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[2020] ZAWCHC 55
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Thomson & De Kock Construction Company (Pty) Ltd v Terblanche NO and Others (12870/19) [2020] ZAWCHC 55 (19 May 2020)
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
CASE
NO: 12870/19
REPORTABLE
In
the matter between:
THOMSON
& DE KOCK CONSTRUCTION
COMPANY
(PTY)
LTD
Applicant
and
HELGAARD
MULLER MEIRING TERBLANCHE N.O
First Respondent
JOHANNES
JACOB THERON N.O
Second Respondent
MBULLO
MOSES SIDYIYO
N.O
Third Respondent
HELGAARD
MULLER MEIRING TERBLANCHE
Fourth Respondent
JOHANNES
JACOB
THERON
Fifth Respondent
MBULLO
MOSES
SIDYIYO
Sixth Respondent
Coram:
P.A.L.Gamble, J
Date
of Hearing: 4 December 2019; 5 & 6 February 2020.
Date
of Judgment: 19 May 2020
JUDGMENT
DELIVERED ELECTRONICALLY ON 19 MAY 2020
GAMBLE,
J:
INTRODUCTION
1.
This
opposed application arises from the liquidation of a property
development business known as Cape Vernacular Properties CC (“
CVP
”)
which was finally wound up by order of this court on 27 October 2009.
Pursuant to the winding up, the first to third respondents
were duly
appointed by the Master as the joint liquidators of CVP. Now, more
than 10 years later, the winding up process is unresolved
and is
unlikely to be completed in the immediate future. So much for the
suggestion of Kuper J in
SA
Clay
[1]
that “
the
whole machinery of the [Companies] Act is directed towards a speedy
liquidation and distribution of the assets of the insolvent
estate.”
THE
RELEVANT FACTS
2.
The applicant company, Thomson and De Kock
(Pty) Ltd (“
TDK
”),
was employed by CVP to install certain bulk services for a housing
development being constructed by CVP on the remainder
of Erf 185,
Blue Downs, Cape Town (hereinafter referred to as “
the
property
”). The development ran
into financial difficulty and in the process of the winding up that
ensued, TDK submitted to the liquidators
a claim for its civil
engineering services in the sum of R3 053 120,46. It
is common cause that the only other
creditor of CVP is a company
known as Slip Knot Investments 777 (Pty) Ltd (“
Slipknot
”)
which had advanced loan finance to CVP in excess of R20m and had also
subsequently taken cession of a further loan to CVP
of more than R2m
by Imperial Bank. The property is the only asset owned by the
liquidated entity.
3.
Slipknot’s loans were secured by
various mortgages over the property and the liquidators automatically
assumed that its secured
claims ranked ahead of that of TDK. Not so,
said TDK. Its claim was in respect of an “
improvement
and salvage
lien
”
(having performed construction work on the property prior to the
liquidation it is in truth an enrichment lien) and in early
2010 it
asserted the right to rank first amongst the creditors.
4.
The
liquidators then sought legal advice, initially in March 2010, from
counsel who confirmed TDK’s stance on the basis of
established
authority, inter alia,
Smookler’s
Trustees
[2]
and
Brooklyn
House
[3]
.
However, the liquidators were not happy with such advice and in
November 2010 they sought a second opinion from an attorney who
distinguished the cases relied upon by counsel and, relying on
Buzzard
Electrical
[4]
,
advised the liquidators that their stance was correct in law.
5.
On the strength of the second opinion the
liquidators took the pre-emptive step of concluding a deed of sale
with Slipknot in December
2011 in terms whereof the property was sold
to Slipknot for R2 207 574,00 which equated to the capital
of TDK’s
claim less interest and administration costs.
This sale took place without TDK’s knowledge and almost 3 years
before
the confirmation of the First and Final Liquidation Account
(“
the first L&D account
)
by the Master.
6.
In terms of the deed of sale no money
passed hands: the intention was that the purchase price would be
offset against Slipknot’s
claim in liquidation by way of an
interim award. There was however a proviso in the deed of sale: a
manuscript insertion in the
typed document which reads -
“
In
the event the court or the master rule the claim of Thomson De Kock
(sic) rank (sic) first or above Slipknot (sic) claim, the
full
purchase price will be payable.”
In
June 2012 the liquidators went ahead and transferred the property to
Slipknot without recovering payment of the purchase price.
7.
In August 2014 the liquidators filed the
first L&D account with the Master and reflected TDK as a secured
creditor on the strength
of its improvement lien but ranked its claim
behind that of Slipknot. Thereafter TDK lodged an objection against
the first L&D
account with the Master who, on 27 June 2016,
upheld TDK’s objection and ruled that its claim enjoyed
preference above all
other claims of creditors in the insolvent
estate of CVP.
8.
As
a consequence of this ruling, and by virtue of the manuscript
insertion in the deed of sale referred to above, Slipknot became
immediately liable to effect payment of the full purchase price to
the liquidators. It did not do so, however, deciding rather
to take
the Master’s ruling on review in terms of the provisions of
s407 of the Companies Act, 61 of 1973 (“
the
Old Act
”).
On 21 February 2018 Fortuin J dismissed Slipknot’s review
application
[5]
and upheld the
decision of the Master. Undaunted by this ruling, Slipknot appealed
the order of Fortuin J before a Full Bench of
this Division which, on
3 May 2019, upheld the order of the court
a
quo.
9.
On 24 May 2019 the liquidators (pursuant to
the written demand of TDK) lodged an Amended Liquidation and
Distribution Account (“
the amended
L&D account”)
with the Master
for confirmation and on 23 July 2019 this account was duly confirmed
by the Master. This event brought Slipknot’s
obligation to pay
the purchase consideration to the trustees unequivocally into effect
and on the same day TDK demanded payment
of its secured award from
the liquidators. Their failure to do so gave rise to this application
which was launched as a matter
of urgency on 25 July 2019.
THE
BASIS FOR THIS LITIGATION
10.
The position adopted by TDK is that the
provisions of s409(1), 410(4) and 387(4) of the Old Act are
applicable to the amended L&D
account. Accordingly, it argues
that once confirmed by the Master, the award in its favour shall, in
terms of s408(2) of the Old
Act “
have
the effect of a final judgment
”
and that it is therefore entitled to payment forthwith. It
accordingly requests the Court to compel the liquidators to pay
the
award to it.
11.
The liquidators’ response is that the
confirmed account is incorrect in that it wrongly reflects that the
proceeds of the
sale of the property to Slipknot have been realized
and that they are available for distribution to creditors as a
secured award.
They have accordingly filed a counter-application in
which they seek the setting aside of the amended L&D account and,
in addition,
apply to lodge a further L&D account.
SUPPLEMENTARY
MASTER’S REPORT
12.
When the matter served before this Court on
4 December 2019 it became apparent during the course of counsel’s
addresses that
a further report by the Master might assist the Court
in considering the matter. Accordingly, the matter was postponed by
agreement
until 5 February 2020 and the Master was requested to
furnish a supplementary report in which she was directed to answer
certain
questions which the parties’ had jointly formulated.
That supplementary report was filed on 8 January 2020 and in it the
Master comprehensively dealt with the issues presented to her. For
the sake of convenience I shall reproduce in full the various
questions posed in the Court order of 4 December 2019 and the
Master’s reply thereto
ad
seriatim.
13.
Question 3.1:
“
Was
the Master aware, at the date that the Master issued her directive of
the 27
th
of June 2016, that the proceeds of the sale of CVP’s property
had not been received by the liquidators?
Answer:
No, the Master was not aware at the time of
making her ruling that the proceeds of the sale had not been paid.
The Master became
aware that the proceeds of the sale had not been
paid when she received a letter from [TDK’s attorneys]…
dated 24
April 2017. Paragraph 6.11.6 states ‘there is no
evidence that the liquidators have secured the purchase price of
R2 297 574,00
from Slipknot’. This was further
confirmed by the liquidators in their letter dated the 12
th
of June 2017…”
14.
Question 3.2:
“
If
the Master was so aware, did the Master give consideration as to how
the secured award would be paid by the liquidators and if
so, in what
manner did the Master envisage that the liquidators would make
payment thereof?”
