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[2014] ZASCA 198
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Chater Developments v Waterkloof Marina Estates and Another (1025/2013) [2014] ZASCA 198; 2015 (5) SA 138 (SCA) (28 November 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
no: 1025/2013
Reportable
In
the matter between:
CHATER
DEVELOPMENTS (PTY) LTD (IN LIQUIDATION)
Appellant
and
WATERKLOOF
MARINA ESTATES (PTY) LTD
First Respondent
H
A
MARAIS
Second Respondent
Neutral
citation:
Chater Developments v Waterkloof Marina
Estates &
another
(1025/2013)
[2014] ZASCA 198
(28 November 2014)
Coram:
Navsa ADP, Theron, Wallis, Mbha JJA and Dambuza AJA
Heard:
13 November 2014
Delivered
28 November 2014
Summary:
Company
–
Winding
up
by
Court
–
Property
purchased
in
good
faith
in
circumstances
where
the
liquidator
was
not
authorised
to
sell
the
property
–
Section
82(8)
of
the
Insolvency
Act
24
of
1936
rendered
applicable
by
s
339
of
the
Companies
Act 61 of 1973 – Agreement valid.
ORDER
On
appeal from:
North Gauteng High Court, Pretoria (Pretorius J
sitting as court of first instance):
The
appeal is dismissed with costs including the costs of two counsel.
JUDGMENT
Theron
JA (Navsa ADP, Wallis, Mbha JJA and Dambuza AJA concurring):
[1]
The issue for determination is whether the provisions of s 82(8) of
the Insolvency Act 24 of 1936 (the
Insolvency Act) are
applicable to
a company which is wound up on the basis of an inability to pay its
debts, by virtue of the provisions of
s 339
of the repealed
Companies Act 61 of 1973 (the 1973 Companies Act), which remains
applicable in the winding up of companies.
[2]
I set out the common cause background to this litigation. Chater
Developments (Pty) Ltd (in liquidation) (Chater Developments),
first
defendant in the court a quo, was placed in final liquidation on 30
July 2002. The second respondent, Mr Hendrie Andries
Marais (Marais),
third party in the court a quo, was appointed as sole liquidator of
Chater Developments on 28 October 2002. On
24 January 2003, the
second meeting of creditors of Chater Developments was held for,
inter alia, the purposes of proof of claims
and the passing of
resolutions empowering the liquidator to sell its assets. The second
meeting of creditors was adjourned to 30
January 2003, on which date
a resolution was adopted which authorised the liquidator, ‘to
dispose of [Chater’s] movable
assets by public auction, private
treaty or public tender in his sole discretion and that the mode of
sale … shall be determined
by the [liquidator] and that all
costs incurred in relation thereto be costs of administration and
paid for by the estate.’
There were no contributories to Chater
Developments.
[3]
On 18 August 2004 the first respondent, Waterkloof Marina Estates
(Pty) Ltd (plaintiff in the court a quo) entered into a written
agreement with Chater Developments in terms of which it purchased
from the latter, forty per cent of the issued shares in City
Lake
Marina (Pty) Ltd (second defendant in the court a quo) and Chater
Developments’ claims, if any, against City Lake Marina
for the
amount of R6 million. In concluding this agreement Chater
Developments was represented by Marais who acted under the authority
granted to him at the meeting of creditors held on 30 January 2003.
On 14 September 2006, Chavonnes Badenhorst St Clair Cooper
was
appointed as joint liquidator of Chater Developments, together with
Marais.
[4]
Chater Developments refused to comply with the terms of the agreement
asserting that it was invalid and unenforceable because
Marais had
not obtained a resolution from the members as required by s 386(3)(
a
)
of the 1973 Companies Act. In particular it refused to transfer the
shares to Waterkloof Marina, against a tender of payment of
the
purchase price. During October 2009 Waterkloof Marina issued summons
out of the North Gauteng High Court (Pretoria) against
Chater
Developments for an order directing delivery and transfer of
Chater Developments’ forty per cent shareholding
in City Lake
Marina, and its claims, if any against City Lake Marina, against
payment of R6 million. Two other defendants were
cited in the action
in the high court, namely, Yunnan Construction Engineering CC (third
defendant) and the Master of the High
Court, Pretoria (fourth
defendant). These defendants, including City Lake Marina, were cited
in the proceedings as interested parties
and no relief was sought
against them. They did not participate in the trial in the high
court, nor in the appeal.
