Adele Colette Farquhar v Banknote Enterprises (Pvt) Ltd t/a Bankable Real Estate and Rodwell Mbirimi and Betty Nomsa Mbirimi

The applicant, a property manager and trained lawyer, resigned from her employment to start a real estate business. As she was not a registered estate agent, she partnered with the second respondent, a registered estate agent who owned a shelf company (the first respondent) that had never traded. In January 2014, they agreed to operate an estate agency business through this company, with each being allotted 500 shares. The company commenced trading in May 2014. Serious differences arose between the parties. The second respondent attempted to remove the applicant as director by claiming she was never a shareholder, producing a backdated shareholders agreement dated 20 December 2012 between himself and his wife (third respondent), and claiming they held the majority of shares. The applicant obtained a provisional liquidation order on 13 October 2014. The second respondent then registered another company, Bankable Real Estates (Pvt) Ltd, using the trading name of the first respondent, and continued trading.

• Whether the applicant had locus standi to bring the winding up application as a member/contributory of the company
• Whether the shareholding agreement dated 20 December 2012 and related share certificates in favor of the second and third respondents were valid
• Whether it was just and equitable to wind up the company in terms of section 206(g) of the Companies Act
• Whether punitive costs should be awarded against the respondents for dishonest conduct

1. The provisional liquidation order granted on 13 October 2014 was confirmed as a final order, save that the named provisional liquidator was not confirmed as final liquidator. 2. The final liquidator to be appointed in terms of Chamber Application HC 3005/2014 or sections 218 and 219 of the Companies Act. 3. Costs awarded against the second and third respondents jointly and severally on a legal practitioner and client scale.

The binding legal principles established are: (1) A shareholder who has been properly allotted shares and issued a share certificate has locus standi as a contributory to bring a winding up application under section 207 of the Companies Act. (2) Withdrawal of capital contributions from a company does not constitute a sale of shares absent evidence of a buyer, agreement on price, and proper transfer procedures. (3) Share allotments and resolutions relating thereto have no force or effect until registered with the Registrar in terms of section 136(1) of the Companies Act. (4) Documents purporting to evidence shareholding that contradict official company returns filed with the Registrar will be rejected as fabrications. (5) Under section 206(g) of the Companies Act, it is just and equitable to wind up a company where equal shareholders holding equal voting rights are in irreconcilable deadlock and one shareholder has engaged in dishonest conduct to deprive the other of their shareholding. (6) Dishonest conduct in litigation, including fabrication of documents and abuse of court process, warrants an award of punitive costs on an attorney-client scale.

The court observed that when parties elect to conduct business through a company, they make a conscious decision to be governed by company law and cannot later seek to circumvent its requirements in favor of other laws or personal arrangements when it suits them. The court also noted that the second respondent's conduct showed "a disdain of all that a provisional liquidation order stands for and a complete disregard of all principles of fairness" and "a contemptuous regard of the process of the court." The court commented that the applicant "must be regretting tying her retirement and indeed the twilight of her career to an estate agency business that had the second respondent in it" and remarked that the second respondent purchased a shelf company that "had absolutely nothing but a single issued share and had never traded" and "did not have the means to set it in motion."

This case is significant in South African and Zimbabwean company law for: (1) demonstrating the court's willingness to scrutinize and reject fabricated company documents designed to deprive a legitimate shareholder of their rights; (2) reinforcing the importance of compliance with statutory requirements for share allotments and resolutions under section 136 of the Companies Act; (3) illustrating the application of the "just and equitable" ground for winding up under section 206(g) in cases of shareholder deadlock and irreconcilable differences in small companies; (4) establishing that dishonest conduct in attempting to circumvent liquidation proceedings, including registering a new company in the same trading name, warrants punitive costs awards; (5) affirming the locus standi of shareholders to bring winding up applications as contributories, and that withdrawal of capital contributions does not automatically divest shareholding without proper transfer procedures.