Answer:
As the Master was not aware of the fact that
the purchase price had not been paid at the time of making her ruling
on the 27
th
of June 2016, the Master never considered how the liquidators would
make payment in terms of the liquidation account.”
15.
Question
3.3:
“
Was
the Master aware that the Court Order of 21 February 2018
[6]
had directed the Master to confirm the amended account?”
Answer:
“
Yes an email was sent by [TDK’s
attorneys] on the 23
rd
of February 2018 to Delphine Smith of the Masters (sic) Office, Cape
Town… which attached the judgment dated the 21
st
of February 2018.”
16.
Question 3.4:
“
If
so, did the Master confirm the L&D account of 23 July 2019 in
compliance with such directive?”
Answer:
“
Yes, on the 13
th
of March 2018 Dalphine Smith of the Masters Office received an email
from Marthie Nel… who represented Slipknot Investments
777
(Pty) Ltd. Attached to the email was the Applicants’
Application for Leave to Appeal. The application for leave to appeal
was granted and judgment in respect of the appeal delivered on 3 May
2019. The Master was subsequently advised of the judgment
under cover
of [TDK’s attorneys’] letter dated the 15
th
of May 2019…”
17.
Question 3.5:
“
Was
the Master aware, when she confirmed the said account on 23 July
2019, that the proceeds of the sale of CVP’s property
had not
been paid to the liquidators?”
Answer:
“
Yes, the Master was aware that the
proceeds of the sale had not been paid at the time of confirming the
First & Final Liquidation,
Distribution Account.”
18.
Question 3.6:
“
Is
the Master of the view (having regard to the fact that the proceeds
of the sale had not been received by the liquidators) that:
3.6.1
the L&D account (confirmed on 23 July 2019) is correct or
incorrect?”
Answer
to 3.6.1:
“
It is the Masters
(sic) belief that the confirmed First & Final Liquidation,
Distribution account is incorrect. The confirmed
liquidation account…
reflects the sale price of R2 516 634,36 and interest
thereon of R1 409 315,24
under vouchers 11 and 21. It is
the Masters (sic) understanding that the interest portion is disputed
by Slipknot Investments 777
(Pty) Ltd and the sale price has not been
paid. As the liquidators are required to make payment in terms of the
account immediately
after confirmation of the account, the
liquidators are unable to comply with their obligations in terms of
section 410(1) and (2)
of the Companies Act 61 of 1973. Ultimately
because the purchase price has not been paid and the interest thereon
is disputed the
liquidation account should not have been lodged or
confirmed pending final resolution of the collection of the purchase
price and
interest. Therefore the liquidation account is incorrect
because it doesn’t reflect the true state of affairs of the
income
received in the estate. A correct liquidation account will
only be able to be lodged once the issues relating to the purchase
price
and interest have been concluded and the liquidators can
undisputedly state what was actually received.”
“
3.6.2
there are any grounds on which the account of 23 July 2019 should be
re-opened?”
Answer
to 3.6.2:
Yes, as it stands now the
liquidators are unable to pay dividends as they are obliged to do in
terms of section 410 furthermore
the account may have to be re-opened
depending on what is decided on the interest portion of the sale
price.”
THE
APPLICABLE STATUTORY REGIME UNDER THE OLD ACT
19.
The point of departure is s391 which
describes the general duties of a liquidator.
“
A
liquidator in any winding-up shall proceed forthwith to recover and
reduce into possession all the assets and property of the
company,
movable and immovable, shall apply the same so far as they extend in
satisfaction of the costs of the winding-up and the
claims of
creditors, and shall distribute the balance among those who are
entitled thereto.”
20.
Under s403 the liquidator is required to
prepare and lodge a liquidation and distribution account.
“
(1)(a)
Every liquidator shall, unless he receives an extension of time as
hereinafter provided, frame and lodge with the Master
not later than
six months after his appointment an account of his receipts and
payments and a plan of distribution, or, if there
is a liability
among creditors and contributories to contribute towards the cost of
the winding up, a plan of contribution apportioning
their liability.
(b) If the account
lodged under paragraph (a) is not a final account, the liquidator
shall from time to time as the Master may direct,
but at least once
in every period of six months (unless he receives an extension of
time), frame and lodge with the Master a further
account and plan of
distribution: Provided that the Master may at any time and in any
case where the liquidator has funds in hand,
which ought in the
opinion of the Master to be distributed or applied towards the
payment of debts, direct the liquidator in writing
to frame and lodge
with him an account and plan of distribution in respect of such funds
within a period specified.
(2) Any account shall
be lodged in duplicate in the prescribed form, shall be fully
supported by vouchers, including the liquidator’s
bank
statements or certified extracts from his bank and building society
accounts showing all deposits and withdrawals, and shall
be verified
by an affidavit in the prescribed form.”
21.
The objection lodged to the first L&D
account by TDK was founded on s407 as was the review by Slipknot of
the Master’s
decision in favour of TDK.
“
(1)
Any person having an interest in the company being wound up may, at
any time before the confirmation of the account, lodge with
the
Master an objection to such account stating the reasons for the
objection.
(2)
If the Master is of the opinion that any such objection ought to be
sustained, he shall direct the liquidator to amend the account
or
give such other directions as he may think fit.
(3)….
(4)(a)
The liquidator or any person aggrieved by any direction of the Master
under this section, or by the refusal of the Master
to sustain an
objection lodged thereunder, may within fourteen days after the date
of the Master’s direction and after notice
to the liquidator
apply to the Court for an order setting aside the Master’s
decision, and the Court may on any such application
confirm the
account in question or make such order as it thinks fit….”
22.
And once that review was finally determined
by the Full Bench and the amended account confirmed by the Master,
the liquidators were
obliged to take action in terms of s409(1).
“
Immediately
after the confirmation of any account the liquidator shall proceed to
distribute the assets in accordance therewith….”
23.
In the event that a liquidator fails to
comply with the statutory obligation imposed under s409(1), a
disgruntled creditor is entitled
to approach the court under s410.
“
(4)
Any creditor or member of the company entitled to any dividend may,
if payment thereof is delayed, after notice to the liquidator,
apply
to the Court for an order compelling the liquidator to pay that
dividend to such creditor or member.”
It
is under this subsection of the Old Act that TDK approached the Court
in July 2019 for an order that its claim be paid.
24.
In the result, to succeed in this
application TDK must establish the following jurisdictional
requirements for the relief sought.
[24.1.]
That it is a creditor of the insolvent
company. This is common cause.
[24.2.]
That it is entitled to a dividend. This is
common cause to the extent that the amended L&D account currently
reflects TDK as
the first ranking secured creditor but for reasons
which will follow, the liquidators claim that they are unable to pay
the dividend
and that TDK is not so entitled.
[24.3.]
That payment of the dividend has been
delayed. This is not in issue.
[24.4.]
The liquidators must have been given notice
of the intended application. This has taken place and they have
opposed the application.
THE
BASIS FOR THE LIQUIDATORS’ OPPOSITION
25.
The basis on which the liquidators contest
their liability to TDK is their contention that the amended L&D
account is incorrect
and should therefore be set aside and re-opened.
While they do not fully articulate the basis for the defence in the
answering
affidavit, they do set out their position in a little more
detail in the founding affidavit in the counter-application.
26.
In that regard the first respondent
contends that the amended L&D account is incorrect for the
following reasons.
“
101.
The [amended L&D] account reflects
inter
alia
the following;
101.1.
That the proceeds of the sale of the property is (sic) the sum of
R2 516 634.36
;
101.2
The proceeds of the interest (on the sale price) is (sic)
R1
409 315.24
;
101.3 An award
to ‘
Creditor 3
’ (i.e. TDK Construction) of
R3 053 120.46
.
102.
Although it is the case that the property will realise proceeds and
interest, and that there will be a secured award to TDK
Construction,
the account
incorrectly
reflects that (sic) the proceeds and interest as having been
realised, and that same is available (in part) for distribution as
a
secured award.
103.
That is simply
not
the case.
104.
A further account needs to be lodged, or the account needs to be
amended and re-lodged, this time reflecting the claims against
Slipknot Investments in terms of the deed of sale (as opposed to
reflecting the proceeds of sale of the property and interest).”
27.
