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[2011] ZAGPPHC 105
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Ex parte: Master of the High Court of South Africa (North Gauteng) (2011 (5) SA 311 (GNP)) [2011] ZAGPPHC 105; 28042/11 (27 June 2011)
IN THE HIGH COURT OF
SOUTH AFRICA
NORTH
GAUTENG HIGH COURT, PRETORIA
Case No: 28042/11
DATE:27/06/2011
In
the ex parte application of
THE
MASTER OF THE HIGH COURT Of,
SOUTH
AFRICA (NORTH GAUTENG)
JUDGMENT
1.
The Master of this court (“the Master") has applied for a
declaratory order in the following terms:
'1.1
(T)he Master of the High Court of South Africa ("the Master) is
the only person authorised to appoint
1
1.1 Trustees and provisional trustees of sequestrated and
provisionally sequestrated estates;
1.1.2
Liquidators and provisional liquidators of companies in liquidation
and provisional liquidation: and
1.1.3
Judicial managers and provisional judicial managers of companies in
judicial management and provisional judicial management;
and
1.2
no Judge of the High Court of South Africa has authority or
jurisdiction to effect any appointment of arty person to any of
the
positions referred to in paragraph 1.1"
2.
The application has been necessitated by a practice that has
developed over the past years that attorneys who apply for the
sequestration of individuals or the liquidation of companies (or, for
that matter, close corporations) of for judicial management
of a
company in terms of the 1973 Company Act, include a prayer in the
notice of motion and draft order for the appointment of
a specific
individual as trustee or provisional trustee, as liquidator or as
provisional liquidator or judicial manager or provisional
judicial
manager.
3.
Advocates who are instructed to appear in these applications, usually
in the unopposed motion court, move for orders in these
terms and, as
is apparent from a number of orders granted by judges of this court,
do so successfully
4.
The Master contends that such orders are in conflict with the clear
provisions of the relevant statutory provisions and that
officers of
the court should not apply for, and this court should not grant
orders that interfere with the exercise of the applicant's
functions.
5.The
application was served upon the Association of Insolvency
Practitioners of South Africa; the South African Institute of
Chartered
Accountants; the Law Society of the Northern Provinces; the
Pretoria Society of Advocates; the Johannesburg Society of Advocates
and the Independent Advocates' Association of South Africa.
6.
The Johannesburg Society of Advocates, the Pretoria Society of
Advocates and the Law Society of the Northern Provinces applied
to be
admitted as amies curiae, which applications were welcomed. The Court
is indebted to the amici for their assistance and research
and is
grateful for the thorough heads of argument and the lucid submissions
made by Mr Suttner SC assisted by Ms Nkhuta and Ms
Cirone on behalf
of the applicant and Mr Hutton SC assisted by Mr Dewrance and Ms
Manaka on behalf of the Johannesburg Society
of Advocates. The Court
is thankful for the very helpful heads of argument filed after the
hearing by Mr Terblanche SC assisted
By Mr A Badenhorst SC and Mr
Ncongwane on behalf of the Pretoria Society of Advocates and Mr Lamey
on behalf of the Law Society
of the Northern Provinces.
THE
STATUTORY FRAMEWORK
7
Since the promulgation of the Insolvency Act 32 of 1916 the
administration of insolvent estates has been controlled by an act
of
Parliament.
1
The appointment of trustees and provisional trustees responsible for
the administration of insolvent estates of natural persons,
and the
manner and fashion in which trustees and provisional trustees have to
deal with such estates. Is now arranged by the
Insolvency Act 24 of
1936
, as repeatedly a mended .
8.
The provisions of the
Insolvency Act also
apply in considerable
measure, mutatis mutandis, to the winding-up of insolvent companies
and to the appointment of, and control
over, liquidators and
provisional liquidators, as these are imported into the former
Companies Act 61 of 1973 by s 339 thereof.
2
The new
Companies Act 71 of 2008
expressly reserves the winding-up
provisions of the 1973 Act in Item 9 of its Fifth Appendix. The 1973
Act also regulates the appointment
of judicial managers and
provisional judicial managers, an office that will gradually become
obsolete in view of the Business Rescue
provisions of the 2003
Companies Act.
9.
Section
66 of the
Close Corporations Act 69 of 1984
in turn adopts
the principles applying to the winding-up of companies in respect of
close corporations that are wound up, and sub-section
(2) thereof
expressly imports fundamental concepts of the
Insolvency Act into
the
winding-up of close corporations.
10.
