence, which is over ten years (1999 – 2010].
It appears that by express agreement, the 2nd respondent was appointed the managing director and paid by the petitioner M5,000-00 per month; during the infancy of the company, but once the company’s operations got off the ground, the 2nd respondent, made to himself and received from the company the monthly drawings of the same amount or above. [Refer to the income statement for the year ending 31 March 2010]. The petitioner received nothing – as averred by him in this petition.
“Petitioner herein has not received even a cent”. [Paragraph 13 Founding Affidavit]
It would appear that perhaps at the beginning when the parties agreed that the petitioner will provide the finances while the 2nd respondent will carry out day to day running of the company, parties communicated reasonably and sufficiently to maintain peace and status quo. This company is more than  ten years in its existence. Once the company begun to develop and maintain its own financial muscle, the erosion of the lines of communication between the parties seemed to have developed and deepened to the extent that parties were no longer able to find and reach each other. If they did find each other it was in the most difficult and unpleasant circumstances, as their letters filed of record, show an exchange of unsavory nature.
Although the managing director – 2nd respondent herein claims that director’s fees have been paid to this petitioner who is one of the directors, and who vehemently denies such payments, no proof of the alleged payments was produced before this court. To add injury to the insult, the 2nd respondent further claims that the bank account into which the earnings of the company are deposited is that of the petitioner. 2nd respondent seems to have an idea regarding the distinctive nature of the personalities of the petitioner and the 1st respondent. He does not bother to explain, why the 1st respondent’s money is deposited into the petitioner’s personal bank account. Why and how he – the 2nd respondent came to have powers to operate the petitioner’s own bank account. He also claims to be the co-signatory of the petitioner’s bank account but does not bother to explain how that relates to the separation of personalities of the company from that of its shareholders. It must be incorrect, the claim that the income or earnings of the company – 1st respondent herein, are deposited into the petitioner’s personal bank account. It must be a deliberate and malicious lie because in the correspondence between the 2nd respondent and this petitioner, the 2nd respondent spelled it out in no uncertain terms that the petitioner should not confuse the personality of the company and that of his. They are two distinct and separate personalities.
In these thoroughly confused and consequently confusing circumstances of this case, the petitioner obtained ex-part a provisional judicial management order on the grounds that this company – 1strespondent herein is being mismanaged and that it was just and equitable to do so in terms of SECTION 265 of the COMPANIES ACT of 1967. The 2ndrespondent filed the Notice of INTENTION to oppose on the 6thJuly 2010. The ANSWERING Affidavit – deposed to by the 2ndrespondent was filed on 9thJuly 2010. Points of Law have been raised and I intend to deal first with these points of Law:-
It is being argued on behalf of the 2ndrespondent that there is no urgency in this matter. It is argued that the petitioner has not set out grounds why he could not be afforded relief in due course. More particularly the petitioner is accused of not showing in his papers, the reasons why he did not give notice to the respondents. The parties in this matter are the only two members of this respondent company – LETA SECURITY (PTY) LTD. The efforts by the petitioner to find out what is going on in the respondent company were being thwarted by the 2ndrespondent. There were no meetings held between these two directors of the respondent company. The petitioner was denied reports of any kind regarding the performance or functioning of the company – 1strespondent. The other director of the company was denied access to the records of the company. There appear to have been a total breakdown of the meaningful and constructive communication between these two directors of the respondent company. It is averred by the petitioner that the relations between himself and the other co-director - the 2ndrespondent herein, are very bad.
Once there is no proper, adequate and meaningful communication between the parties, suspicion and recriminations arising from or accompanying bitterness grow and grow out of all proportions. The fear of the unknown, when each one was wondering what the other is up to, exacerbated the bad situation into the very very bad one. The petitioner, as the member of the respondent company approached this court in terms of SECTION 265 (2) COMPANIES ACT 1967. The proviso reads:-
“A judicial management order may be also granted by the court in respect of any company on the application of any member or creditor, if it appears to the court that by reason of mismanagement or any cause, it is desirable that the company should be placed under judicial management”.