In a notice of counter-application which
accompanies that affidavit the liquidators contend, firstly, that the
main application
falls to be struck from the roll due to lack of
urgency. That issue is live only to the extent of liability for the
wasted costs
occasioned by the postponement of the matter before
Savage J on 15 August 2019.
28.
Then, by way of substantive relief, the
liquidators ask for,
inter alia
–
[28.1.]
the setting aside and re-opening of the
amended L&D account;
[28.2.]
leave to lodge an amended or further L&D
account;
[28.3.]
an order directing them to lodge any such
amended or further L&D account with the Master within 30 days,
and to comply with
sections 403(1)(a) and 403(2) of the Old Act in
doing so; and
[28.4.]
the stay of the main application until such
amended or further account as submitted by the liquidators has been
confirmed by the
Master.
TDK’S
ANSWER TO THE COUNTER-APPLICATION
29.
TDK accepts that the liquidators are not
possessed of sufficient funds in the bank account of the insolvent
company with which to
pay the claim which Fortuin J found was due to
it. Counsel for TDK, Adv. J.A. van der Merwe SC, argued that the
absence of such
funds was directly attributable to the cavalier way
in which the liquidators had disposed of the property to Slipknot,
knowing
full well that TDK challenged the liquidators’ view
that Slipknot ranked first. That, after all, was the purpose of the
manuscript
insertion in the deed of sale.
30.
Counsel further pointed out that what the
liquidators evidently did not reckon on was the fact that Slipknot
would renege on its
obligation when called upon to pay in terms of
the deed of sale. And so, counsel argued, the liquidators find
themselves in a pickle:
they complain that they cannot comply with
their statutory obligation pursuant to the order of Fortuin J and
they now have to sue
Slipknot for payment of the purchase price under
the deed of sale. In this regard the Court was informed that summons
had been
issued against Slipknot, that the claim was being defended
(although the basis for Slipknot’s defence was not explained)
and that the matter was far from trial ready.
31.
In this regard, the Court was told by the
first respondent in a late affidavit deposed to on 5 February 2020
that discovery on the
part of Slipknot was still outstanding and that
the liquidators were in the process of compiling their own discovery
affidavit
in anticipation of it being called for. The court was
informed that the Judge President was going to be approached for
directions
for judicial case management in accordance with Rule 37A.
To date, this Court has not been informed of any such appointment.
32.
When this matter was heard in early
February 2020, Covid 19 was a phrase that those who even knew of,
associated with the city of
Wuhan in China. In the interim the
pandemic has erupted world-wide and the response in South Africa to
Covid 19 has had the result
that the work of courts throughout the
country has been severely interrupted. As matters presently stand, it
is most unlikely that
the liquidators’ claim against Slipknot
will be accorded any priority on the reconstituted court rolls, given
that it is
a purely commercial matter. It is reasonable to infer in
the circumstances that the trial action initiated by the liquidators
is
unlikely to be heard in this Division before 2021. The possibility
of subsequent appeals to other courts leads one to the conclusion
that TDK might well only be paid its due in 2 or 3 years hence.
33.
And so, when TDK looks for payment of money
that has been owing to it for 10 years now (and in respect whereof
its entitlement to
interest on its claim is hit by the
in
duplum
rule), the liquidators
metaphorically shrug their shoulders and assert that their collective
hands are tied.
34.
Mr.
van der Merwe SC, ultimately eschewing a suggestion made earlier in
argument that the liquidators had acted fraudulently in
selling the
property to Slipknot, argued that the liquidators had nevertheless
acted imprudently and that an order should be made
against them
personally in terms of s387(4) of the Old Act. Counsel relied in this
regard on the judgment of Binns-Ward J in the
Million
Up Investments
liquidation
[7]
in which the Court was called upon to adjudicate the consequences of
an advance payment to a secured creditor by liquidators in
a fairly
complex web of competing claims by other secured creditors which
ultimately led to a dissatisfied secured creditor approaching
the
Court for an order that she should be paid forthwith.
35.
The
approach contemplated by the learned judge (which TDK’s counsel
accepted was an
obiter
dictum
)
is to be found in the following paragraph of his judgment which
commences with a reference to the general duties of a liquidator
[8]
,
and continues thus -
“
[13]....
Creditors are not entitled to enforce payment from the trustee (or
liquidator) other than to the extent that their claims
have been
recognised in terms of a confirmed liquidation and distribution
account; and the trustee is obliged to make payment of
the dividends
awarded in terms of a confirmed account. The purpose of the framing,
advertisement and confirmation of such an account
is to facilitate
the achievement of accountability, finality and certainty in the
winding up of the estate in issue. A liquidator
who has made an
advance payment of claim is obliged to account for it in the
liquidation and distribution account. Confirmation
of a distribution
account has the effect of a judgment in favour of creditors against
the trustee. It is a procedure that renders
payment of a proved claim
due. Confirmation of the liquidation and distribution account obliges
the trustee or liquidator to make
payment of the dividends awarded in
terms thereof according to the tenor of the account; it does not, in
terms, prohibit him from
making a payment of an amount owing in terms
of a claim before it falls due. In making a payment before it is due,
a trustee or
liquidator should, of course,
act
responsibly and conscious of his duty to administer the
estate for the benefit of the
concursus
of creditors
. It is open to any
person aggrieved by a decision by a liquidator to approach the court,
which may grant any relief it considers
just (s387(4) of the [Old
Act]). In a case in which
the
trustee or liquidator is unable to meet his obligations from the
liquidation proceeds by reason of having made an imprudently
judged
advance payment to a creditor, he
would be personally liable to
make payment in accordance with the account,
and the interests of creditors potentially prejudiced thereby should
be safeguarded by the security that every trustee or liquidator
is
required to furnish before assuming office.”
(Emphasis
added)
36.
After a further reference to the general
duties of a liquidator, the learned judge referred to an established
practice on the part
of liquidators.
“
[15]…..
By making payment of the amount owed to a secured creditor whose
claim has been admitted to proof it cannot be said,
in my view, that
a liquidator would be acting outside his powers merely because
payment is not yet due to, or exigible by the creditor.
The
liquidator undertakes a risk that he may render himself personally
liable to make good on the advance payment if the dividend
is
subsequently not confirmed in the a (sic) relevant liquidation and
distribution account and he is unable to recover the amount
from the
creditor,
but in dealing with the proceeds of the realisation of mortgaged
immovable property in favour of the secured creditor whose claim
has
been formally accepted, the risk will usually be negligible;
a
fortiori
,
when, as usually is the case, the mortgagee is a registered financial
institution. The practical reason for taking the risk is
usually that
by making payment before it is due the liability for payment of
interest on the claim is limited, which no doubt explains
how the
practice of making such advance payments in the circumstances
described in
Meskin’s
work
[9]
became established and has stood the test of time. In my view, in
making
a reasonably determined upon advance payment
to a secured creditor from the proceeds of the realised security, a
trustee or liquidator is acting within the ambit of his general
duties.”
(Emphasis
added)
37.
The
practice adopted by the liquidators in this matter of allocating the
property to Slipknot does seem to be generally in accordance
with
established authority.
Mars
[10]
provides the following useful summary of the position in regard to a
trustee in insolvency, it being trite that the same approach
applies
also to liquidators:
“
Until
an account has been confirmed a creditor even though preferent e.g.
in respect of the funeral expenses, has no right to be
paid.
A
trustee may pay the creditor before confirmation of the account, but
he does so
at
his own risk
. Although it has
been said that a trustee may pay a creditor before his claim has been
proved such payment would be improper and
it has been decided that
it
is improper
for
a trustee to pay out a dividend before confirmation of an account
,
and that the court may restrain him from doing so and even order him
to repay such dividends. The exception to this rule is a
secured
creditor who has realised his own security and who has proved the
claim. Premature payment is sometimes made to a secured
creditor
where the trustee has realised the security and wishes to limit the
estate’s liability for payment of further interest,
but
a
prudent trustee would make such
payment conditional upon
immediate repayment upon demand if for any reason the Master refuses
to confirm the account
in which
payment is eventually awarded to the creditor.”
(Emphasis added”)
38.