[5]
On 16 January 2012 Marais resigned as liquidator of Chater
Developments. During February 2012 Chater Developments issued a third
party notice claiming that in the event the court finds that the
agreement was valid, Marais should be held liable to make good
to the
estate the amount of the loss which the estate may have sustained as
a result of him dealing with the property.
[6]
The matter came before the high court (Pretorius J) as a stated case
where the court was called upon to decide certain issues
separately
in terms of Rule 33(4) of the Uniform Rules of Court. The parties
were agreed that for the purposes of the stated case
the court must
assume that (i) Waterkloof Marina acted bona fide as envisaged in
s
82(8)
of the
Insolvency Act; (ii
) the second meeting of creditors was
properly constituted; and (iii) the persons present at that meeting
were duly authorised and
had acted in accordance with the terms of
their respective mandates. The parties further agreed that ‘no
second meeting of
the members of the first defendant [Chater
Developments] was held whether on 30 January 2003 or at all and that
the aforesaid resolutions
. . . were accordingly not adopted by the
members of the first defendant [Chater Developments]’.
[7]
The high court was called upon to determine, on the basis of the
agreed facts, whether the agreement was valid and enforceable
having
regard to the provisions of
s 82(8)
of the
Insolvency Act, read
with
the provisions of s 339 of the 1973 Companies Act. It answered this
question in favour of the respondent and found that there
was no
provision in the 1973 Companies Act, dealing specifically with the
situation where the liquidator sells property of the
company in
liquidation without authorisation by members of the company. Based on
this, the judge concluded that
s 82(8)
of the
Insolvency Act was
applicable and the agreement was valid and enforceable. The appeal is
against this judgment with the leave of this court.
[8]
In this
court, Chater Developments contended that the agreement was not
valid
and
enforceable
because
Marais
was
not
authorised
by
the
members
of
Chater
Developments
to
sell
its
movable
property
by
private
contract
as
envisaged
in
s
389(3)(
a
)
read
with
s
386(4)(
h
)
of
the
1973
Companies
Act.
[1]
Waterkloof
Marina
on
the
other
hand
contended
that
the
agreement
was
valid
and
enforceable
by
virtue
of
the
provisions
of
s
82(8)
of
the
Insolvency
Act,
read
with s
339 of the 1973 Companies Act.
[9]
Liquidators
have certain
powers that
may
be
exercised
on
their
own
initiative
in
any
winding-up.
[2]
Then
there
are
defined
powers
which
the
liquidator
may only exercise on the authority of resolutions of the creditors
and
members
(or
contributors)
at
a
general
meeting,
[3]
and
if
no
such
authority
is
given,
or
could
be
given,
or
even
where
there
is
a
difference
between
the
directions
of
creditors
on the
one
hand
to
those
of members
or
contributors
on
the other
hand, then the liquidator may apply to the Master for directions
under
section
387(2). If the Master refuses to give directions, the liquidator may
apply
to
court for directions.
[4]
Section
386(3)(
a
)
provides that:
‘
The
liquidator of a company in a winding-up by the Court, with the
authority granted by a meeting of creditors and members or
contributories
or on the directions of the Master given under section
387 shall have the powers mentioned in subsection (4)’.
[10]
Section 386(4)(
h
) authorises the liquidator ‘to sell any
movable and immovable property of the company by public auction,
public tender or
private contract and to give delivery thereof.’
The authors, Cilliers
et al
, characterise the legal position
of the liquidator in the following terms:
‘
The
liquidator does not have the inherent power to realise the assets of
the company; he must
be
authorised
to
do
so
by
resolutions of creditors and
members or
contributories
–
or
in the
absence
of
such
resolutions,
by
the
Master.
