South gauteng high court johannesburg



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REPUBLIC OF SOUTH AFRICA

SOUTH GAUTENG HIGH COURT

JOHANNESBURG

CASE NO: 11/23050


  1. REPORTABLE: Yes

  2. OF INTEREST TO OTHER JUDGES: Yes

  3. REVISED.


…………………….. ………………………...

DATE SIGNATURE

In the matter between
FAITH NTOMBIKAYSIE MSIMANG N.O First Applicant
MAVUSO MSIMANG N.O Second Applicant

(In their representative capacities as the

trustees for the time being of the

THABIZOLO FAMILY TRUST)
and
PETER JOHN KATULIIBA First Respondent



PERRY- MASON MNTUNZI MDWABA Second Respondent

MALONEY BEHAN Third Respondent
MEMEZA-QRX (PTY) LTD Fourth Respondent
IWIN (PTY) LTD Fifth Respondent
INVESTAGE 13 (PTY) LTD Sixth Respondent
MZWANELE JIMMY MANYI Seventh Respondent
TEBOGO REG-BASTA MAKGATHO Eight Respondent
DOREEN KOSI Ninth Respondent
NKULULEKO SOWAZI N.O Tenth Respondent

(In his representative capacity as

sole trustee for the time being of the

MEMEZA-QRX EMPOWERMENT TRAINING

TRUST)
THE REGISTRAR OF COMPANIES Eleventh Respondent

______________________________________________________________
J U D G M E N T

______________________________________________________________

KATHREE-SETILOANE J:


[1] This matter concerns the application of s 162 of the Companies Act, 71 of 2008 (“the new Companies Act”), which allows for a court, on application, to declare a director either:

(a) delinquent and thus prohibited from being a director; or

(b) under probation, and thus restricted to serving as a director within the conditions of that probation.

The applicants, Mr Mavuso Msimang (“Mavuso Msimang”) and Mrs Faith Msimang (“Faith Msimang”), trustees of the Thabizolo Family Trust (“the Thabizolo Trust”), which is a 39% shareholder in the fourth respondent, Memeza-QRX (Pty) Ltd (“the company”), seek such an order against the first respondent, Mr Peter Katuliiba (“Katuliiba”) and the second respondent Mr Perry-Mason Mdwaba (“Mdwaba”), who are directors of the company. The company is a black empowerment and investment holdings company.

[2] The fifth to the tenth respondents are the remaining shareholders of the company. The third respondent, Ms Maloney Behan (“Behan”) is also a director and shareholder of the company. The fourth director of the company, Ms N Mbele, had resigned with effect from 30 April 2011. In addition to being directors of the company, Katuliiba and Mdwaba also manage the company. The applicants seek an order, inter alia:

(a) declaring that Katuliiba and Mdwaba are delinquent directors as contemplated in s 162(5)(c)(iv)(aa) of the new Companies Act, subject to such conditions, if any, as the court considers appropriate;

(b) alternatively, declaring that Katuliiba and Mdwaba are placed under probation as contemplated in s 162(7)(a)(iii) of the new Companies Act, subject to such conditions, if any, as the court considers appropriate; and

(c) declaring that Faith Msimang is appointed as a director of the company in place of Katuliiba and Mdwaba in terms of s 163(2)(f) of the Companies Act;

(d) directing the company to convene a meeting, as contemplated in s 61 of the Companies Act, of all shareholders whose names appear in the company register of shareholders, such meeting to be held on a date being not more than 60 days from the date of the order, and for purposes of resolving the following −

(i) the steps to be taken to fill the vacancies on the board of directors to ensure that the board functions with the prescribed minimum of four directors;

(ii) the steps to be taken to fill the vacancy in the position of the company’s auditor;

(iii) nominating a chairman to serve on the board of directors;

(iv) the steps to be taken to ensure that the company’s annual financial statements are prepared and audited; and

(v) the steps to be taken to ensure that the tax status of the first respondent, during his employment with the company, is finally resolved with the South African Revenue Services (“SARS”).