However, in this matter the liquidators do
not say that they sold and transferred the property to Slipknot to
halt the running of
interest. On the contrary, as will appear
shortly, they show how they attempted to discharge their statutory
duty under s319 by
disposing of the property through private treaty
and two public auctions, only to be stymied at every turn by
Slipknot’s
steadfast refusal to agree to a sale unless the
price met with its approval.
39.
Ultimately, said Mr. van der Merwe SC, the
Court has a wide discretion under s387(4) and he argued that this
should be exercised
in favour of TDK on account of the liquidator’s
imprudent handling of the sale of the property to Slipknot. He
stressed that
he was not asking the court to hold the liquidators
delictually liable.
THE
BASIS FOR THE COUNTER-APPLICATION
40.
In the founding affidavit of the
counter-application the first respondent explains the liquidators’
motivation for the sale
to Slipknot as follows.
“
The
transfer of the property to Slipknot
78. We exerted
pressure on Slipknot to allow us to deal with the property.
79. The response was a
(verbal) offer to purchase the property for a price of
R1.05
million
.
80. The liquidators
refused to sell the property to Slipknot Investments at that price.
81. However, it was
apparent that:
81.1.
Selling the property in a difficult property market without the
consent of the sole bondholder was an unpalatable prospect
(fraught
with the potential for litigation and delays);
81.2.
Slipknot Investments would not consent to a sale unless the exposure
was substantially reduced thereby.
82. In the
circumstances, a decision was taken to transfer the property to
Slipknot Investments. The deed of sale concerned…
was
concluded on 11 December 2011…
83. The deed of sale
provided for:
83.1
A purchase price in a sum equal to TDK Construction’s claim;
83.2
Payment thereof in the event that it was held that its claim ranked
first or above that of the claim of Slipknot Investments.
84. The effect of the
sale was to ensure that the person whom the liquidators (on legal
advice) regarded as the only secured creditor
received the property
that was the subject of its secured claim, whilst at the same time
ensuring that TDK Construction’s
claim could be met in the
event that - for whatever reason - it was found to be a secured
creditor ranking in preference to the
bondholder, Slipknot
Investments.
85. The property was
transferred to Slipknot Investments shortly after the deed of sale
was concluded. Based on my knowledge of
the affairs of Slipknot
Investments, I was satisfied that it could pay the purchase price.”
41.
The
liquidators then go on to deal with the history of the various steps
undertaken by the Master, the review thereof by Slipknot
and the
unsuccessful appeal against the decision of Fortuin J. They point out
that after the appeal failed they demanded payment
of the purchase
price from Slipknot on 24 May 2019.
[11]
In the email to Slipknot containing that demand the liquidators
pointed out that they had drafted the amended L&D account in
accordance with the judgment of the Full Bench and that such account
had been lodged with the Master the same day. The liquidators
say
that the account was thereafter confirmed by the Master on 23 July
2019.
42.
In
amplification of their claim now that the amended L&D account is
wrong
[12]
and needs to be
corrected, the first respondent says the following.
“
[105]
The liquidators were under pressure to lodge an account, and had been
directed to do so.
[106]
But for such direction I would, in light of the fact that I had not
procured the proceeds of the sale of the property, have
requested the
Master for an extension of time in which to file an account.
[107]
Under the pressure of the direction I lodged the account in the form
that I did.
[108]
In retrospect, however, the account is quite clearly incorrect since,
as Applicants confirm, the proceeds of the sale had
not been
received.”
THE
STATUTORY BASIS FOR RE-OPENING A CONFIRMED ACCOUNT
43.
In
opposing the counter-application, Mr. van der Merwe SC argued that
the liquidators had not met the established test which entitled
them
to the re-opening of the confirmed amended L&D account. He
referred to the recent judgment in the
Zonnekus
Mansion
liquidation
[13]
in which this
Court gathered the authorities relevant to that question. I shall
draw in part on that judgment for sake of convenience,
assuming the
correctness of the approach, with which Mr.I.C.Bremridge SC (who
appeared with Mr.J.Ord for the liquidators) did not
take issue.
44.
The point of departure is s408 of the Old
Act.
“
408.
Confirmation of account
When an account has
lain open for inspection as prescribed in section 406 and –
(a)
no objection has been lodged; or
(b)
an objection has been lodged and the
account has been amended in accordance with the direction of the
Master and has again lain
open for inspection, if necessary, as in
section 407 (4) (b) prescribed, and no application has been made to
the court within the
prescribed time to set aside the Master’s
decision; or
(c)
an objection has been lodged but has
been withdrawn or has not been sustained and the objector has not
applied to the court within
the prescribed time,
the
Master shall confirm the account and his confirmation shall have the
effect of a final judgment,
save
as against such persons as may be permitted by the court to reopen
the account after such confirmation but before the liquidator
commences with the distribution
.”
(Emphasis added)
45.
In
Kilroe-Daly
[14]
Galgut AJA explained the circumstances under which a confirmed L&D
account may be reopened.
“
Section
408 provides that once the account has been confirmed it may only be
re-opened by such persons as may be permitted by the
Court so to do.
We were referred to decisions in our Courts in which application was
made to have the account of a liquidator (or
trustee in insolvency)
re-opened. The principle which runs through all these cases is that
an applicant must show grounds for
restitution
in integrum
such as
iustus
error
or
dolus
before a Court will order the re-opening of a confirmed account. See
SA Clay
…..at
223 – 224 and the cases there cited…
It may well happen,
after the first account has been confirmed, that additional facts
come to the liquidator’s notice. If,
as in my view, the whole
account is, after confirmation, final, the liquidator cannot reopen
it. This would not preclude him from,
in his later account, reducing
or increasing a creditor’s claim or increasing or reducing a
creditor’s contribution.
He will probably have to make the
necessary mathematical adjustments in the amounts to be paid or
collected. It could hardly be
said that the items in the first
account were equivalent to judgments.”
46.
What
then is meant by
iustus
error
in
the context of the present debate? In
Wispeco
[15]
(an application under s112 of the Insolvency Act), Tebbutt J referred
to an extract from the 7
th
edition of
Mars
[16]
which was to the following effect.
“
Thus,
error not caused by negligence, or just and probable, but not
culpable, ignorance of a person’s rights is such a ground,
and
consequently under certain circumstances a creditor might obtain
relief against a confirmed account on establishing his ignorance
that
it was lying for inspection, but the
onus
would be on him to show that his ignorance was justifiable, because
it is the duty of a proved creditor to keep his eyes and ears
open to
enquire as to the fate of his proof, and
prima
facie
his ignorance in the
matter must be imputed to his own negligence.”
In
the 9
th
edition of
Mars
at p 535 the
current authors express a similar view.
47.
Tebbutt
J also referred, with approval, to the following extract from
SA
Clay
[17]
.
“
After
confirmation and before the payment of a dividend the aggrieved
person must show something more than ignorance and prejudice:
he must
show that his failure to object has been induced by
iustus
error
or by fraud… I have
therefore come to the conclusion that in order to succeed the
applicant must establish a ground for
restitutio
in integrum.
”
48.
In concluding his analysis of the law,
Tebbutt J had the following to say.
“
The
onu
s
furthermore is on the Applicant for the reopening of an account to
establish one of the grounds for
restitutio
in integrum
…
It
seems to me, however, that such an Applicant bears a further onus: he
would have to show the Court that there is merit in the
reopening of
the account. A Court will not reopen an account if it cannot be shown
that the Applicant has some prospect of success
of having the account
varied or corrected… No purpose would obviously be served in
merely reopening the account if it is
likely to remain in the same
form as originally drawn. The applicant must establish at least
prima
facie
that the account is incorrect and would have to be amended.”
[18]
49.
It is true that the majority of reported
cases for re-opening a confirmed L&D account involve claims by
creditors in respect
of whom fairly strict criteria are laid down.
This serves a practical purpose to ensure transparency and certainty
and to enable
the winding-up to be brought to a speedy conclusion.
Creditors are expected to have their proverbial ears to the ground
and the
metaphorical “
Johnny-Come-Lately
”
will have his work cut out explaining why a timeous claim was not
lodged. But what of the situation where the applicant
for re-opening
is the liquidator? Is the test any different?
RE-OPENING
AT THE REQUEST OF THE LIQUIDATOR
50.
