Summary of Judgment

1. Introduction

These proceedings concerned two applications heard together in the Gauteng Local Division, Johannesburg. The first application was a creditor-driven application for the final winding-up of a close corporation, brought by the applicant body corporate. The second application was an interlocutory application brought by the respondent close corporation in terms of Uniform Rule 30(1), seeking to set aside the applicant’s step of obtaining an allocation of the winding-up application for hearing on the opposed motion roll, on the basis that the allocation was an irregular step.

The applicant was The Body Corporate of the Santa Fe Sectional Title Scheme No. 61/1994 (“Santa Fe”). The respondent was Bassonia Four Zero Seven CC (“Bassonia”).

The procedural history relevant to the interlocutory dispute included the grant of a provisional winding-up order which was extended on the return day. On 14 May 2018, Windell J extended an order for Bassonia’s provisional winding-up, returnable on 6 August 2018. On 6 August 2018 the matter served before Ismail J in circumstances where it was not on the roll; it was stood down to allow Santa Fe to explain the non-enrolment, and on 8 August 2018 Ismail J extended the rule nisi. Bassonia thereafter sought to attack the subsequent enrolment/allocation of the winding-up application for hearing on the opposed motion roll by invoking Rule 30(1).

The general subject-matter of the dispute was whether Santa Fe could obtain a final winding-up order based on alleged arrear sectional title levy indebtedness, and whether Bassonia could succeed in setting aside the opposed-roll allocation by characterising the procedural steps following the return day as invalid or irregular. A further dispositive issue was whether the alleged underlying debt relied on to found Santa Fe’s standing had become prescribed, with the consequence that the winding-up should not be granted.

2. Material Facts

Santa Fe’s winding-up application was issued on 26 November 2015. Santa Fe relied on levy indebtedness said to be owing by Bassonia in relation to two units (units 15 and 13) in the Santa Fe sectional title scheme. The amounts alleged were R300,135.39 (unit 15) and R221,799.63 (unit 13). Santa Fe’s case was that these amounts were payable as levies determined to fund the body corporate, and that Bassonia had failed to pay despite a statutory demand.

The application was served on Bassonia on 1 December 2015, and Bassonia entered an appearance to oppose on 10 December 2015. Santa Fe later enrolled the matter on the unopposed roll on 30 May 2016 on the basis that Bassonia had failed to file an answering affidavit timeously. An answering affidavit was ultimately delivered, although the court noted uncertainty and irregularity in its dating, annexures, and apparent filing; Santa Fe did not pursue a complaint about this and proceeded to file a replying affidavit.

In Bassonia’s answering affidavit, Bassonia disputed indebtedness and raised issues about discrepancies between the amounts claimed in the winding-up proceedings and amounts involved in earlier proceedings instituted by Santa Fe in the magistrates’ court. Bassonia also indicated that the alleged debt was the subject of pending arbitration proceedings. Santa Fe’s reply did not, in the court’s assessment, clearly explain how it arrived at the large amounts relied upon for standing; it attached an arbitration award dated 13 December 2011 in terms of which Bassonia was ordered to pay R63,167.17 plus interest and punitive costs, and Santa Fe asserted that earlier magistrates’ court proceedings were withdrawn because claims had been resolved in its favour in arbitration.

For purposes of the Rule 30(1) application, the material facts were largely common cause. On 6 August 2018, the matter came before Ismail J in circumstances where it was not on the roll. Ismail J stood it down until 8 August 2018 to permit Santa Fe’s attorney to file an affidavit explaining why the matter was not on the roll. The affidavit was filed, and Ismail J accepted the explanation and extended the rule nisi on 8 August 2018.

Bassonia contended that the rule nisi had lapsed on 6 August 2018 due to Santa Fe’s default, rendering the purported extension a nullity, and further alleged that if the matter had been enrolled it was done “clandestinely,” depriving Bassonia of an opportunity to oppose. Santa Fe’s explanation included that there had been a change in representation: Alan Levy had been the initial attorney and did not place the matter on the roll allegedly due to lack of instructions, while Karnavos Attorneys appeared on Santa Fe’s behalf on 6 August 2018, though issues existed as to whether the new attorneys had placed themselves on record and whether the former attorney had withdrawn.