[3] In 2003, the company made its first and only major investment, a 30% shareholding in Young and Rubicam Holdings (Pty) Ltd (“Young and Rubicam RSA”) from WPP Kraken BV (“WPP Kraken”), a company incorporated in accordance with the laws of the Netherlands. WPP Kraken is a subsidiary of WPP Group plc (“WPP”), a company incorporated in accordance with the laws of England, with a dual listing on the London and New York stock exchanges. Pursuant to the company’s acquisition of shares in Young and Rubicam RSA, Young and Rubicam RSA changed its name to WPP-Memeza Holdings (Pty) Ltd (“WPP-Memeza Holdings”). WPP-Memeza Holdings is the sole shareholder of Young and Rubicam South Africa (Pty) Ltd (“Young and Rubicam”), a company incorporated in accordance with the company laws of South Africa.

[4] Young and Rubicam is the sixth largest advertising agency in the world, operating in more than 180 countries. It has operated in South Africa since the early 1970s. Its main objective in partnering with the company was to secure a black empowerment partner with robust empowerment credentials. By 2006, the company’s investment in Young and Rubicam remained its sole investment and its major source of income, which was derived from an annual management fee payable in respect of management services rendered by the company to Young and Rubicam. The core business of the company is the rendering of management services to Young and Rubicam as a quid pro quo for its shareholders and the management fee.

[5] Mavuso Msimang is a co-trustee in the Thabizolo Family Trust, which holds a 39% shareholding in the company. Mavuso Msimang was also the chairman of the company from its inception in 2001 until July 2009, when he resigned following upon his unhappiness at being outvoted at a special shareholders’ meeting, called at his instance, to approve the payment of a commission to Katuliiba for a business opportunity, which Katuliiba had acquired for the company. Mavuso Msimang is also the chairman and director of WPP-Memeza Holdings, which is the sole shareholder of Young and Rubicam in which the company has a 30% shareholding. Mavuso Msimang holds this position by virtue of his appointment by WPP Kraken, which has a 70% shareholding in Young and Rubicam.

[6] Katuliiba is the managing director of the company. He is the sole shareholder in Investage 13 (Pty) Ltd (the sixth respondent), which is a 17% shareholder in the company. He is also a director of WPP-Memeza Holdings. He holds this position by virtue of a shareholders’ agreement between the company and WPP Kraken, entitling the company to appoint directors to the board of WPP-Memeza Holdings. He became the managing director of the company following on Mavuso Msimang’s resignation in July 2009. He was a director of Young and Rubicam until June 2011.

[7] Mdwaba is a shareholder and current director of the company. He is also the company secretary. He was a director of Young and Rubicam until June 2011.

[8] As shareholders in the Thabizolo Family Trust, the applicants have an interest in the solvency and conduct of the business of the company. The applicants allege that Katuliiba and Mdwaba have been guilty of serious and prolonged misconduct in their capacities both as directors of the company, and directors of Young and Rubicam, on whose board they serve as representatives of the company. This, they contend, has paralysed the management and affairs of the company, and has necessitated the launch of this application in terms of s 162 of the new Companies Act. The applicants take issue with Katuliiba and Mdwaba for their purported failure to:

  1. prepare the annual financial statements of the company since the financial year ending 28 February 2004;

  2. convene an annual general meeting of the company since the financial year ending 28 February 2006;

  3. appoint a director to replace Ms Mbele on the company’s board of

directors, which is required to have four directors. The applicants contend that despite a lapse of 18 months since Ms Mbele’s resignation, which became effective from 30 April 2011, no steps have been taken to fill the vacancy;

  1. attend board meetings of Young and Rubicam during May 2011;

  2. co-operate with the black economic empowerment (“BEE”) rating agencies to enable Young and Rubicam to obtain its BEE rating credentials for purposes of procuring advertising contracts. The applicants contend that this has resulted in Young and Rubicam being unable to participate in a bid for the advertising business of the SABC, which represents the loss of a significant opportunity, and source of revenue for Young and Rubicam. In addition, they contend that the lack of audited financial statements for the company, for the 2009 and 2010 financial years, in particular, has severely hampered Young and Rubicam’s ability to obtain audit certificates as required by the BEE rating agencies.

