Introduction
In the recent case of “Van Der Westhuizen v Van Der Westhuizen and Others (24614/2022) [2024] ZAGPPHC 15,” the North Gauteng High Court in Pretoria grappled with a compelling scenario involving two brothers at loggerheads, leading to a request for the winding up of family businesses. This blog delves into the nuances of this case, particularly focusing on the application of Section 81 of the Companies Act in the context of familial disputes.
The Heart of the Matter
At the center of this dispute were two brothers, L Van Der Westhuizen (the applicant) and P Van Der Westhuizen (the first respondent), embroiled in a bitter feud over the management of family-owned businesses inherited from their father. The applicant sought the winding up of these entities, citing a breakdown in trust and irreconcilable differences affecting the management (paragraph [6]).
Legal Framework
The pivotal legal question revolved around Section 81 of the Companies Act 71 of 2008, particularly subsection (1)(d)(iii), which allows for the winding up of a solvent company if it is “just and equitable” to do so (paragraph [8]). The court also considered the analogous principles in partnership law, especially the ‘deadlock principle’ as established in “In re Yenidje Tobacco Co Ltd [1916]” and further explored in “Thunder Cats Investments 92 (Pty) Ltd v Nkonjane Economic Prospecting & Investment (Pty) Ltd and others [2014] SA 1 (SCA)” (paragraphs [23], [25]).
Court’s Reasoning and Judgment
Justice Nyathi, in delivering the judgment, underscored the significance of the relationship of trust and cooperation essential in such closely held entities, likening them to partnerships. He noted, “If by conduct which is either wrongful or not as contemplated by the arrangement, one or more of the members destroys that relationship, the other member or members are entitled to claim that it is just and equitable that the company should be wound up…” (paragraph [23]).
The judgment culminated in the winding up of the entities, Trackstar Trading 20 CC and HM & H EIENDOMME CC, underlining the court’s view that the deadlock and the breakdown in the relationship between the brothers rendered the continuation of these businesses untenable (paragraph [31]).
Memorable Quote
A notable quote from the judgment: “There is no doubt in my mind that the corporate entities that were bequeathed to the duelling brothers are not functioning as corporate entities or even partnerships with joint consensual decision-making as intended by the deceased testator” (paragraph [30]).
FAQs:
- What constitutes a ‘just and equitable’ ground for winding up a company?
- ‘Just and equitable’ grounds can include situations where there is a deadlock in management, a breakdown in trust and cooperation, or other circumstances making it impractical to continue the business.
- Can family disputes lead to the winding up of a family business?
- Yes, as seen in this case, severe family disputes affecting the management and operation of the business can be grounds for winding up.
- Does the court always favor winding up in cases of management deadlock?
- Not necessarily. Each case is evaluated on its merits, and the court considers whether winding up is the most equitable solution among available options.