Much
of the case law dealing with applications for re-opening relate to
insolvency proceedings rather than winding-up. Thus the
commentary in
Mars
focuses on
s112
of the
Insolvency Act, 24 of 1936
. However, the
wording of s408 of the Old Act is, to all intents and purposes,
identical to s112 and over the years the courts have
applied the
jurisprudence that has developed under that section of the
Insolvency
Act to
the interpretation of
s408.
In arguing this point (really the
crux of the liquidators’ case), Mr.Bremridge SC relied heavily
on the judgment of Hugo
J in
Morris
and Strydom
[19]
.
51.
The
case involved an application under
s112
of the
Insolvency Act and
was
unopposed. That notwithstanding, the learned judge reserved judgment
for a couple of days and delivered a reasoned judgment
which has
since been cited by
Meskin
[20]
as authority.
“
It
is submitted that the principles adverted to in the preceding
paragraph do not operate to preclude the Court’s allowing
at
the instance of the liquidator an amendment or setting aside of a
confirmed account prior to payment of a dividend thereunder
where
the liquidator
bona fide
erroneously prepared such account.”
(Emphasis added)
52.
Mr. van der Merwe SC nevertheless urged the
Court not to follow
Morris &
Strydom
arguing that Hugo J did not
explain the basis upon which a court could ignore the express
provisions of
s408
which provide that the confirmation of an L&D
account by the Master has the effect of a final judgment. In such
circumstances,
said counsel, the common law requirements for the
setting aside of a final judgment should apply and there was no
legally tenable
basis upon which Hugo J decided the case in favour of
the trustees. In my view it is not necessary to decide that point for
the
reasons that follow.
PAYMENT
OF DIVIDEND?
53.
In
the first place, it must be borne in mind that the proviso in
s408
to
the entitlement to apply to re-open is that the liquidator must not
yet have effected payment of a dividend. There is a sound
reason for
this requirement: the liquidator should not thereafter have to set
about recovering amounts already paid to creditors
and, similarly,
creditors already in receipt of their dividends are entitled to
conduct their business affairs accordingly. The
position was summed
up thus by De Villiers CJ in
Stewart’s
Assignee
[21]
.
“
It
might be productive of the greatest injustice to vigilant creditors
if, long after they have received their dividends and regulated
their
business accordingly, they can be compelled to refund what they have
received merely because of less vigilant creditors who
have proved
have not taken further payments to enquire how their proof has been
dealt with by the Trustee.”
The
approach is thus based both on questions of equity and commercial
expediency.
54.
In this matter, as in the
Million
Up Investments
liquidation, the
liquidators have effectively made part payment of a dividend in the
winding-up by transferring the property to
Slipknot. (The fundamental
difference here is that the property is the only asset in the
insolvent company which has any value.)
And the result of their
action has led to precisely what De Villiers CJ cautioned against in
the passage just cited. More
than 10 years after the event the
liquidators have become embroiled in protracted litigation to recover
the value of the dividend
from a creditor which was incorrectly paid
while the creditor actually entitled to payment is being made to wait
for its money
and cannot even be compensated with an adequate award
of interest.
55.
I am driven to conclude that in the
circumstances, whatever the difference in approach may be in regard
to an application to re-open
by a creditor or a liquidator, on the
facts of this case the liquidators, having effected the payment of a
dividend by transferring
the property to Slipknot, have not brought
themselves within the ambit of
s408
and are not entitled to ask for
an order to re-open.
56.
In the event that I am wrong on this score,
I shall proceed to consider the matter on the basis argued by
Mr.Bremridge SC that the
judgment of Hugo J was applicable to the
counter-application.
57.
In
Morris
and Strydom
the Court permitted the
re-opening of the confirmed L&D account because there were errors
in the calculation of the dividend
which would have resulted in the
creditors receiving more than they were actually entitled to and,
importantly, which would have
required the trustees to pay in the
difference between the allocated amount and the correct amount out of
their own pockets.
58.
During the course of hearing the
application, the learned judge adjourned the matter on two occasions
to enable the trustees to
supplement their papers to demonstrate to
the court that their errors were
iustus.
Ultimately the Court was more than skeptical about their
explanations.
“
I
shall not attempt to set out the explanations given for the errors,
save to say that I am by no means satisfied that the applicants
were
not negligent. Each tried to lay the blame elsewhere, the first
applicant on his partner and the second applicant on the first
applicant and the fact that they were distant from each other
physically. Even accepting at face value what they have said, in
both
cases they quite clearly did not perform their functions properly. In
their favour, however, I must state that I cannot find
evidence of
gross negligence.”
59.
The learned judge adopted the approach
advocated in
Wispeco
and
Kilroe-Daley
and required of the applicants to “
establish
a ground for
restitutio in
integrum
such
as fraud
or
iustus
error
.” Clearly, they did not
pass muster on that score. Nevertheless, the learned judge had the
following to say in ultimately
coming to the assistance of the
trustees.
“
In
all the cases referred to however the application has been brought by
a creditor and it is understandable why the Courts have
been strict
in limiting the rights of creditors who only act after confirmation
of the accounts, and I respectfully associate myself
fully with all
the judgments to this effect. See the
Wispeco
case
supra
at 27-8.
This case however is
different. If the application fails there would remain a shortfall of
over R42 000 in the estate accounts.
The only way in which the
shortfall could be met would be for the trustees to pay it into the
estate from their own pockets. If
they did so then the body of
creditors would benefit to that extent and would in fact receive R42
000 more than their entitlement
under the Act. In the absence of
fraud (or perhaps gross negligence) this seems to me to be too harsh
a penalty to impose on the
trustees and in any event too great a
benefit to bestow upon the creditors.”
In
the instant case of course there is no question of any of the
creditors receiving more than their share fair: it is common cause
between the liquidators and TDK that its claim has been correctly
calculated and that it ranks first.
HAVE
THE LIQUIDATORS ESTABLISHED ANY GROUND FOR REOPENING?
60.
In the passage already quoted from
Meskin
,
in which the approach in
Morris &
Strydom
was cited with approval,
the learned authors are of the view that a court might grant relief
“
where the liquidator
bona
fide
erroneously
prepared such account.
”
In the passages from the affidavit of the first respondent in support
of the counter-claim referred to
above there are manifestly no
allegations in support of the established test for reopening an L&D
account – they have
set up no grounds for
restitution
in integrum
such as fraud or
justus
error.
Nor do the liquidators say that
they erroneously and
bona fide
prepared
either the first or the amended L&D accounts. Mr. Bremridge SC
nevertheless urged the Court to follow
Morris
& Strydom
, to find that the
amended L&D account was clearly wrong and to permit the
liquidators to correct it, lest an allegedly false
set of
circumstances was permitted to prevail.
61.
I shall revert shortly to whether the
amended L&D account is correct or not but first I need to deal
with the approach adopted
in
Morris &
Strydom
. In the first place it has
to be said that the case stands alone in the jurisprudence that has
evolved around the application of
s112
of the
Insolvency Act and
s408
of the Old Act. And, while Hugo J appears to have been at pains to
require the applicants to get their papers in order before
he
delivered a considered judgment, His Lordship did not have the
benefit of any argument to the contrary. Nevertheless, the court
was
concerned to ensure that the liquidators were not out of pocket as a
consequence of creditors receiving more than their just
desserts. The
decision is accordingly based on equitable considerations in relation
to the facts before the court.
62.
The facts of this matter are wholly
different to
Morris & Strydom
and the case therefore falls to be
distinguished on that basis alone. I say so for the following
reasons. The liquidators saw fit
to dispose of the property to
Slipknot and to transfer ownership therein more than two and a half
years before they filed what
they presumed would be their first and
final L&D account. However, they knew almost from the outset
(early 2010) that TDK asserted
the entitlement to be ranked first as
a preferred creditor and, further, they were told so themselves by
counsel when they sought
advice, also early in 2010.
63.