[9] The applicants also take issue with Katuliiba, in particular, for failing to:

(a) approve bank guarantees, on 13 May 2011, to enable Young and

Rubicam to provide security for the action instituted by the company against Young and Rubicam for payment of the management fee; and

(b) give a full and proper account of his monthly income received from the company relating to his status as taxpayer;
Other applications which may have a bearing on present application

[10] Of the eleven respondents, only Katuliiba, Mdwaba, and the company oppose this application (“the respondents”). Their principle contention is that several applications, which were launched before, and after, the present application (instituted on 20 June 2011), have a direct bearing on it, but have not been dealt with by the applicants in their replying affidavit. The respondents submit that the current application is just one of five applications that concern the dispute over the shareholding of the company, and that the current application must be postponed pending the determination of those applications.

[11] The first of the five applications, referred to by the respondents, is Sylvester Haanyama, and Sheldon Erasmus v Investage 13 (Pty) Ltd and 15 Others, under case no 40251/09 (“the Haanyama application”). On 14 October 2009, Mr Sylvester Haanyama (“Haanyama”) and Sheldon Erasmus (“Erasmus”), former directors of the company, obtained an interim interdict (“the interim order”) preventing the company from utilizing the funds in its bank account except for making payments to its auditors, attorneys, administrators and Katuliiba. The balance of the relief sought on the return day included an order setting aside their removal as directors of the company and their reinstatement, as well as an order setting aside the appointment of Katuliiba and Mdwaba as directors of the company. Mavuso Msimang supported Haanyama and Erasmus in this application and signed confirmatory affidavits confirming their version of events. The Haanyama application was referred to trial, on 17 May 2011, by consent of the parties. The trial is set down for 20 May 2013. Both the company and Katuliiba have brought an application to vary the interim order.

