Brief Summary

Insolvency — Winding-up applications — Competing applications for liquidation of the same company — Applicant sought costs order in respect of its abandoned winding-up application after another creditor obtained final liquidation order — Court held that once a winding-up order is made, subsequent applications for the same relief are ineffectual — Applicant entitled to seek costs as part of the winding-up estate, with preference under s 97(2)(c) of the Insolvency Act.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings concerned an extended return day of a previously issued rule nisi in an opposed winding-up application. The applicant, Vincemus Investments (Pty) Ltd, had earlier obtained (in May 2021) a provisional winding-up order against Travea (Pty) Ltd, but by the time the matter came before the court on the extended return day, Travea had already been placed in final liquidation in separate, parallel proceedings brought by another creditor, Vital Fleet (Pty) Ltd.

The respondents at this stage were the joint liquidators of Travea (Pty) Ltd (in liquidation), namely Bekker N.O., Noordman N.O., and Ndyamara N.O., who were substituted as respondents pursuant to a notice in terms of Uniform Rule 15(2). The applicant did not pursue confirmation of its provisional winding-up order (because it had become ineffectual in light of the earlier liquidation order obtained by Vital Fleet), and instead pursued relief confined to a costs order in respect of its now redundant winding-up application.

Procedurally, the applicant’s winding-up application had been launched on 20 September 2020, argued on 22 February 2021, and judgment was reserved. While judgment was reserved, Vital Fleet launched and set down a parallel winding-up application, obtaining a provisional order in February 2021 and a final winding-up order in April 2021. Unaware of those developments, the judge in the applicant’s matter delivered the reserved judgment on 21 May 2021, granting a provisional winding-up order accompanied by a rule nisi. The present hearing before Binns-Ward J was directed at the appropriate treatment of the applicant’s costs in this unusual procedural posture.

The general subject-matter of the dispute was whether, and if so how, the applicant’s costs of an abortive/now redundant liquidation application should be treated in the liquidation, including whether they should enjoy preferent status as “costs of sequestration” (as adapted to winding-up) under section 97 of the Insolvency Act 24 of 1936.

2. Material Facts

It was common ground that the applicant’s winding-up application was instituted first, and that it was fully opposed and argued on 22 February 2021, whereafter judgment was reserved. It was also undisputed that Vital Fleet launched a parallel winding-up application on 8 February 2021 and had it heard on 23 February 2021 in the urgent court, thereby obtaining a provisional winding-up order in respect of Travea on that date, followed by a final winding-up order on the return day in April 2021.

The court treated as material that the applicant’s legal representatives were aware that Vital Fleet’s application would be moved on 23 February 2021, but they did not take steps to alert the court hearing Vital Fleet’s application that judgment had already been reserved in the applicant’s opposed winding-up proceedings. They also did not take steps to prevent a final order in Vital Fleet’s matter in April 2021. It was further common ground that the judge in the applicant’s matter was not informed of the Vital Fleet proceedings before delivering the reserved judgment on 21 May 2021.

Against that background, the court accepted as trite and dispositive of part of the procedural posture that once a winding-up order has been made and remains operative, it is not competent for a court to make a subsequent winding-up order to the same effect, because the company is already in liquidation and a concursus creditorum has been established. The applicant therefore abandoned any attempt to confirm its own provisional winding-up order and instead sought relief limited to its costs.

In relation to the costs dispute, it was undisputed that Vital Fleet’s final liquidation order included a provision that Vital Fleet’s costs be treated as costs in the winding-up, thereby attracting the preference contemplated in section 97(2)(c) of the Insolvency Act (as “taxed costs of sequestration,” adapted to the winding-up context). The liquidators opposed the applicant’s attempt to obtain similar treatment for its own costs.

The subsequent factual developments regarding creditor participation were material. After the liquidators’ appointment was made final on 4 March 2022, the liquidators indicated that creditors had “provisionally agreed” to accept the applicant’s costs as costs in the liquidation, but that a final decision would be taken once a bill of costs had been considered. The applicant did not provide a bill of costs at that stage. The liquidators nevertheless proposed at the second meeting of creditors (1 July 2022) that the applicant’s taxed costs be treated as an administration expense, but the applicant was the only creditor who voted in favour of that proposal. Following this, the liquidators’ attorney advised the applicant that allowing the applicant to obtain a costs order would go against the wishes of the proved creditors and that opposition would follow.

A substantial bill of costs was furnished in early August 2022, after which the liquidators made a settlement proposal, explicitly subject to approval by the proved creditors. The matter nevertheless proceeded to hearing, with the liquidators raising points in limine including prematurity and the contention that there was no legal basis for the applicant’s claim under section 97(3) because the applicant’s costs were not incurred “in connection with” Vital Fleet’s petition.

