Some
attorneys believe that the threat of sequestration or winding up will force a
debtor into submission. Take care, as this may justify a special order for
costs.
s15
of the Insolvency Act reads:
Compensation to debtor if petition is an abuse of
court’s procedure or malicious or vexatious.—Whenever the court
is satisfied that a petition for the sequestration of a debtor’s estate is an
abuse of the court’s procedure or is malicious or vexatious, the court may
allow the debtor forthwith to prove any damage which he or she may have
sustained by reason of the presentation of the petition and award him or her
such compensation as it may deem fit.
Similarly, a winding-up application will be refused where a
creditor’s application is an abuse of process, e.g. where the application is
brought to bring pressure on the debtor to obtain payment of money to which the
applicant is not entitled or is bona fide disputed.
In Walter McNaughtan (Pty) Ltd v Impala
Caravans (Pty) Ltd where the company had been “put
to needless expense in resisting [the] application although it had expressly
warned the applicant of the basis on which the application would be opposed”,
the court, when dismissing the application, held that the “conduct of the
applicant in nevertheless persisting in a futile application which was doomed
to failure from the beginning” and justified a special order for costs.
Basically, the court has an inherent jurisdiction to prevent abuse
of its process and, even where a ground for winding-up is established, the
court will not grant a winding-up order where the sole or predominant purpose
of the applicant is mala fide and with an ulterior or improper
purpose, or to harass or oppress the company or to fraudulently defeat its
rights.
Having said that, where proper grounds for a winding-up are
established, the court ought not to exercise its discretion against the
applicant unless it appears that the improper and ulterior purpose is at least
the predominant purpose motivating the applicant.
The court could even grant an interdict restraining a person
from bringing or proceeding with, or dismiss, an application for the
winding-up of a company if that application is or would be an abuse of the
process of the court. The court’s jurisdiction to grant an interdict or dismiss
the application should be exercised with great circumspection and with regard
to the justice of the case on each side.