It is in terms of SECTION 265 (2) COMPANIES ACT 1967 that the petitioner approached this court. The petition is governed by the said law. The circumstances under which the court can grant an application for a judicial management, are set out in sub-section (2) of SECTION 265 COMPANIES ACT. That is, the applicant/ petitioner, must allege and establish mismanagement or any other cause which makes it desirable that the company should be placed under judicial management.
The petitioner in this matter has alleged mismanagement. He has established that, although the respondent company has collected on behalf of LRA certain taxes, it has failed to file the tax returns timeously. As a result at the time this petition was filed, with this court, the respondent company was indebted to LRA to the amount of nearly three million. The 2nd respondent although he denies indebtedness of the respondent company to LRA, he does not deny the allegation that he wrote the letter to LRA requesting time to pay on the terms he had suggested in the said letter. [see Annexure MD 11]. This letter in fact was seeking to obtain a variation of the existing undertaking which from the reading of this letter, the respondent company failed to honour. Annexure MD 5 – the letter to the LRA is headed “OUTSTANDING TAX LIABILITY”. This is an unambiguous admission that there is a failure to meet tax liability timeously. The tax payer Account Statement – [Annexure MD 5] clearly shows without any doubt the manner and the amounts in which the respondent company was handling the payments of its taxes. The failure to pass on to the appropriate authority the taxes which the company collected on behalf of that authority is a result of negligence or mismanagement. Where did the money which the respondent company collect on behalf of the LRA go to? Did it fall through the fingers of the manager? It must have done that, now that the company has no money to pass on. What is that? Negligence or mismanagement? Whatever it is, it is the cause that makes it desirable to place the company under judicial management.
There was urgency to arrest the situation then and there instead of giving the managing director a notice and an opportunity to cause even further delays in the payment of the taxes to LRA which is the source of government revenue. The government has now fallen under such dire financial circumstances, because of failures of tax payers such as this 1st respondent herein. 2nd respondent should not be heard to cry economic hard times. The respondent company does not have to make money in order to pay VAT. It is the VAT paid on the services for which it has already received payments. It has already collected the cash from its customers/clients. It is obliged to pass it on to LRA. The continued failure to pass the collected taxes on to LRA increases the indebtedness of the respondent company. If the petition was to proceed in a normal way and relief to be received in due course the company was sinking deeper and deeper into debt. There was urgency in the nature of the petition itself. There is urgency required in dealing with all the complaints levelled against the 2nd respondent. There are allegations of fraud and theft which if the suspect is alerted, evidence may disappear instead of clear indication of innocence when the surprise investigations fail to find and confirm any improprieties.
The petitioner discovered accidentally not by information properly provided to him by the co-director who was actually involved in the redirecting away business from their company to another competing company in the industry. The managing director of LETA SECURITY GUARDS (PTY)LTD, using the company’s stationary and its date stamp-clearly indicating that he represents LETA SECURITY GUARDS (PTY) LTD, gives notice to the clients of the said company that “with effect from 1stMarch 2010, all payments cheques must be addressed to Phokeng Security Guards (PTY) LTD, no more to LETA SECURITY GUARDS (PTY) LTD. The 2ndrespondent does not deny that the services that are being paid for have been rendered by LETA SECURITY GUARDS (PTY) LTD. Those guards use the uniforms provided by LETA SECURITY GUARDS (PTY) LTD. The guards’ equipment and salaries are provided by LETA SECURITY GUARDS (PTY) LTD.