It was only late in 2010 that the
liquidators managed to procure an opinion from an attorney that
accorded with their preferred
view of the matter which, subsequently,
four judges have found to be wrong in law. Knowing full well that
there was a dispute looming
between TDK and Slipknot as to their
respective rankings as preferred creditor, the liquidators were so
bold as to elect to sell
the property to Slipknot. In so doing, they
thought it sufficient to include the manuscript clause in the deed of
sale. But, in
my view, they clearly did not take sufficient
precautionary steps to cover the situation where Slipknot might
refuse to pay when
called upon to do so, or, for instance, to deal
with the possible liquidation of Slipknot in the interim.
64.
In this regard, there were conceivably any
number of precautionary steps that the liquidators might have taken
to ensure that Slipknot
would make good on its contractual promise to
settle their indebtedness to them – an unequivocal
acknowledgment of debt or
a covering mortgage bond over the property
are just two relatively simple commercial mechanisms that spring to
mind. Yet, they
chose to take no such steps, blithely alleging now
that at the time they were satisfied that Slipknot was good for the
money. Significantly,
while the first respondent suggests that he was
satisfied with Slipknot’s solvency, he does not say that he had
no reason
to believe that Slipknot would not honour its obligation.
65.
When they filed the first L&D account
in 2014, s403(2) of the Old Act obliged the liquidators to
lodge “
the prescribed form......
fully supported by vouchers, including [their] bank statements or
certified extracts from [their] bank
and building society accounts
showing all the deposits and withdrawals, and [to verify these in] an
affidavit in a prescribed form.”
66.
The forms referred to in s403(2) are
prescribed by regulation and
are set out in Annexure CM 101 to
the Old Act, paragraph 2 whereof reads as follows.
“
2. A detailed
account of the liquidator’s receipts and payments in respect of
the company must be given. The account of receipts
must contain a
record of receipts derived from the realisation of assets existing at
the date of the winding-up order… including
any balance in the
bank debts and calls collected, property sold, etc. The account of
payments must contain a record of all payments
made in respect of
costs and charges and of payments to creditors and contributories.
Where property has been realised, the gross
proceeds of the sale must
be entered as a receipt and the necessary payments incidental to the
sale must be entered as a payment.
This account must not contain
payments into or withdrawals from the bank, which must be shown
separately by means of a bank statement.
Receipts and payments
must be supported by satisfactory vouchers numbered consecutively in
the top right-hand corner by reference
to the number appearing in the
account opposite the relative item.
Each receipt and
payment, and the date thereof, must be entered in the account in such
a manner as sufficiently to explain its nature…”
67.
The contents of such a complete account are
then required to be supported by an affidavit deposed to by the
liquidator. In the affidavits
filed of record deposed to by each of
the liquidators on 18 and 19 July 2019 in support of the amended L&D
account, they confirm
that –
“
..
The aforegoing is (sic) true and correct
account of the administration of the estate, and that to the best of
my knowledge and belief
there are no further assets to be realised
and matters to be attended to.”
68.
Although the bank statements which the
liquidators were obliged to place before the Master in July 2019 do
not form part of the
record in these proceedings, it would have been
obvious upon perusal thereof to the Master that the purchase price
realised from
the sale of the property to Slipknot had not in fact
been received by the liquidators: the account would otherwise have
reflected
a substantial credit to that effect. In the circumstances
the account (and its supporting documents) ultimately placed before
the
Master for confirmation would demonstrate that the proceeds of
the sale of the property had not yet been received by the liquidators
and, in such circumstances, the account cannot be described as
“
incorrect
”.
69.
Importantly, the Master says in terms (at
para 6 of her report of 8 January 2020) that when she confirmed the
amended L&D account
on 23 July 2019 she was aware of the fact
that the liquidators had not yet received payment from Slipknot. And,
knowing this full
well to be the case, the Master was satisfied that
the account should be confirmed.
70.
Similar affidavits by the liquidators would
have been required to accompany the first L&D account. Thus the
Master ought to
have known, when she received the first L&D
account in August 2014 and when she ordered in June 2016 in TDK’s
favour
after its objection to the ranking of secured creditors, that
the liquidators were not yet in receipt of the purchase price of the
property. The Master’s denial of this knowledge of the state of
affairs in 2016 in her report of 8 January 2020 simply does
not make
sense in the circumstances.
71.
Be that as it may, the mere say-so of the
Master in her recent report that she now regards the account as wrong
is merely an opinion
which she expresses at this stage and is
difficult to reconcile with her earlier acts of confirmation in which
the true state of
affairs were (or ought reasonably to have been)
known to her. Rather, the correctness of the amended account falls to
be decided
on the undisputed facts which are that the liquidators
knowingly submitted the accounts on two occasions in the same format,
alleging
the same facts and that both these accounts were approved by
the Master. And, it was only when they encountered problems in
recovering
the purchase price from Slipknot that the alleged
“
incorrectness
”
came to the fore.
72.
Having deposed to at least two sets of
affidavits which were required to be placed before the Master, and in
which they confirmed
the correctness of the account, the liquidators
have manifestly not shown that they were either
bona
fide
or erroneous. In the
circumstances, I am satisfied that the liquidators have not
established a basis, either in fact or in law,
for the relief sought
in the counter-application which accordingly falls to be refused with
costs.
A
JUST ORDER UNDER S387(4)?
73.
The remaining issue then is what order the
court should make in relation to the main application. Mr. van der
Merwe SC argued that
the imprudent decision by the liquidators to
transfer the property without adequately securing payment by Slipknot
in the event
that TDK’s preference prevailed, warranted a just
and equitable order directing them to pay TDK its long overdue
dividend.
Mr. Bremridge SC, on the other hand, cautioned against an
order that would have the effect of fixing the liquidators with
delictual
liability.
74.
Mr.
Bremridge SC relied on
Kerbels
Flooring
[22]
and
Callinicos
[23]
as authority for the submission that the liquidators were liable to
be sued delictually for their breach of a statutory duty.
Kerbels
Flooring
involved an exception taken to an alternative claim for breach of a
duty of care owed by liquidators to an unpaid creditor whose
main
claim was founded in contract. In deciding the exception Mullins J
formulated the issue thus.
“
The
exception raises the interesting question of whether liquidators, or
others who act in a representative capacity such as trustees,
administrators and curators, can be held personally liable for
negligence causing loss to others arising out the performance of
their duties.”
75.
After a detailed consideration of the
authorities His Lordship came to the following conclusion.
“
Whether
a liquidator holds the position of the board of directors, or whether
he is a trustee for creditors, or both, none of these
authorities
suggest that there is not personal responsibility for his actions
under the normal criteria of Aquilian liability.”
Kerbels
Flooring
did not involve
consideration of the nature or extent of the discretion conferred on
a court under s387(4). Mullins J decided no
more than that a
liquidator might be held delictually liable in appropriate
circumstances. In my view the decision does not assist
the
liquidators in this case.
76.
In
Callinicos
the Appellate Division considered a situation under the
Insolvency
Act where
a trustee in an insolvent estate had, when framing the L&D
account, wrongly treated a preferent claim as a concurrent claim.
He
was then sued in the Magistrates’ Court by the creditor for
damages allegedly suffered as a consequence of the negligent
breach
of his statutory duty under
s95
of the
Insolvency Act. Exceptions
were argued in the court of first instance and on appeal to the
relevant Provincial Division before the matter served before the
Appellate Division where Ogilvie Thompson JA delivered the main
judgment of the Court.
77.
The Learned Judge of Appeal analysed the
relevant provisions of the
Insolvency Act in
detail, highlighting the
procedural steps that preceded an application to re-open the L&D
account under
s112
of that Act. The Learned Judge of Appeal then went
further and examined the interplay between the relevant sections of
the
Insolvency Act which
afforded a dissatisfied creditor a
procedural mechanism to correct a wrong allegedly inflicted on him by
the errant trustee.
78.
Finally, the court found, the structure of
the
Insolvency Act was
sufficient to address any loss suffered by a
creditor, thus precluding any basis for a damages claim.