3. Legal Issues

The central legal issue was whether the court should, at that stage, grant an order directing that the applicant’s taxed costs in its earlier winding-up application be treated as costs in the liquidation of Travea (and thereby enjoy the relevant preference), notwithstanding that the applicant had not obtained the operative liquidation order and notwithstanding creditor opposition reflected at the second meeting of creditors.

A connected issue was whether the application for a costs order was premature in light of the practice articulated in authorities such as Ex parte Aitchison, namely that the preferent ranking of such costs should ordinarily be dealt with through the liquidator’s account and the statutory objection procedure (rather than by an “anticipatory” court order), so that interested creditors have an opportunity to be heard.

The dispute engaged questions of law (the interpretation and application of section 97 of the Insolvency Act to a creditor who petitioned for liquidation but did not obtain the operative order), questions of practice and procedure (whether the court should make an order prior to the statutory accounting and objection process), and the application of legal principles to an unusual factual matrix, including the court’s exercise of a discretionary value judgment about the appropriate procedural mechanism to ensure creditor participation and procedural fairness.

4. Court’s Reasoning

The court first addressed the procedural anomaly caused by two winding-up orders obtained in separate proceedings in the same division. It reaffirmed the trite principle that after a winding-up order has been made and remains operative, it is not competent to make a further winding-up order to the same effect because it would be incapable of execution once liquidation is underway and a concursus creditorum has been established. This explained why the applicant no longer sought confirmation of its own provisional order and pursued only a costs remedy.

Turning to the legal basis for a preferent costs claim, the court considered section 97 of the Insolvency Act 24 of 1936, including the statutory definition in section 97(3) of “taxed costs of sequestration” and the exclusion of opposition costs unless the court directs otherwise. The court located section 97’s lineage in section 83 of the 1916 Insolvency Act and relied on the interpretive approach adopted in Ex Parte The Merchants’ Trust Ltd 1930 TPD 142, where the words “upon the petition of ... a creditor” were construed to mean any creditor who petitions (and not only the creditor who ultimately obtains sequestration). The court held that, despite textual changes between the 1916 and 1936 statutes, that construction had been consistently followed in later jurisprudence.

On that basis, the court rejected the liquidators’ contention that the applicant could not, as a matter of law, claim an order under section 97 on the premise that its costs were not incurred “in connection with” Vital Fleet’s petition. The court held that the Merchants’ Trust line of authority was dispositive against that argument. The question was therefore not whether the applicant was legally excluded from consideration under section 97, but whether the court should grant an order at this stage directing that the applicant’s costs be treated as costs in the liquidation, attracting preference.

The liquidators’ prematurity point was considered through the lens of Ex parte Aitchison 1924 TPD 570 and subsequent authorities endorsing the practice that the court should not, at an early stage, “close the mouths of creditors” by making an anticipatory order about preferent costs before the creditors are known and have had the opportunity to object through the statutory mechanisms governing liquidation and the liquidator’s account. The court noted the endorsement of this approach in winding-up contexts, particularly Ex parte Hankins and Another: in re Cellocrete Manufacturing Co (Pty) Ltd 1950 (2) SA 611 (N). It also noted the later construction in Simms Service Station v Maharaj 1960 (3) SA 465 (N) that, although such orders would not normally be made, the court retained a discretion to make them in circumstances warranting it.

The court then explained why the present matter was distinguishable from the paradigm addressed in Aitchison. The case was described as unique, because Vital Fleet obtained a winding-up order after another judge had already heard and reserved judgment in an equivalent, earlier application by the applicant. Additionally, the applicant had already obtained a rule nisi (in respect of its costs), which was not rendered ineffectual merely because the provisional winding-up order itself was ineffectual. The court also treated it as material that the creditors who had proved claims had already indicated opposition to the applicant’s costs being treated as costs in the liquidation, meaning that creditor participation was not speculative or hypothetical.

From these circumstances, the court inferred that the liquidators would not include the applicant’s costs in the liquidation and distribution account, and that in the face of creditor objections it would not be open to the liquidators (nor to the Master) to allow those costs as preferent under section 97(2)(c) without a court order. The court referred to Ex Parte The Merchants’ Trust Ltd (with reference to the statutory scheme governing liquidation accounts) to underscore that creditors have no power to render preferent a charge not made preferent by law, and that the applicant would need a court order to obtain preference.

Nevertheless, the court considered that the essential effect of Aitchison was that such an order should not be made before interested parties have had an opportunity to be heard. The court concluded that, in the special circumstances, little purpose would be served by deferring the matter until after completion of the statutory processes under sections 403–408 of the Companies Act 61 of 1973, and that the appropriate procedural course was to issue a further rule calling upon all interested parties to show cause why the applicant’s costs should not be treated as costs in the liquidation. This approach sought to accommodate the need for creditor participation while also addressing the practical reality that the creditors’ stance was already apparent and that the matter required a structured opportunity for opposition.

