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[2010] ZAGPJHC 64
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Ram Transport (Pty) Ltd v Replication Technology Group (Pty) Ltd and Another (24418/2010) [2010] ZAGPJHC 64; 2011 (1) SA 223 (GSJ) ; [2011] 2 All SA 628 (GSJ) (1 September 2010)
Links to summary
REPUBLIC
OF SOUTH AFRICA
IN
THE SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
CASE
NO 24418/2010
REPORTABLE
OF
INTEREST TO OTHER JUDGES
REVISED
In
the matter between
RAM
TRANSPORT (PTY) LTD
APPLICANT
and
REPLICATION
TECHNOLOGY GROUP (PTY) LTD
(IN
LIQUIDATION)
FIRST
RESPONDENT
THE
MASTER OF THE HIGH COURT
SECOND
RESPONDENT
J
U D G M E N T
VAN
OOSTEN J:
[1]
This is an application in terms of s 360 (1) of the
Companies Act 61 of 1973 (as amended) (the Act). The applicant
is a
proven creditor in the first respondent. The company, Replication
Technology Group (Pty) Ltd (RTG), was placed in final liquidation
by
an order of this court on 29 October 2009 on the ground of its
inability to pay its debts. Its liabilities exceed its assets
by
almost R50 million. The applicant now seeks the authority of
this court to inspect all the books and records of the first
respondent in the possession of its joint liquidators. From the
report filed by the joint liquidators of the first respondent at
the
second meeting of creditors it is quite apparent that there is no
hope of the applicant’s claim being paid out of the
liquidation. The applicant states that it suspects that the affairs
of RTG were, prior to its liquidation, conducted by its directors
and
certain controlling members in a reckless or fraudulent manner as
contemplated by s 424 of the Act.
[1]
The applicant accordingly as a preliminary step in order to hold the
directors and controlling members of RTG responsible for its
liabilities, intends to convene an enquiry in terms of s 417 and
418 of the Act. For this purpose the applicant requires access
to the
books and records of RTG to motivate the application for the enquiry
to the second respondent, who is the Master of the
High Court.
[2]
The application is unopposed. In correspondence exchanged prior to
the launching of this application the liquidators of the
first
respondent intimated their willingness to allow the applicant
inspection of the books and documents but on condition that
the
authorisation of this court therefor is obtained. Hence the present
application.
[3]
At the hearing of the application counsel for the applicant very
properly referred me to a somewhat obscure, possible obstacle
barring
the authorisation sought. It is referred to in Henochsberg
[2]
where the authors in the general note under the discussion of s 360
of the Act, add the following
caveat
to the
court’s general discretion to order inspection:
‘
But the Court
should not authorise inspection where the applicant’s only
purpose is to obtain information to enable him for
his exclusive
benefit to sue a former director of the company.’
This
is precisely the factual situation in the present application. In
support of the submission the authors cite, with apparent
approval,
the old English case reported
sub
nom In re North Brazilian Sugar Factories
(1887)
37 Ch 83
(CA) at 88/9.
[3]
Although the case has been referred to in our case law
[4]
counsel could not refer me to nor was I able to find any South
African authority directly in point.
[4]
In
North
Brazilian Sugar Factories
the
Chancery Division, on appeal, upheld the court
a
quo’s
refusal to authorise inspection of the books and documents of a
company in liquidation pursuant to an application under the
provisions
of s 156 of the UK Companies Act of 1862.
[5]
The books and documents however, were no longer in possession of the
liquidator of the company in liquidation who had handed them
over to
the new company which, under a scheme of arrangement sanctioned by
order of court, had taken over its assets. The fact
of the books and
documents being in possession of a third party was held by the court
(
per
Cotton and Lopes LJJ, each delivering a separate judgment) to have
been sufficient reason for refusing the relief sought. Although
the
finding effectively disposed of the matter both Judges nonetheless
proceeded to discuss and express a view on the ambit of
the section
in question on the assumption that the books and documents were in
possession of the liquidator. Departing from the
premise that the
section related to and provided powers to be used for purposes of
winding-up, the learned Judges reasoned that
the application launched
by and for the benefit of the shareholders in the old company was not
directly related but merely collateral
to the winding-up of the
company, resulting in the application falling outside the ambit of
the section. This is the view on which
the caveat in
Henochsberg
to which I have already referred, is based. Counsel for the
applicant, in a helpful and well-researched argument, relying on the
cases decided in the United Kingdom and Australia discussed below,
submitted that it should not be followed in South Africa. It
is
accordingly necessary to consider the persuasiveness of the
dicta
in
North
Brazilian Sugar Factories
in order to decide whether there is any justification for their
introduction into our law.