For purposes of this judgment ft is therefore necessary to consider
the relevant provisions of the
Insolvency Act; the
previous Companies
Act 61 of 1973 and the
Close Corporations Act 69 of 1984
in exfenso.
THE
INSOLVENCY ACT 24 OF 1936
11.
Section 18
of the
Insolvency Act provides
that the Master appoints
provisional trustees and trustees to insolvent estates of
individuals.
3
12.
While the Master may have the discretion to appoint a provisional
trustee prior to the first and second meetings of creditors,
her or
his powers to appoint trustees are limited by the wishes of creditors
of the insolvent. The Master is obliged to call a
meeting of
creditors in terms of
section 40.
4
anc" HREF="#sdfootnote4sym" SDFIXED>
4
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13.
This section must be read together with
section 54
5
anc" HREF="#sdfootnote5sym" SDFIXED>
5
,
which obligates the Master to appoint as trustee either the person
elected by the creditors who hold the claims that constitute
the
majority in value, or the person who was elected by the majority
number of creditors, or both persons if two are elected in
this
fashion as joint trustees.
14.
The Master must determine the amount of security that must be
furnished by the person elected as trustee. Once security has
been
provided the trustee must be appointed, as decreed by
s 56.
0i
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15.
Although the trustee is not necessarily an officer of the court
6
there can be no shadow of doubt that the office is one of trust
toward creditors and the insolvent, and also toward the Master
and
the court It is also clear that a trustee must be scrupulously
independent and may have no interest in the fate of the insolvent
or
the insolvent estate or any bias in favour of or against any of the
creditors of the estate for the liquidation of which the
trustee has
been appointed. It is for this reason that
section 55
lists a range
of factors that disqualify a person from being appointed as trustee,
either at all or in respect of the relevant
estate.
7
16.
Section 57
is an important provision of the insolvency Act. it
clothes the Master with the power to set aside the appointment of a
trustee
who was not properly elected or is disqualified In terms of s
55 from being appointed, it further grants the authority to the
Minister
to set aside a decision by the Master to confirm or to
refuse to confirm the election of a trustee. The section is worded as
follows:
"(i)
If a person who has been elected as trustee was not properly elected
or is disqualified, under section fifty five, from
being elected or
appointed a trustee or is disqualified from being a trustee of the
estate in question or has failed to give within
a period of seven
days as from the date upon which he was notified that the Master had
confirmed his election, or within such further
period as the Master
may allow, the security mentioned hi subsection (2) of section
fifty-six or if in the opinion of the Master
the person elected as
trustee should nor be appointed its trustee to the estate in
question, the Master shall in that notice in
writing to the person so
elected that he declines to confirm his election or to appoint hi;n
as trustee and shall in that notice,
stare his reason for declining
to confirm his election or to appoint him: Provided that if the
Master declines to confirm the election
of a trustee because he is of
the opinion that the person elected should not he appointed as
trustee, it shall be sufficient if
the Master states, in that notice,
us such reason, that he is of the opinion that the person elected
should not he appointed as
trustee to the estate in question.
(2)
When the Master has declined to confirm the election of a trustee or
to request referred to in subsection (") and of all
relevant
documents. information or objections submitted to him or the Master
by any interested person, confirm, upland or set aside
the
appointment or the refusal by the Master and, in the event of the
refusal by the Master being set aside direct the Master to
confirm
the election of the trustee concerned and so opt joint him as
trustee to the estate in question. (10) The decision of
the Minister
under subsection t9j shall be final"
17.
It should be underlined that the Master has the power to set aside
the purported election of a person who has been elected in
a fashion
not authorised by the statute, or who is disqualified from
appointment for any reason. The fact that the court has the
same
power and may declare a person to be disqualified from appointment as
trustee even before such person has been elected, as
provided for in
s 59, does not distract from this capacity. In addition, s 60
empowers the Master to remove a trustee on the grounds
set out
thereins.
8
It is important to note that the original version of this section
granted that power to the court, but in 1965 an amendment transferred
this capacity''...fully and effectively ..." (per Coetzee J, as
he then was, in Gilbert, supra, at 783 G) to the Master.
18.
Once a trustee has been removed, has resigned or has passed away, the
Master may convene a meeting of creditors to replace the
former
holder of the office, as set out in s 62.
19.