The court further considered the age of the alleged indebtedness reflected in Santa Fe’s statements. On the papers, the court found that the substantial amounts claimed related to historical debt arising prior to March 2015, with additional amounts levied between then and September 2015, and that the debt in issue had prescribed by September 2018.

3. Legal Issues

The court was required to determine, first, whether the opposed-roll allocation (and the steps leading to it) could be set aside under Uniform Rule 30(1) as an “irregular step,” which required resolving whether the extension of the rule nisi by Ismail J was a nullity and, independently, whether Rule 30(1) was competent in circumstances where the impugned step was attributable to the Registrar rather than to a party.

Secondly, in the winding-up application, the court had to determine whether Santa Fe had established a basis for a final winding-up under the statutory framework invoked, and in particular whether Santa Fe could rely on the alleged levy debt when, on the papers, that debt had become prescribed. This required an application of legal principles concerning prescription and the nature of winding-up proceedings to the facts disclosed in the affidavits, together with an evaluative determination about whether a winding-up should be granted where the claim founding the application could not be proved in insolvency due to prescription.

The prescription point was treated as a dispositive issue. It entailed a legal characterisation of winding-up proceedings (whether they are “proceedings relating to the enforcement of a right” sufficient to interrupt prescription) and the application of that characterisation to the chronology apparent from the papers.

4. Court’s Reasoning

On the Rule 30(1) application, the court rejected the contention that the extension of the rule nisi was a nullity merely because the matter was not on the roll on 6 August 2018, or because Santa Fe’s legal representation was in a state of transition. The court analysed the authority relied upon by Bassonia, Tshiyombo v Refugee Appeal Board and Others 2016 (4) SA 469 (WCC), and held that it did not establish the proposition advanced by Bassonia. The court understood Tshiyombo as a matter in which the court expressed strong disapproval of the State Attorney’s conduct and the prejudice caused by a failure to place oneself on record and comply with procedural obligations, but it did not support a conclusion that an order granted when an attorney had not placed himself on record is void ab origine, nor that such an order is necessarily a nullity.

The court distinguished the circumstances before it from those in Tshiyombo. In the present matter, Ismail J did not take issue with Santa Fe’s appearance on 6 August 2018. Instead, he required an explanation for the non-enrolment on the roll, afforded Santa Fe an opportunity to file an explanatory affidavit, and thereafter exercised a discretion to extend the rule nisi. The court reasoned that Ismail J’s discretionary management of the matter in unopposed motion court did not render his order invalid. It further reasoned that the prejudice asserted by Bassonia was not established on the facts: Bassonia could not, in practical terms, have argued against the extension in the unopposed motion court in the manner suggested, and the approach taken resulted in the matter being directed to a forum where issues could be ventilated.

The court made specific findings that when Ismail J stood the matter down on 6 August 2018 to enable Santa Fe to file an explanatory affidavit, the rule nisi did not lapse, and that the extension on 8 August 2018 was valid. It followed that the later enrolment of the matter on the opposed motion roll was not an irregular step on that basis.

The court also provided an independent reason why the Rule 30(1) application could not succeed. It held that Rule 30(1), by its text, permits a party to apply to set aside an irregular step taken by another party, and is not available to remedy a step taken by the Registrar, because the Registrar is not a party to the cause. On this basis as well, the application was dismissed.

Turning to the winding-up application, the court recorded Santa Fe’s asserted standing, which was derived from section 69 of the Close Corporations Act 69 of 1984, read with section 345(1)(b) of the Companies Act 61 of 1973, as read with the Companies Act 71 of 2008. The underlying asserted indebtedness was for levies (as determined by trustees) to fund the sectional title scheme, with reference to section 37 of the Sectional Titles Act 95 of 1986.