[5]
The
dicta
were plainly expressed
obiter
and in the
normal course one would have expected them to have paled into
historic oblivion. Nevertheless the case was afforded some
prominence
in the United Kingdom, where it was considered and distinguished, and
more pertinently in Australia, where it was eventually
not followed.
As for the United Kingdom, the Court of Appeal in
Re Movitex
Ltd
[1992] All ER 264
(CA) distinguished
North Brazilian Sugar
Factories
(on which the court below had relied) and for reasons
unrelated to the circumstances of this case allowed the
post-liquidation
creditor to examine certain specified books and
records in the hands of the liquidator.
[6]
In Australia, the Supreme Court of Victoria in
Re MMC Pty
Ltd (in liq)
1992 (6) ACSR 741
SC (Vic) considered
North
Brazilian Sugar Factories
in
the context of an application
[6]
similar to the present application. Senior Master Mahony having dealt
extensively with the views of both the learned Judges in
North
Brazilian Sugar Factories
expanded on the nature of the relief sought as follows:
[7]
‘
The power
conferred by s 387
[8]
is
unfettered save by the requirement that an order made in exercise of
the power shall be as the court “thinks just”
[9]
.
The “justice” of the order sought must be determined, in
the circumstances of the particular case, by reference to
the purpose
for which the power is conferred.
Re
North Brazilian Sugar Factories
exemplifies this. Both Cotton and Lopes LJJ reached their
conclusions by reference to the prima facie purpose for which the
power was conferred by the section, that is, as they saw it, “the
purposes of the winding-up”. That was sufficient
to be
determinative in the circumstances of that case. Cotton LJ,
however, made it clear that he was not going so far as to
conclude
that the power could
only
be
exercised where it would be for those purposes …
The section necessarily
operates in the context of the law as it stands from time to time. It
follows that changes in the law could
increase or diminish its scope
and, consequently, the power conferred by it. In my view, there have
been, since 1887, at least
two significant changes in the law of
Victoria which have to be considered in determining whether it would
be ‘just’
in this case to make the order sought by the
applicant. The first, and most directly relevant, was the enactment
of s 556,
the section under which the applicant is contemplating
proceeding against the directors of the company. In its civil aspect,
that
section conferred on the creditor of a company which “has
been wound-up or is in the course of being wound up” …
a cause of action for the recovery from a director of the company of
a debt incurred by the company when there were reasonable
grounds to
expect that it would be insolvent when the time for payment arrived
or that, by incurring the debt, it would become
insolvent.
[10]
The existence, or otherwise, of the “reasonable grounds”
for one or other of the requisite expectations would frequently
be
found in the books and records of the company, which, in the case of
a company such as this, that is, a company in the course
of being
wound-up, would be in the custody or control of the liquidator. To
commence and proceed to trial in a proceeding under
s 556 (1)
without knowing what was contained in the books and records of the
company held by its liquidator would be
an obvious impediment to a
plaintiff. Indeed, it is clear that it is to avoid this that this
application has been made.’
An order for the
inspection of the books and records was made.