“
The
real complaint of a proved creditor in the case postulated above is
that he was paid out as a concurrent creditor when he ought
to have
been paid out as a preferent creditor. Prior to the confirmation of
the account, the mere fact that the proved creditor’s
claim
appears in the account as concurrent does not occasion the creditor
any actual loss. Such loss supervenes, not when the account
is drawn,
but only when, in terms of sec 113(3) of the Act, the trustee becomes
obliged to pay in accordance with the account and
does so pay. The
basis of the proved creditor’s loss is, therefore, the
confirmation of the account. That situation would,
in my view,
equally obtain in the case where the trustee had been negligent in
treating the claimant as concurrent. The statute,
as explained above,
provides effective machinery enabling the proved creditor, by way of
objection, to prevent the confirmation
of the account which treats
his claim as concurrent only. By failing to object, the creditor may
thus be said to be himself the
author of the harm of which he
complains. It appears to me to be in the highest degree unlikely that
the Legislature should have
contemplated that the creditor should,
despite his failure to object to the account, nevertheless be
entitled to hold the trustee
liable in damages. Conceivably special
circumstances might take a particular case out of the general rule;
for instance, where
the creditor is wrongly informed by the trustee
that his claimed preference is reflected in the account. Any such
special circumstances
would, of course, required to be sufficiently
pleaded…
After
dealing with a number of authorities, the Learned Judge of Appeal
concluded as follows.
“
The
foregoing considerations lead me to the conclusion that a trustee
who, in his final account, treats as concurrent a proved creditor’s
claim which in terms of sec95(1) of the Act should have enjoyed a
preference is not ordinarily liable, after confirmation of such
account,
in damages
to such creditor for the resultant difference in dividend.”
(Emphasis added)
79.
In the result it seems to me that
Callinicos
does not support the argument put forward on behalf of the
liquidators that TDK’s remedy lies in a delictual claim.
Rather,
the decision tends to support TDK’s case which is to
the effect that s387(4) of the Old Act is part of the internal
machinery
in the statute designed to provide a creditor who is
dissatisfied with any decision by a liquidator with a right of action
to seek
just and equitable relief from the court, thus obviating the
long and drawn out procedure inherent in having to launch review
proceedings
or sue the liquidator, whether in delict or otherwise.
CONCLUSIONS
IN RESPECT OF THE SECTION 387(4) ARGUMENT
80.
In the result, I come to the conclusion
that in light of the facts of this matter, the liquidators are liable
to be ordered (in
their representative capacities) to effect payment
of the amount which the Master has confirmed is due to TDK. This
liability (
qua
liquidator)
arises from the provisions of s408 of the Old Act which cloaks the
award with the status of a judgment. In the normal
course, and where
there was money in the insolvent company’s bank account, the
liquidator would then be in a position to
settle the confirmed
creditor utilising such funds. But in the present case the
liquidators complain that they are unable to meet
such an obligation
because there is no money in the bank account because they have been
unable, thus far, to recover anything from
Slipknot.
81.
For
the predicament that they thus find themselves in, the liquidators
have only themselves to blame: it is they that acted pre-emptively;
it is they who concluded a sloppily worded deed of sale
[24]
which now causes them embarrassment; and, it is they who vouched for
the solvency and good faith of Slipknot. They are thus hoist
by their
own petard having fallen victim of Slipknot’s noose. All the
while, TDK has been entitled to payment and has patiently
sat it out
while others have sought to evade their obligations. It seems to me
then in such circumstances that a court should craft
a remedy to come
to the assistance of the hapless TDK. I am of the view that s387(4)
provides for that relief.
82.
The
express wording of s387(4) is to afford a court a wide and
unrestricted discretion to make an order that justice requires should
be made.
[25]
This discretion
should be read, for example, in the context of the considerations
mentioned by Binns Ward J in the
Million
Up Investments
liquidation. The unreasonableness of the conduct of the liquidators
in disposing of the asset in question is but one of the
considerations
to which regard might be had by the court. In so
doing, it does not mean that the court is effectively fixing the
liquidator personally
with delictual liability as contended by Mr.
Bremridge SC. Reasonableness in that context is no more than a
consideration in the
exercise of the court’s discretion as to
what is just and equitable.
83.
I have already dealt with the short-comings
in the deed of sale and with the trust that the liquidators reposed
in Slipknot. In
my view, their conduct was cavalier and fell short of
the standard expected from a reasonable liquidator: the facts show
that,
come hell or high water, they were intent on acceding to the
demands of Slipknot. And, when they did so they placed themselves at
risk. They knew, firstly, that the account had not been confirmed by
the Master and, secondly, there was a contrary legal opinion
as to
the preferential ranking of TDK’s claim. But, rather than await
the outcome of any determination thereof by the Master
or a court,
they took on a risk believing that Slipknot would not let them down.
And, in so doing they disposed of the only asset
of the insolvent
company. If Slipknot did not make good on its promise to pay the
amount of TDK’s award, the liquidators
knew that they would not
be able to discharge their statutory duty towards TDK. Ultimately,
they did not cater for that eventuality.
84.
Further, there was no pressing need to
dispose of the property to Slipknot at that stage: the liquidators do
not contend that they
were attempting to stop the running of interest
on Slipknot’s claim. As I have demonstrated in [40] above, the
liquidators
advance no cogent reason for disposing of the property at
that stage. Nor did the liquidators alert TDK to the proposed sale or
the price at which the property was to be transferred. In this regard
TDK alleges in the papers before the court that the true
value of the
property was considerably more at that stage.
85.
Moreover, in this matter (and unlike in
Morris & Strydom
)
the liquidators will not ultimately be left out of pocket if they are
ordered to pay TDK now. Firstly, they elected to place their
faith in
Slipknot’s integrity (without seeking TDK’s input at the
time as to the commercial wisdom of their decision)
and have sought
to recover from Slipknot what is unequivocally due to TDK. Secondly,
in the affidavit filed in support of the counter-application,
the
fourth respondent (who is clearly the driving force behind the
liquidators’ case) says that he is “
a
member of Muller Terblanche Trustees CC”.
It
would then appear that, although the fourth respondent took his
appointment as liquidator in this matter personally (as he was
obliged to do under the Old Act), he conducts a business as an
insolvency practitioner through the medium of a close corporation
that bears his name. Further, when taking their appointments as such,
the liquidators were required to put up security to the satisfaction
of the Master. There are therefore collateral sources from which they
can ultimately recover any shortfall. To repeat, the liquidators
will
not be out of pocket at the end of the day but in any event, it is
they who must now bear the financial consequences for the
ill-considered risk they took when they transferred the property to
Slipknot.
86.
TDK on the other hand has done everything
required of it in law. It raised its objection to the proposed
ranking of Slipknot as
the preferred secured creditor at the earliest
possible opportunity and it has been vindicated in that stance by the
ruling of
the Master and 2 different courts. To expect it to sit back
and wait for its money for a dozen years or more, when its
entitlement
to be compensated fully by way of interest has been hit
by the
in duplum
rule, does not sound fair to me in the circumstances.
87.
I agree with Mr. van der Merwe SC’s
submission that the facts of the case, even on the liquidators’
version of events,
inevitably lead one to conclude that they acted
imprudently, improperly and grossly negligently in the circumstances.
By way of
summary then such conduct includes the following.
[87.1.]
The decision to follow only the
instructions of Slipknot in the administration of the insolvent
company to the exclusion of TDK;
[87.2.]
Their decision (with the full knowledge of
TDK’s secured claim and against its instructions), to sell the
only asset of the
insolvent company to Slipknot at a significantly
reduced purchase price which would be insufficient to cover the
administration
costs and the claim of TDK;
[87.3.]
The decision to sell the property on terms
which provided that the purchase price constituted a deemed interim
award to Slipknot
in circumstances where TDK’s claim
potentially outranked Slipknot’s claim, and then in the absence
of a confirmed account;
[87.4.]
The
sale of the property with a warranty in the deed of sale
[26]
that there was no builder’s lien or other encumbrance over the
property, which warranty was to their knowledge incorrect
and false
because TDK’s improvement lien was the very basis of its
uncontested claim in the liquidation. By reason of this
warranty and
the subsequent transfer of the property, TDK is now legally precluded
from enforcing that lien against Slipknot;
[87.5.]
The transfer of the property to Slipknot in
June 2012 without receiving or securing the purchase price, or
without making provision
for the payment of interest by Slipknot
to the insolvent estate on the proceeds of the said sale;
[87.6.]