The court identified that, despite multiple defences raised in the answering affidavit, the matter could be determined on a dispositive issue: prescription of the underlying debt relied upon for standing. The court applied the principle drawn from Misnun’s Heilbron Roller Mills Holdings (Pty) Ltd v Nobel Street Central Investments (Pty) Ltd 1979 (2) SA 1127 (W), namely that winding-up proceedings are not proceedings to enforce a creditor’s debt and are not a “process” for claiming payment, with the result that such proceedings do not interrupt prescription in terms of section 15(1) of Act 68 of 1969 (the Prescription Act). On the papers, and applying that authority, the court concluded that the underlying debt had become prescribed by September 2018, and that the winding-up proceedings had not interrupted prescription.

The court also addressed whether a court could nevertheless exercise a discretion to grant winding-up on the basis of a prescribed debt. Relying on Nicholl v Nicholl 1916 WLD 10 at 13, the court endorsed the reasoning that refusing to treat a prescribed debt as a sufficient foundation avoids the “remarkable result” that a debtor’s estate might be sequestrated (or, by analogy, wound up) on a claim that could not be proved in insolvency. In the court’s assessment, granting winding-up in these circumstances would effectively permit winding-up upon a claim not capable of proof due to prescription.

In evaluating the papers, the court also noted that Santa Fe’s replying papers did not meaningfully clarify how the large claimed amounts were calculated, and that the statements of account suggested historical indebtedness, supporting the conclusion that the claim had prescribed. The prescription finding was treated as determinative of Santa Fe’s inability to make out a case for final winding-up.

5. Outcome and Relief

The court dismissed Bassonia’s Rule 30(1) application and ordered Bassonia to pay the costs of that interlocutory application.

In the winding-up application, the court discharged the rule nisi and dismissed Santa Fe’s application for final winding-up. Santa Fe was ordered to pay the costs of the winding-up application.

Cases Cited

Tshiyombo v Refugee Appeal Board and Others 2016 (4) SA 469 (WCC)

Misnun’s Heilbron Roller Mills Holdings (Pty) Ltd v Nobel Street Central Investments (Pty) Ltd 1979 (2) SA 1127 (W)

Nicholl v Nicholl 1916 WLD 10 at 13

Legislation Cited

Close Corporations Act 69 of 1984 (section 69)

Companies Act 61 of 1973 (section 345(1)(b))

Companies Act 71 of 2008

Sectional Titles Act 95 of 1986 (section 37)

Prescription Act 68 of 1969 (section 15(1))

Rules of Court Cited

Uniform Rules of Court, Rule 30(1)

Uniform Rules of Court, Rule 53(1)

Held

The court held that the extension of the provisional winding-up rule nisi by Ismail J on 8 August 2018 was valid, and that the rule nisi did not lapse when the matter was stood down on 6 August 2018 for an explanatory affidavit regarding non-enrolment on the roll. It further held that the opposed-roll allocation was not an irregular step on that basis, and in any event that Rule 30(1) is not competent to set aside a step taken by the Registrar, as the Registrar is not a party.

On the merits of the winding-up application, the court held that the debt relied upon by Santa Fe as the foundation for its standing had, on the papers, prescribed by September 2018, and that winding-up proceedings do not interrupt prescription. It held that granting winding-up on the basis of a prescribed debt would have the effect of winding up Bassonia upon a claim that could not be proved in insolvency. The provisional winding-up order was therefore not confirmed, the rule nisi was discharged, and the winding-up application was dismissed with costs.

LEGAL PRINCIPLES

Winding-up proceedings are not proceedings for the enforcement of a creditor’s debt and are not a process for claiming payment of that debt; accordingly, such proceedings do not interrupt prescription under section 15(1) of the Prescription Act 68 of 1969, as applied on the authority of Misnun’s Heilbron Roller Mills Holdings (Pty) Ltd v Nobel Street Central Investments (Pty) Ltd 1979 (2) SA 1127 (W).

A court should not grant insolvency-type relief (including winding-up) on the basis of a claim that has prescribed, because doing so would permit the debtor’s estate to be subjected to insolvency consequences on a claim that could not be proved in insolvency, consistent with Nicholl v Nicholl 1916 WLD 10 at 13 as applied in this matter.

Uniform Rule 30(1) provides a mechanism to set aside an irregular step taken by another party to the proceedings; it is not available to attack or remedy a step taken by the Registrar, who is not a party.