[7] Almost at the same
time, the Supreme Court of New South Wales Equity Division adopted a
similar approach to that in
MMC
in
Re
BPTC Ltd
(1992)
7 ACSR 291
SC (NSW) where, in dealing with a similar application,
[11]
McLelland J said:
[12]
‘
I was referred to
the decision of the English Court of Appeal in
Re North Brazilian
Sugar Factories
…in which consideration was given
(obiter) to an equivalent provision, s 156 of the Companies Act
1862 (UK). There
is a statement in that case to the effect that the
obtaining of evidence in support of actions by individual
shareholders against
the directors of a company in the course of
being wound-up necessarily lies outside the proper ambit of the
section. In my opinion
such a limited view cannot be regarded as
acceptable at the present day. Facilitation of the accountability to
individual creditors
or contributories, as well as to the company
itself, of those who participated in the conduct of its affairs prior
to the winding-up
should nowadays be regarded as sufficiently related
to the winding-up to fall within the scope of the section.’
These views were later
echoed by Rowland J in
IACS Pty Ltd v Australian Flower
Exports Pty Ltd
(1993) 10 ACSR 769
SC (WA) 774.
[8] Finally, the Supreme
Court of Victoria, Australia (
per
Hayne J) in
North
Brazilian Sugar Factories
in
Re William Lawrence (Globe
Dyeworks) Pty Ltd (in liq); The Textile Clothing and Footwear Union
of Australia (Victorian Branch)
v Wight (as liquidator of William
Lawrence) (Globe Dyeworks) Pty Ltd) (in liq)
(1993) 12 ACSR 181
SC (Vic) 182/3 questioned the correctness of the
dicta
and
then went on to say:
‘
As McLelland J
indicates in his judgment in
Re BPTC
, s 486 of the
Corporations Law may be seen as being directed towards accountability
to creditors and contributories;
and if that is so, in my view
it follows
prima facie
that on application by a creditor, or
for that matter a contributory, an order may be made for inspection
of the books of the company
even though the principal motive perhaps
even if the only motive – is for the furtherance of an
individual suit for the benefit
of the applicant creditor or
contributory rather than the general body of creditors.
Since the decision in
Re
North Brazilian Sugar Factories
, company law has moved to provide
in various ways for actions maintainable at the suit of individual
creditors for their individual
benefit in circumstances not
contemplated at the time of that decision. The fact that actions of
this kind may now be brought by
individual creditors is, in my view,
powerful reason for thinking that the power under s 486 may be
exercised even in circumstances
where the principal motive of the
applicant creditor is a motive of furthering its own interests rather
than the interests of creditors
as a whole.’
[9] I respectfully
associate myself fully with the convincing reasoning in the judgments
to which I have referred. Having further
regard to the position in
our law, as I shall presently deal with, the dicta in
Re North
Brazilian Sugar Factories
in my view, should not be followed.
[10] And now to the
position in our law, it is at the outset necessary to quote s 360 (1)
of the Act in full. It provides as follows:
‘
Any member or
creditor of any company unable to pay its debts and being wound-up by
the Court or by a creditors’ voluntary
winding-up may apply to
the Court for an order authorising him to inspect any or all of the
books and papers of that company, whether
in possession of the
company or the liquidator, and the Court may impose any condition it
thinks fit in granting that authority.’
The
wording of the section is clear and unambiguous. The object of the
section and its ambit is manifest from,
inter alia,
the repeated use of the word ‘any’.
[13]
It confers a wide discretion on the court which has to be judicially
exercised, whether to accede to the request for inspection
or not in
the light of all the circumstances of the case.
[14]
The section no doubt was designed to be used within the framework of
winding up
[15]
and with the
view to the more beneficial winding up of the company.
[16]
Against this background, and having considered all the facts of the
present matter, the applicant, in my view, has
prima
facie
established that it is entitled to inspection in order to motivate
its application to the Master to convene an enquiry which, no
doubt,
will determine the way forward. I am satisfied that the application
is
bona
fide
and, in upholding considerations of transparency and accountability
in regard the conduct of directors of companies in their management
of the business of companies, that I should exercise my discretion in
favour of the applicant.
[10]
In the result I make the following order:
1. The
applicant is authorised to inspect all the books and papers of the
first respondent in the possession of
its joint liquidators.
2. The
applicant is to pay the costs of the application.