5. Outcome and Relief

The court did not finally determine whether the applicant’s costs should be allowed as costs in the liquidation. Instead, it postponed the application for hearing on the semi-urgent roll and issued a further rule nisi calling upon all interested parties to show cause on the postponed date why an order should not be made directing that the applicant’s costs (including the fees of two counsel where engaged) be costs in the liquidation of Travea (Pty) Ltd.

The court granted condonation to the extent necessary in relation to the supplementary affidavits delivered for the extended return day. It also made detailed procedural directions to facilitate participation by interested parties, including directions concerning access to the papers, deadlines for notices of intention to oppose and answering affidavits, service on the Master, notification to proved creditors by the liquidators, publication in a newspaper, and an affidavit confirming compliance.

No final costs order (in the sense of granting or refusing the applicant’s substantive costs preference) was made at this stage; the operative relief was procedural, aimed at enabling a properly informed and participatory determination on the return day of the newly issued rule.

Cases Cited

Ex Parte The Merchants’ Trust Ltd 1930 TPD 142.

Ex parte Aitchison 1924 TPD 570.

Simms Service Station v Maharaj 1960 (3) SA 465 (N).

Kriel & Co (Pty) Ltd v Pienaar 1937 CPD 152.

Helling v Dorfman 1949 (2) SA 266 (C).

Courier Townhouse (Pty) Ltd v Myers 1986 (4) SA 1038 (C).

First National Bank Ltd v E U Civils (Pty) Ltd; First National Bank Ltd v E U Plant (Pty) Ltd; Basset v E U Civils (Pty) Ltd; E U Holdings (Pty) Ltd v E U Plant (Pty) Ltd 1996 (1) SA 924 (C).

Lipworth & Co v Bhyat 1938 WLD 86.

Cooper and Others v Trustee in Insolvent Estate of Pretorius and Another 1967 (3) SA 602 (O).

Jones v The Master and Others 1986 (2) SA 220 (T).

Ex parte Jordaan: In re Grunow Estates (Edms) Bpk v Jordaan 1993 (3) SA 448 (O).

Ex parte Hankins and Another: in re Cellocrete Manufacturing Co (Pty) Ltd 1950 (2) SA 611 (N).

Legislation Cited

Insolvency Act 24 of 1936, section 97(2)(c) and section 97(3), and reference to section 53.

Companies Act 61 of 1973, sections 403–408.

Insolvency Act 32 of 1916, section 83 (historical predecessor provision referred to for context).

Rules of Court Cited

Uniform Rule 15(2).

Held

The court held that, as a matter of law, the applicant’s claim for its taxed costs to be treated as “costs of sequestration” under section 97(2) of the Insolvency Act was not excluded merely because the applicant did not obtain the operative winding-up order; the interpretation in Ex Parte The Merchants’ Trust Ltd 1930 TPD 142 was applied to reject a narrower construction.

The court further held that the practice reflected in Ex parte Aitchison 1924 TPD 570 generally cautions against making an anticipatory costs-preference order before interested creditors have a proper opportunity to be heard, but that the court retains a discretion to manage the matter appropriately in context.

In the special, unusual circumstances—where two liquidation orders were obtained in separate proceedings and where creditor opposition was already evident—the court held that the appropriate course was to issue a further rule nisi calling on all interested parties to show cause why the applicant’s costs should not be allowed as costs in the liquidation, and to postpone the matter for that purpose.

LEGAL PRINCIPLES

A court will not ordinarily grant a winding-up order once a winding-up order already exists and remains operative, because the subsequent order would be ineffectual in the presence of an established concursus creditorum and ongoing liquidation.

For purposes of section 97 of the Insolvency Act 24 of 1936, “taxed costs of sequestration” may, in principle, extend beyond the costs of the creditor who ultimately obtains the sequestration or liquidation order; the phrase “upon the petition of ... a creditor” has been construed to refer to any creditor who petitions, as reflected in Ex Parte The Merchants’ Trust Ltd 1930 TPD 142 and later cases.

The practice stemming from Ex parte Aitchison 1924 TPD 570, applied in winding-up contexts, is that the court should generally avoid making an anticipatory order conferring preferent status on costs before the statutory mechanisms (liquidator’s account and objection procedures) have afforded creditors an opportunity to be heard; however, the court retains a discretion to depart from the ordinary practice where circumstances justify a different procedure.

Where creditor opposition is already known and the procedural posture is exceptional, the court may structure proceedings (including by issuing a rule nisi directed to interested parties) to ensure that the determination of whether costs should rank as costs in the liquidation occurs in a manner consistent with participatory fairness and the statutory liquidation framework.

Vincemus Investments (Pty) Ltd v Bekker N.O. and Others In re: Vincemus Investments (Pty) Ltd v Travea (Pty) Ltd (12477/2020) [2022] ZAWCHC 207 (28 October 2022)