The
liquidator
must,
when
selling
assets
of the
company,
have regard to the directions of meetings of creditors or members or
contributories.
Subject to
such authorisation he may sell movable and immovable property either
as a whole or in parcels by public auction, public
tender or private
contract to any person.’
[5]
[11]
In
this
matter
the
liquidator
acted
without
the
necessary
authorisation.
That would
ordinarily invalidate the transaction unless Waterkloof Marina was
entitled to
the protection of
s 82(8)
of the
Insolvency Act. This
court, as did
the
high
court,
has
to determine whether the laws of insolvency can, in the present
circumstances,
be applied to render the agreement valid and enforceable. It was
common
cause that the appellant was wound up on the basis that it was unable
to
pay
its
debts.
Section
339
of
the
1973
Companies
Act
renders
particular
provisions
of
the law
relating
to
insolvency
applicable
to
companies
being
wound up
and unable to pay their debts in respect of any matter not provided
for
in
the
1973
Companies
Act.
The
provisions
of
Chapter
XIV
(which
includes
s 339) of
the 1973 Companies Act remain in force.
[6]
This
section reads:
‘
In
the winding-up of a company unable to pay its debts the provisions of
the law relating to insolvency shall, in so far as they
are
applicable, be applied
mutatis
mutandis
in
respect of any matter not specially provided for by this Act.’
[12]
The
predecessor
to
s
339
of
the
1973
Companies
Act,
was
s
182
of
the
Companies
Act
46
of
1926,
the
relevant
portion
of
which
was
substantially
similar
to
s
339,
and
was
interpreted
by
Colman
J
in
Woodley
v
Guardian
Assurance
Company of SA Ltd
[7]
to mean
that the provisions of the law relating to insolvent estates shall be
applied ‘in so far as they are capable of being
applied’.
[8]
The learned judge reasoned that it was just and reasonable that
persons
in
the
position
of
the
plaintiff
in
that
matter
should
be
no
worse
off,
because
the
wrongdoer
was
a
company
in
liquidation,
than
they
would
have
been
if
the
wrongdoer
had
been
an
individual
under
sequestration
and
added
that:
‘…
it
is socially desirable that, as far as is practicable, all the
consequences of the liquidation of an insolvent company should
be
similar to those to the insolvency of an individual. Certainly there
is no reason for assuming that the Legislature, when enacting
a
provision which brings about or tends to bring about that result,
could not have meant what it said.
The
winding-up
of
a
company
unable
to
pay
its
debts
is
something
closely
akin
to
the
winding-up
of
the
estate
of
an
insolvent
individual.
There
are
some
different
requirements
which flow
from the fundamental difference between a company and an individual:
those are
specifically
provided for in the Companies Act. In respects other than those so
provided for I
cannot see
why the Legislature should not have desired, not
merely the
procedural rules, but
also
the
substantive rules and
consequences,
to
be
the
same
in
both cases.
And I
can see
no
justification
for
an
approach
which
distorts
or
strains
the
language
of
sec.
182
in
order
to avoid
that result’.
[9]
A
provision
of
the
law
relating
to
insolvency
will
not
apply
if
the
matter
is
‘specifically
provided’ for in the Companies Act.
[10]
The
Constitutional Court has
approved
this approach.
[11]
[13]
The relevant provision of the
Insolvency Act is
s 82(8)
, which
provides:
‘If
any
person
other
than
a
person
mentioned
in
subsection
(7)
has
purchased
in
good
faith
from an
insolvent estate any property which was sold to him in contravention
of this section,
[without
authority]
or
if
any
person
in
good
faith
and
for
value
acquired
from
a
person
mentioned
in
subsection
(7)
any
property which the
last
mentioned
person acquired
from an
insolvent
estate
in
contravention
of
that
subsection,
the
purchase
or
other
acquisition
shall
nevertheless
be valid, but the person who sold or otherwise disposed of the
property shall be liable
to
make
good
to
the
estate
twice
the
amount
of
the
loss
which
the
estate
may
have
sustained
as a result of the dealing with the property in contravention of this
section.’