FHD
VAN OOSTEN
JUDGE
OF THE HIGH COURT
COUNSEL
FOR THE APPLICANT
ADV J
SUTTNER SC
APPLICANT’S
ATTORNEYS
WERKSMANS
INC JAN S DE VILLIERS
DATE
OF HEARING
20
JULY 2010
DATE
OF JUDGMENT
1
SEPTEMBER 2010
[1]
Section 424 (1) of the Act provides as follows:
‘
When it appears,
whether it be in a winding-up, judicial management or otherwise,
that any business of the company was or is being
carried on
recklessly or with intent to defraud creditors of the company or
creditors of any other person or for any fraudulent
purpose, the
Court may, on the application of the Master, the liquidator, the
judicial manager, any creditor or member or contributory
of the
company, declare that ay person who was knowingly a party to the
carrying on of the business in the manner aforesaid,
shall be
personally responsible, without any limitation of liability, for all
or any of the debts or other liabilities of the
company as the Court
may direct.’
[2]
Meskin
Henochsberg
on the Companies Act
Vol 1 p 762/3.
[3]
A similar view is expressed in
Palmer
Company
Precedents
16 ed p 62; and the 24
th
edition of
Palmer’s
Company Law
para 90 -70 p 1623.
[4]
See
Blom
v Promit Beleggings (Edms) Bpk (Jubilant Investments (Pty) Ltd and
Another Intervening)
1970
(2) SA 774 (E).
[5]
Which provided as follows: ‘
Where
an order has been made for winding up a company by the court or
subject to the supervision of the court, the court may make
such
order for the inspection by the creditors and contributories of the
company of its books and papers as the court thinks
just, and any
books and papers in the possession of the company may be inspected
by creditors or contributors in conformity with
the order of the
court, but not further or otherwise.’
[6]
The application under s 387 of the Companies (Vic) Code was for
an
order to obtain access to documents and books of a company in
liquidation for purposes of instituting action against the former
directors of the company in respect of debts incurred when the
company was insolvent.
[7]
At 745 line15 – 50.
[8]
Section
387 provides as follows: ‘
The
Court may make such order for inspection of books of the company by
creditors and contributors as the Court thinks just, and
any books
in the possession of the company may be inspected by creditors or
contributories, but not further or otherwise.’
[9]
This is not a requirement in South African law.
[10]
Cf
Section
424 of the South African Act.
[11]
By a creditor to inspect documents in the hands of the liquidator
under
s 387 of the Companies (NSW) Code, containing the identical wording
quoted in
fn
8 above.
[12]
At p 292 line 45 – 293 line 5.
[13]
In
Rex
v Hugo
1926
AD 268
, 271 Innes CJ described the word “any” thus:
“‘
Any’
is, upon the face of it, a word of wide and unqualified generality.
It may be restricted by the subject-matter or the
context, but prima
facie it is unlimited.”
See also
S v Arenstein
1967 (3) SA 366
(A) 379H;
Commissioner for Inland Revenue v Ocean
Manufacturing Limited
[1990] ZASCA 66
;
1990 (3) SA 610
(A) 618H.
[14]
Cf
Kope
v Bourke’s Luck Syndicate Ltd (In Liquidation)
1925
WLD 40
at 42 (where De Waal J considered the corresponding s 191 of
Act 31 of 1909 (T)); and
Anchor
Holdings Ltd v Cox and Others
1964
(2) SA 405
(W) 407/8 (where Boshoff J (as he then was) considered s
189 of the Companies Act 46 of 1926).
[15]
See
by way of background
Re
British and Commonwealth Holdings plc (Nos 1 and 2)
[1992] 2 All ER 801(CA)
, a case dealing with the court’s
general discretion to order discovery of documents between the
office holders of an insolvent
company in administration and its
auditors, pursuant to applications under s 236 of the Insolvency Act
of 1986 (UK).
[16]
Blom
v Promit Beleggings (Edms) Bpk
,
supra, 777D-E. It is useful and perhaps necessary to consider an
application under s 360 having regard to the
requirements of the more well-known and entrenched Anton Piller
relief.
Cf
Erasmus
Superior
Court
Practice
Appendix E10.