The 2ndrespondent does not deny that he formed and registered a rival company to the 1strespondent herein and that he runs the same as well. By this letter to the clients of LETA SECURITY GUARDS (PTY) LTD the 2ndrespondent is diverting payments from LETA SECURITY GUARDS (PTY) LTD to his own newly formed and registered company. He must be stopped in the tracks instantly. Therefore there was urgency to legally stop him from unfairly and most probably unlawfully diverting payments due to the 1strespondent to his own newly formed company. LUTARO V NUL LLR and LB page 52 999 – 2000.
There has been actual payments made by clients of LETA SECURITY GUARDS (PTY) LTD to PHOKENG SECURITY GUARDS (PTY) LTD and receipts issued out for such payments by the said Phokeng Security GUARDS. The services which are being paid for here are services rendered by LETA SECURITY GUARDS (PTY) LTD. There is an allegation that the 2ndrespondent herein was in the process of giving new contracts to the 1strespondent’s clients in order to facilitate his diversion of payments due to the 1strespondent to his newly formed company. This position is evidenced by the 2ndrespondent’s letter to HUALONG – Annexure MD 6. In order to stop instantly all these manipulation of this company management, there was a need to obtain ex-parte and urgently an order of the court. THE COMMANDER OF LESOTHO DEFEBCE FORCE V MATELA LAC (1995 – 99) 799.
The 2nd respondent claims that he is misjoined in these proceedings where the petitioner seeks to place the company under judicial management. 2nd respondent has not specifically denied that as the managing director, the said management of the company will necessarily be removed out of his hands when an order for judicial management is granted. The petitioner complains of exclusion from the affairs of the company by him. Therefore he - 2nd respondent has interest to defend his actions and his position and or clarify it if he is misunderstood. He has demonstrated that he has substantial interest in the matter by filing papers to resist the move by the petitioner to seek an order of the court to place the 1st respondent under judicial management. It appears to be his contention that the status quo should be left alone and undisturbed. He does not accept that management of this company should be taken out of his hands. Therefore his interest in this petition is real and substantial. 2nd respondent is the managing director of the 1st respondent and as such he took from the company a sum of money monthly as his salary. When the management of the company is transferred to the judicial manager, what will be the 2nd respondent’s job? He is out of work! He must have interest in this matter if this is intended result. Therefore he is properly cited and joined in.
THE LACK OF CAUSE OF ACTION
It is the petitioner’s complaint that the affairs of this company – LETA SECURITY GUARDS (PTY) LTD are conducted in a manner oppressive to him as a part of only two members of this company. The other member is the 2nd respondent against whom this complaint is leveled. He refuses to allow meetings between them, take place. No meetings between these two parties have ever taken place. There is no record of the minutes of any meeting which were produced before this court. If one party claims that he is in absolute darkness as regards exactly what is going on in the company and the other party claims that they hold meetings regularly he should place before the court the record of the alleged meetings. He makes drawings monthly by way of a salary from the company. This is by agreement and there is no dispute. He persists in his denials of the right of access to the records of the company to this petitioner. He insists that the petitioner is entitled to nothing except dividend if and whenever that is declared. NO dividends have ever been declared. This is in the common cause. Why then and how can he claim that the petitioner receives payments from the company as alleged. He has produced no proof of the alleged payments.
2ND respondent refuses to hold meetings with the other director. 2nd respondent refuses to give reports of what is going on or allow access to the company’s records. The affairs of this company are being conducted in an oppressive manner. The oppressive manner of conducting the affairs of this company have totally excluded the other part of members e.g. the petitioner, from those affairs of their company. He finds himself out in the cold and alone. In fact this a ground for this action. Therefore the legal point that there is lack of cause of action is improperly taken and must fail.
Having found that all the points of law were not well-taken and have been dismissed, the court is obliged to determine the matter on its own merits. This may sound somehow repetitive because the facts on which the parties rely have been considered and applied to the law in the determination of the points of law raised, considered and dismissed.