[12] The Haanyama application has brought into dispute not only the shareholding of Haanyama and Erasmus, but also the shareholding of the new shareholders in the company, namely the second (Mdwaba), third (Behan), seventh, eight, and ninth respondents. Haanyama and Erasmus were removed as directors of the company pursuant to a director’s resolution, which was taken on 15 August 2009. Thereafter, the directors caused the company’s register to be altered to reflect that Haanyama and Erasmus were no longer shareholders of the company (having held 15% and 5% of the shares respectively), and that the shares had been allocated to the new shareholders as follows: 12% to the second respondent (Mdwaba), 10% to the third respondent (Behan), 5% to the seventh respondent; 5% to the eight respondent; and 9% to the ninth respondent.
[13] Haanyama and Erasmus allege, in the Haanyama application, that they were divested of their shares in the company without signing an instrument of transfer, and that Katuliiba contravened the provisions of s 221 of the (now repealed) Companies Act, 61 of 1973 (“the old Companies Act”), by allotting and issuing shares in the company without prior approval of the company’s shareholders in general meeting, thereby creating new shareholders without proper authority.
[14] These allegations are then reiterated by the applicants, in the present application, together with the allegation that the company is currently operating in an unstable environment as a result of the conduct of the Katuliiba in altering the company’s share register. The respondents, in answer, state that they find Mavuso Msimang’s response remarkable, as he had, prior to the launching of the present application, been fully aware of the disputes which have arisen between the company, and Haanyama and Erasmus. They point out that Msimang was the directing mind of the company, as chairman of the board, at that time, and he was also a signatory, on behalf of the applicants, to the shareholders’ agreement of 26 October 2004, which reflected neither Haanyama nor Erasmus as shareholders in the company. They further allege that he signed the share certificates for all the shareholders after 2004, and he participated in all directors’ meetings of the company between 2004 and July 2008, but at no point during his tenure did he raise any objection to the present shareholders or their shareholding.
[15] On 26 January 2010, in the matter of Sylvester Haanyama and Sheldon Erasmus v Investage 13 (Pty) Ltd and 15 Others, under case no 03112/10, Haanyama and Erasmus sought an order that the company be restrained from receiving money, due to it from Young and Rubicam, into any bank account except for the one held at First National Bank (“the interdict application”). This application had the desired effect, as Young and Rubicam decided not to pay over the money it owed to the company. Consequently, the application was never set down for hearing by Haanyama and Erasmus.
[16] In June 2012, in the matter of WPP Kraken and Others v Peter John Katuliiba; Perry-Mason Mdwaba and Memeza-QRZ (Pty) Ltd, under case no 16899/2012, various applicants including the company, WPP-Memeza Holdings and Young and Rubicam sought an order against Katuliiba and Mdwaba interdicting them from conducting themselves directly or indirectly, in any manner whatsoever, which was contrary to their fiduciary duties that they held towards Young and Rubicam and WPP-Memeza Holdings, and from publishing defamatory statements about the applicants particularly as regards accusations of ‘fronting’ and other ancillary relief (“the Young and Rubicam application”). Extensive affidavits have been filed by all the parties and there are interlocutory applications which require resolution before the application can be set down for hearing. Of particular relevance to the present application is that it has emerged, in the Young and Rubicam application, that Mavuso Msimang, in his capacity as chairman of WPP-Memeza Holdings, signed a resolution, on 17 June 2011, to remove Katuliiba and Mdwaba as directors of Young and Rubicam.
[17] As indicated earlier in the judgment, in June 2009 in the matter of Peter Katuliiba and Memeza-QRX (Pty) Ltd v Sylvester Haanyama and Others, under case no 40251/09, both Katuliiba and the company applied for an order on an urgent basis, inter alia, amending the interim order which was obtained by Haanyama and Erasmus on 14 October 2009 (“the application to vary”). This application was opposed by Mavuso Msimang, and was struck from the roll for want of urgency.
[18] At the hearing of the current matter, I was informed that the application to vary was set down on the normal motion role for the week 23 October 2012. On Monday 8 October 2012, two days before the hearing of the current matter, Haanyama, Erasmus and Mavuso Msimang filed further answering affidavits. The respondents contend that those affidavits are highly relevant to the current proceedings, thus making it clear that the current application is stale as it ignores the many legal and factual events, which have occurred after its launch. I understand that the application to vary was heard on 23 October 2012, and judgment has been reserved.
[19] As mentioned, on 14 October 2009 the company (and its directors) were interdicted, from transferring the accounts or credit balances of funds held in the RMB Private Bank (“RMB”) account numbers 62050231027 and 62072314413 (“RMB accounts”) for the benefit of the company, to any third party or entity and, from accessing the funds held in these accounts. This notwithstanding, RMB and the company were permitted, in terms of the court order, to make payment from the RMB accounts of invoices received from H Moosa & Co, Bell Dewar Inc, Levitt Kirsten Management Services CC, and the monthly administration fee of Katuliiba in the amount of R25000 per month for the months of July, August and September 2009, and any other subsequent months thereafter.



[20] H Moosa & Co was the company’s auditors. It resigned in February 2011. Bell Dewar Inc was the company’s commercial attorneys, and Levitt Kirsten Management Services CC provided secretarial services to the company. In December 2009, the company informed Young and Rubicam that it must pay the management fees owed to it into a new bank account. This then resulted in the bringing of the interdict application, by Haanyama and Erasmus, to prevent Young and Rubicam from paying money into the new bank account claiming inter alia that:
“…I have further been advised that the only basis for the aforesaid request to be made [the request by the company to Young and Rubicam, and other debtors to make payment into the new bank account] is for the respondents who are presently in dispute with the applicants to unlawfully get their hands on funds owing by [Young and Rubicam] to [the company] to the ultimate detriment of the parties.”
[21] The respondents in the interdict application, including Katuliiba, answered pertinently that they required the funds in order to continue to run the business of the company, hold shareholder’s meetings, pay creditors, remunerate its directors, and meet the company’s other statutory responsibilities. Similarly, in the present application, the respondents state that the effect of the interdict was to deprive the company of funds to remunerate its directors or pay its expenses.