[12]
[14]
It was
contended by the appellant that
s 82
was not applicable as the 1973
Companies
Act
contains
provisions,
namely
ss
386(5)
and
387(4),
which
deal
with the
situation where a liquidator sells property of the company in
liquidation
without
authorisation
by
its
members.
Section
386(5)
of
the
1973
Companies
Act
provides
that
the
court
may
grant
leave
to
a
liquidator
to
conclude
an
agreement
to raise money on the security of the assets of the company or to do
any
other thing
necessary
for winding
up
the
affairs
of
the
company.
[13]
In
support
of its argument the appellant relied on
Griffin
& others v The Master &
another
[14]
where it
was held that s 386(5) can be
invoked to
resolve a deadlock
between
creditors
and
members
of
a
company
or
close
corporation
in
liquidation.
It was suggested that it can thus be inferred that the court is
empowered
to do whatever is necessary for winding up the affairs of the
company
and
distributing
its
assets,
even
if
it
is
against
the
wishes
of
the
creditors
and members. It was further contended that even where the
liquidator
does not
approach court to
ratify an
unauthorised agreement of sale, the
purchaser
may,
in terms
of s
387(4) of
the
1973
Companies
Act,
approach
the
court
for
appropriate
relief.
Section
387(4)
provides
that
any person
aggrieved
by any act
or decision
of the
liquidator
may apply
to
court
for
an order
that
is
‘just’.
[15]
There is
little authority on this point.
Section 82
of the
Insolvency Act has
been
said to be applicable to liquidations
by virtue of
s 339
of
the 1973
Companies
Act.
[15]
Conradie
J,
in
Mookrey
v
Smith
NO
&
another
,
[16]
explained
the
rationale for
s 82(8)
of the
Insolvency Act:
‘
To
the extent that a trustee is bound to comply with instructions from
creditors [and members (or contributors) of the company] as
to the
manner which the estate is to be wound up and the assets to be
disposed of, he may be regarded as a kind of statutory agent
for
creditors [and members (or contributors) of the company].
If
an agent acts outside his powers his act, leaving aside ratification,
is a nullity. It therefore seems to me that the Legislature
could not
have intended that an act performed by a trustee beyond the scope of
authority given to him at the second meeting of
creditors [and
members (or contributors) of the company] should be anything but
invalid.
…
But
where an act is clearly ultra vires the authority given by the
creditors [and members (or contributors) of the company] to the
trustee it seems to me that invalidity must have been intended to
result. …
Once
there
is
a
rule
as
uncompromising
as
this,
it
goes
almost
without
saying
that
some
method has
to be devised to protect an innocent third party from the
consequences of having
entered
into
an
unenforceable
transaction.
Section
82(8)
does
this
by
providing
that if
a
purchaser
is bona fide the sale shall nevertheless be valid.’
[17]
And
in
Sherry
v Henning NO & others
[18]
it was found that:
‘
There
is no similar provision in the Companies Act dealing with sale of
property and it follows that section 82 is therefore applicable’.
[16]
Section
339
renders
both
procedural
and
substantive
provisions
of
the
Insolvency
Act
applicable
in
the
winding
up
of
a
company.
[19]
The
remedies
provided
in
ss
386(5)
and
387
(4)
of the
1973
Companies
Act are
discretionary
and
subject
to
a
particular
set
of
facts
being
present.
This
section
empowers
a
liquidator,
and only a liquidator to approach court in appropriate circumstances.
A purchaser
such as
the
respondent
who seeks
to preserve
a
sale
concluded
in good
faith cannot invoke this section. It was contended by Chater
Developments
that
in
the
event
that
the
liquidator
refuses
to
act
in
terms
of
s
386(5),
an
aggrieved
person such as Waterkloof Marina is entitled to invoke the provisions
of s 387(4)
of the Act and seek an order from the court compelling the liquidator
to abide
the sale.