The reason why the petitioner approached this court is because there are problems in the company. Attempts by the petitioner to have the meeting of the shareholders to discuss the problems and therefore find solutions, have failed. The petitioner came across letters written by the managing director of the company to the clients of the very same company but strangely enough, the managing director was giving notice to the clients of the company to cease making payments to the said company. The managing director was advising those clients of the company to divert their payments to his newly formed and registered company.
The petitioner found the receipts issued out by the managing director’s newly registered company. How do these receipts of another company come to be in the office of the 1st respondent? If the two companies are run from the same premises by the 2nd respondent why then are they using the same office space? Why are they not separated? There is an allegation made by the petitioner that the 2nd respondent has been issuing receipts for cash payments in the name of the 2nd respondent’s newly registered company. The payments are in respect of services rendered to various customers by the 1st respondent. This allegation cannot be dismissed by simply accepting that the 2nd respondent’s newly formed and registered company issued out receipts to its own clients to which it had rendered services. Although the 2nd respondent has sent new contracts in the name of his newly formed company – not all clients of the 1st respondent have acceded to his demand to sign new contracts. In the second place; those alleged contracts are not signed and dated. Again it is not proper to acquire clientele in business in such unconventional and unprofessional manner.
The petitioner requested a meeting of the shareholders for the purpose of discussing what appeared to be a thorny issue of the two companies 1strespondent herein LETA SECURITY GUARDS (PTY) LTD and Phokeng Security Guards (PTY) LTD which appears to be in the process of hostile take over of 1strespondent – LETA SECURITY GUARDS (PTY) LTD. There must be of necessity a conflict of interest when the 2ndrespondent manages or owns the two competing companies in a small industry such as security one. Again even the space of their operations needs to be discussed.
The so-called contracts between Phokeng Security Guards (PTY) LTD and the erstwhile clients of the 1strespondents - LETA SECURITY GUARDS (PTY) LTD, are not contracts. They are no signatures of the parties to the alleged contract. There are no dates on which the said contracts came into force. There are no witnesses to the signatures of the parties. The receipts – Annexure MD 7 to the Founding Affidavit are not issued pursuant to contracts between Phokeng Security Guards (PTY) LTD and the clients for whom the said cash receipt payments were issued out. If Phokeng Security has no valid contracts with the clients for whom it issued the cash receipts payment, whose clients are they? The unavoidable answer is that they must be LETA SECURITY GUARDS (PTY) LTD’S clients.
Why was the 2ndrespondent refusing to discuss the apparent problem between these two companies when, they are not only competitors in the same industry but their operations seem to be intertwined despite the undisputed fact that these companies operate from different and separate offices except that they are both ex-facio owned by the 2ndrespondent.
If there are problems to be discussed and solutions to be sought and found, the members of the company must allow that. Where there is refusal to meet and deal with the problem of the company for no good reason, there is oppression of those who are denied an opportunity to be heard. The intervention of the court is properly sought in those circumstances.
The company was obliged in terms of the law to collect on behalf of LRA certain taxes from its own clients. The failure by the company to collect and forward those taxes to LRA must be of great concern to all members of the company. If it appears that collection of the said moneys is made but the company fails to pay over to LRA the said money, this must be of greatest concern to all members of the company. Shouldn’t there be a meeting or several meetings by members of the company to discuss and resolve the problem which causes the failure to honour the legal obligation by the company in respect of LRA?
2ndrespondent claims that meetings have been held by members of the 1strespondent company. It is very strange that it is just a bare allegation that meetings are held without placing single record of such meetings before the court. This failure to produce the minutes of any meeting that was held becomes more serious especially when it is made against the allegation that there was a great resistance to the call of meetings. As a result none was ever held.
In the prayers to place this company under judicial management there is no indication of the period for which such judicial management will be necessary. In terms of the COMPANIES ACT, the court may specify a length of the period or make it for an indefinite period.
This order is for an indefinite period.
It is in these circumstances that this petition is granted as prayed.
For Applicant : Mr H. Nathane
For Respondent : Mei & Mei
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