[22] The respondents argue that it is clear from the various applications, referred to above, that the purpose of the present application is the removal of Katuliiba and Mdwaba as directors of the company before the outcome of the Haanyama application, which has now been referred to trial, so as to stifle opposition to the takeover of the shareholding of the company. This, they contend, is evident from the Haanyama application, which brings to light that Haanyama, Erasmus and Mavuso Msimang are working in concert to remove Katuliiba and Mdwaba as directors of the company.
[23] The respondents take issue that there is no explanation from Mavuso Msimang, in the Haanyama application, of the affairs of the company between 2003 and 2009, despite the fact that he was a director and the chairman of the company during this period. They contend that it was also during this period that events concerning the removal of Haanyama and Erasmus and the change in shareholding of the company occurred yet, as is apparent from the Haanyama application, Mavuso Msimang supports their reinstatement as shareholders in the company. They, therefore, maintain that the events which Mavuso Msimang confirms, in the Haanyama application, are in direct contradiction with his own actions taken during the period of his chairmanship of the company.
[24] The respondents submit that a clear inference can be drawn that the improper purpose of the present application is to remove Katuliiba and Mdwaba as directors, so as to eliminate any opposition to a takeover of the shareholding of the company, before the outcome of the trial. They contend that the present application is thus an abuse of court process because the applicants invoke a statutory remedy, under the new Companies Act, for the improper purpose of removing Katuliiba and Mdwaba as directors of the company, in order to stifle opposition to a takeover of the shareholding of the company by the Msimangs, Katuliiba and Mdwaba.
[25] The applicants counter these contentions by arguing that although the numerous applications, relied upon by the respondents, may have some relevance to the issues in question, and that there may be disputes of fact in relation to some issues, any such disputes of fact are irrelevant to the failure on the part of Katuliiba and Mdwaba to:


  1. prepare the annual financial statements of the company since the financial year ending 28 February 2004;

  2. convene an annual general meeting (“AGM”) of the company since the last held AGM in 2006; and

  3. appoint an auditor since February 2011, when the company’s auditor resigned.


[26] The applicants point out that most of these contraventions preceded the interim interdict which was obtained on 14 October 2009 by Haanyama and Erasmus, and neither the Haanyama application nor any of the other applications relied upon by the respondents, have any relevance to the question of whether Katuliiba and Mdwaba may be declared to be delinquent directors for failure to carry out their statutory obligations to cause to prepare annual financial statements for the company since 2004, hold an AGM since 2006, and appoint a company auditor since February 2011. The applicants submit that although Mavuso Msimang may have a commercial objective for the removal of Katuliiba and Mdwaba as directors of the company, this does not make it impermissible for the applicants, as shareholders of the company, to invoke a statutory remedy – such as is provided for under s 162 of the new Companies Act − where the pre-requisites for invoking the remedy are satisfied. I agree.
[27] I am of the view, in this regard, that the use of the remedy, under s 162 of the new Companies Act, to effect the removal of directors from a company who are acting in contravention of their statutory duties, for a commercial purpose, does not have an objectionable and improper purpose. The mere invocation of a statutory remedy for reasons other than those, for which it is primarily intended, although typical, is not, in my view, complete proof of mala fides. In order to prove mala fides, a further inference that an improper result was intended is needed (Brummer v Gorfil Brothers Investments (Pty) Ltd en Andere 1999 (3) SA 389 (SCA) at 414I-J). I am, however, unable to draw that inference from either the current application or any of the other applications relied upon by the respondents.



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