[17]
The provisions of s 387(4) do not detract from the applicability of
s
82
(8) of the
Insolvency Act. The
right in
s 82(8)
is a substantive
right that offers protection to an innocent third party such as the
respondent, from the consequences of an unenforceable
transaction. It
validates a purchase in good faith. By contrast, the provisions of
s
387(4)
provide for a situation where the relief sought is dependent
upon the exercise of a discretion by the court. Waterkloof Marina
should not be obliged to rely on a discretionary remedy in
circumstances where it is able to assert a valid purchase by virtue
of the provisions of
s 82(8)
of the
Insolvency Act. It
was common
cause that Chater Developments was a company unable to pay its debts
as envisaged in
s 339.
There is no provision in the 1973 Companies
Act that validates a purchase in good faith from a liquidator who is
not authorised
to sell. Such a situation is not ‘specifically
provided for in this Act’ and it follows that s 82(8) is
applicable.
[18]
For these reasons the appeal is dismissed with costs including the
costs of two counsel.
__________________
L
V Theron
Judge
of Appeal
APPEARANCES
For
Appellant:
AB Rossouw SC with JH Moller
Instructed by:
Brooks and Brand Inc,
Pretoria
Van Der Merwe &
Sorour Attorneys, Bloemfontein
For
First Respondent:
GI Hoffman SC with S Kuny
Instructed by:
David Kahn &
Associates, Johannesburg
Symington & De Kok,
Bloemfontein
[1]
Griffin
& others v The Master
(
Commins
&
another Intervening)
2006
(1) SA 187
(SCA) paras 6 and 7.
[2]
These powers are set out in s 386(1)(
a
)-(
e
)
of the 1973 Companies Act and relate largely to core winding-up
functions
of the liquidator.
[3]
These
powers
are
dealt
with
in
s
386(4)(
a
)-(
i
),
are
extensive
and
relate
mainly to
disposal
of
assets
of
the
company in
liquidation.
[4]
Section 387(3).
[5]
H S Cilliers
et
al
,
Corporate
Law
3
ed (2000) at 28.73 on ‘The Realisation of Assets’
(footnotes are omitted).
See also J
A Kunst, P Delport and Q Voster,
Henochsberg
on the Companies Act
5
ed (2011) at 826.
[6]
Appendix I of the
Companies Act 71 of 2008
.
[7]
Woodley
v
Guardian Assurance Company of SA Ltd
1976
(1) SA 758 (W).
[8]
At 760B-C and 763.
[9]
At 763E-F.
[10]
Woodley
v
Guardian Assurance Company of SA Ltd
1976
(1) SA 758
(W) at 763. J A Kunst, P Delport and Q
Voster,
Henochsberg
on the Companies Act
5
ed (2011) at 668.
[11]
Bernstein
&
others v Bester & others NNO
[1996] ZACC 2
;
1996
(2) SA 751
(CC) para 96.
[12]
The persons referred to in
s 82(7)
of the
Insolvency Act include
‘the trustee or an auctioneer employed to sell
property
of
the
estate
in
question,
or
the
trustee's
or
the
auctioneer's
spouse,
partner,
employer,
employee
or
agent’.
[13]
Section
386(5)
of the
Companies
Act
reads
:
‘In
a
winding-up
by the
Court, the Court may,
if it
deems
fit,
grant
leave to a liquidator
to raise
money on
the
security of the assets of the company concerned or
to do any
other
thing which the Court may consider necessary for winding up the
affairs of the company and distributing
its
assets.’
[14]
2006 (1) SA 187
(SCA) para 10.
[15]
Oertel
v
Director of Local Government
1981
(4) SA 491
(T) at 508. See generally J A Kunst, P Delport and Q
Voster,
Henochsberg
on the Companies Act
5
ed (2011) at 669; 4 Lawsa Part 3 (First reissue) para 104.
[16]
1989 (2) SA 707
(C).
[17]
At 711B-F.
[18]
[2005] JOL 15358
(T) para 6.
[19]
Woodley
v
Guardian Assurance Co of SA Ltd
1976
1 SA (W) 758
at 763F-G.