Their failure to take steps to recover
payment of the purchase price from Slipknot (or to secure the
purchase price earlier) either
after the Master’s ruling in
2016 or after two court orders had been handed down in favour of TDK,
in circumstances where
the deed of sale rendered its claim payable
forthwith;
[87.7.]
The fact that in June 2019 they lodged an
account with the Master which (on their version now) was erroneous
and false, but which
they confirmed under oath to the Master as being
true and correct;
[87.8.]
Their conduct has had the effect of putting
TDK to the trouble and expense of bringing an application for payment
of what was rightfully
due to it, only to be met with the response
that the liquidators were out of pocket and TDK would have to sit it
out until they
were eventually placed in funds;
[87.9.]
Lastly (and on a general assessment of the
matter), they have revealed a manifest failure to act impartially, or
in the interests
of the company, or in the interests of TDK which, to
their knowledge, claimed to be the first (and
de
facto
the only) ranking creditor.
88.
I am accordingly persuaded that I should
exercise my discretion under s387(4) in favour of TDK and order the
liquidators to pay
now for the calculated, yet imprudent, risk that
they took in 2012. Given their stance that they cannot pay in their
nominal capacities,
it is only just and fair that they be ordered to
pay what is due to TDK jointly and severally in their personal
capacities.
COSTS
89.
Mr. van der Merwe SC asked that costs of
suit be awarded in favour of TDK against the liquidators personally
on the attorney and
client scale. The submission was premised in the
first place on the provisions of s405 of the Old Act which is to the
following
effect.
“
405.
Failure of liquidator to lodge account or to perform duties
(1)
If any liquidator fails to lodge an
account with the Master as and when required by or under this Chapter
or to lodge any vouchers
in support of such account or to perform any
other duty imposed upon him by this Chapter or to comply with any
reasonable demand
of the Master for information or proof required by
him in connection with the liquidation of the company, the Master or
any person
having an interest in the company may, after giving the
liquidator not less than two weeks’ notice, apply to the Court
for
an order directing the liquidator to lodge such account or
vouchers in support thereof or to perform such duty or to comply with
such demand.
(2)
The costs adjudged to the Master or
to such person shall, unless ordered otherwise by the court, be paid
by the liquidator
de bonis
propriis
.
The
default position then is that when a creditor, for example, applies
to Court for an order directing the liquidator to comply
with his/her
statutory duty to pay such creditor in terms of a confirmed L&D
account, the liquidator will be liable for the
creditor’s costs
de bonis propriis.
90.
This
is consistent with the general principle that such awards are
appropriate where persons act (and litigate) in a representative
capacity.
[27]
Moreover, and as
Prof. Cilliers points out, such costs orders have been awarded in
cases even where it was doubtful that the conduct
of a trustee in an
insolvent estate could be described as improper, willful or vexatious
but the court was nevertheless of the
opinion that the conduct was so
unreasonable as to render it negligent.
[28]
91.
But there is an even more compelling reason
in this matter why such an order should be made in this case. The
liquidators have racked
up a substantial bill of costs which they now
expect should to be paid out of the insolvent corporate estate
thereby diminishing
the award which is payable to TDK (and for which
it in any event cannot be fully compensated due to the
in
duplum
rule) even further.
92.
As
to the scale of such costs, I am of the view that the award should be
made on the attorney and client scale in accordance with
the
established principle in
Alluvial
Creek
[29]
.
Even though it might be contended that the liquidators have not
behaved vexatiously, their conduct has had the effect that TDK
has
been put to unnecessary expense in circumstances where this was not
warranted.
93.
Mr.Bremridge SC asked that the wasted costs
of the hearing before Savage J on 14 August 2019 be granted in the
liquidators’
favour. I agree. At a relatively early stage of
this application it was clear that the matter was not of such
pressing urgency
that it required the immediate attention of the
Motion Court judge sitting in the Fast Track. The liquidators made a
reasonable
proposal in the run-up to that hearing that the matter be
postponed to the semi-urgent roll with an agreed timetable for the
filing
of papers. TDK’s response was unreasonable in that it
insisted on the filing of papers by the liquidators under severe time
constraints, only for it to meekly concede before Savage J that the
matter did not warrant priority on her roll.
94.
Had TDK’s legal representatives
conducted their client’s case responsibly the costs of the day
would not have been incurred.
As a mark of the Court’s
displeasure with the manner in which the liquidators were hustled
into court on that day, such costs
will be awarded on the punitive
scale.
ORDER
OF THE COURT
It
is accordingly ordered as follows –
1.
The first, second and third respondents
were ordered to pay to the applicant the sum of R3 053 120.46
in terms of the
confirmed liquidation and distribution account in the
liquidation of Cape Vernacular Properties CC dated 21 July 2019.
2.
The fourth, fifth and six respondents are
declared, in terms of section 387 (4) of the Companies Act, 61 of
1973, to be personally
liable, jointly and severally with first,
second and third respondents, to pay the sum of R3 053 120.40
to the applicant.
3.
The first to sixth respondents are ordered,
jointly and severally, to pay interest on the aforesaid sum of
R3 053 120.40
at the prescribed rate from date of judgment
to date of payment.
4.
The respondents’ counter-application
is dismissed.
5.
The respondents are directed, jointly and
severally, to pay the applicant’s costs of the application, and
the counter application,
on the attorney and client scale, save that
the respondents’ wasted costs occasioned by the hearing of this
matter in the
Fast Track of the Motion Court on 14 August 2019 are to
be paid by the applicant on the attorney and client scale.
__________________
GAMBLE,
J
[1]
SA Clay
Industries v Katzenellenbogen NO and another
1957(1) SA 220 (W) at 224
[2]
United
Building Society v Smookler’s Trustees and Galombik’s
Trustees
1906
TS 623
at 630
[3]
Brooklyn
House Furnishers (Pty) Ltd v Knoetze and Sons
1970 (3) SA 264
(A) at 270-1.
[4]
Buzzard
Electrical (Pty) Ltd v 158 Jan Smuts Avenue Investments (Pty) Ltd
and another
1996 (4) SA 19
(SCA) at 26E-F
[5]
Relying in the main on
Smookler’s
Trustees
[6]
The order of Fortuin J.
[7]
Gore
N.O and others v Shaff and others
[2013] ZAWCHC 186
(13 December 2013) at [13]
[8]
s319 – see [19] above
[9]
Meskin
,
Insolvency
Law
(Magid
et al, ed.)
at 11-8 s.v. ‘
Contents
of accounts’.
[10]
Bertelsmann
et al
,
Mars,
The Law of Insolvency in South Africa, 9
th
ed
at
541
(
authorities
omitted).
[11]
They fail to say that they were obliged to do so by virtue of a
court order procured by TDK which was concerned by the prospect
of
the prescription of the claim against Slipknot.
[12]
Para’s 101 – 104. See para 26 above.
[13]
Van der
Merwe N.O and others v Moodliar N.O and another
[2020] 1 All SA 558
(WCC) at [70]
et
seq
[14]
Kilroe-Daley
v Barclays National Bank Ltd
[1984] ZASCA 90
;
1984 (4) SA 609
(A) at 626
et
seq
[15]
Wispeco
(Pty) Ltd v Herrigel N.O and another
1983 (2) SA 20
(C) at 27H
[16]
At p407 of that edition.
[17]
At 224
[18]
At
28A
- C
[19]
Morris
and Strydom NNO v The Master and others
1994 (2) SA 731 (N)
[20]
Meskin
op
cit
at
866(1)
[21]
Stewart’s
Assignee v Walf’s Trustee and Others
3 SC 243
at 247
[22]
Kerbels
Flooring and Carpeting (Pty) Ltd v Shrosbree and another
1994 (1) SA 655 (SECLD)
[23]
Callinicos
v Burman
1963 (1) SA 489 (A)
[24]
The mere fact that the relevant clause was inserted in manuscript
suggests that it was an afterthought that occurred to the parties
at
the time the document was signed.
[25]
Cohen
NO v Ruskin and Smith NNO
1981 (1) SA 421
(W) at 425
[26]
See cl 15.9
[27]
AC
Cilliers,
Law of Costs at 10-22(2)
[28]
Ibid
at
10-26
[29]
In
re
Alluvial
Creek Ltd
1929 CPD 532
at 535.