The Master is in control of the entire process of administration and
liquidation of insolvent estates, an important part of
which consists
of the oversight she or he exercises over the trustees in the
performance of their functions as mandated by the
insolvency Act. The
Masters functions and duties include:
a)
Receiving applications for voluntary surrenders and calling for
valuation of property owned by the applicant (section 4);
b)
Appointing a curator bonis to the estate of a debtor who has caused a
notice of voluntary surrender to be published (section
5);
c)
Ensuring the payment of costs if an application for voluntary
surrender is withdrawn, lapses or is dismissed (section 6(2)};
d)
Authorising the withdrawal of a notice of surrender (section 7);
e)
Accepting security for the costs of launching an application for the
sequestration of a debtor and accepting a copy of the application
(section 9);
f)
Receiving a statement of an insolvent's affairs after the tatter's
sequestration (section 16);
g)
Receiving orders of sequestration and orders setting aside
provisional orders of sequestration and publish these in the Gazette
(section 17(4)):
h)
Authorising the registration of a caveat against transfer in the tile
deed of immovable property belonging to an insolvent (section
18B);
i}
Receiving an inventory of an insolvent's estate and all cash found
therein (section 19);
j)
Holding an. insolvent's property until a trustee has been appointed
and then vesting such property in the latter (section 21(1))
or
holding it after the termination of the trustee's appointment until
another has been appointed (section 25(2));
k)
Issuing a certificate that property is claimable by the trustee from
an insolvent by writ of execution {section 23(11);
I)
Accepting notice by a third party of a claim of ownership of property
held by an insolvent prior to sequestration, if no trustee
has been
appointed, and before such property is sold in good faith (section
36(5));
m)
Determining the time and place of meetings of creditors (section 39);
n)
Approving the trustees' remuneration which must be taxed (section
63);
o)
Determination of dates of meetings of creditors and the summoning of
witnesses to attend these meetings (sections 40\ 41, 42;
64, 65 and
66);
p)
Authorizing the late proof of claims against the insolvent estate
(section 44(1));
q)
Approving, reducing or disallowing any such claim (section 45{3);
r)
Reporting offences committed by any person (section 67);
s)
Overseeing trustees taking charge of estate property and having such
property valued (section 69);
t)
Opening of bank accounts (section 70):
u)
Recording of receipts (section 71);
v)
Reclaiming monies unlawfully retained by trustees {section 72);
w)
Authorising the obtaining of legal advice (section 73); x) Receiving
notification of intention to continue civil legal proceedings
against
the estate (section 75);
y)
Authorising arbitration proceedings or the compounding or
compromising of claims by the estate (section 78);
z)
Authorising the payment of a subsistence allowance to the insolvent
and his family (section 79);;
aa)
Authorising the continuation of the insolveit's business (section
80);
bb)
Authorising the immediate sale of movable or immovable property prior
to the finallsation of the sequestration process (section
80 bis),
cc)
Permitting the late delivery of a report to creditors (section
81(1));
dd)
Authorising the realisation of the estate in the absence of
creditor's directions (section 81(2));
ee)
Giving directions for the sale of immovable property (section 82):
ff)
Authorising the realisation of securities for claims (section 83);
gg)
Receiving liquidation and distribution accounts (section 91) and
interim accounts if necessary (section 92);
hh)
Receiving trading accounts [section (93),
ii)
Authorising the realisation of securities in favour of creditors who
have failed to prove a claim (section 95);
jj)
Authorising the fate proof of claims (section 104);
kk)
Granting extension for the submission of trustees accounts (section
109);
ll)
Compelling the submission of accounts (section 110);
mm)
Deafing with objections to trustees' accounts (section 111);
nn)
Confirming trustees' accounts (section 112);
oo)
Receiving proof of payment of dividends and unpaid dividends (section
114);
pp)
Receiving any surplus in an estate and paying the same into the
Guardian's Fund (section 116);
qq)
Enforcing the payment of contributions and identifying the creditors
liable to effect such payment (section 118);
rr)
Considering and confirming a composition between the insolvent and
his creditors (section 119);
ss)
Determining security for the taking over of the assets of the estate
of a partner in an insolvent partnership who enters into
a
composition, by the trustee of the estate of another partner {section
121 (2));
tt)
Reporting to the Court on applications for rehabilitation and to
oppose such applications if necessary (sections 124 read with
section
127):
uu)
Considering allegations of false claims being made against an
insolvent estate (section 136 (a)):
vv)
Requiring trustees to deliver documents to him or hold inquiries into
the affairs of an insolvent's estate or affairs {section
152):
ww)
Determining fees for services rendered and collecting the same
{section 153);
xx)
Exercising custody of all documents relating to insolvent estates and
endorsing documents and certificates relating to them
(section 154);
yy)
Authorising the destruction of documents by trustees after the expiry
of six months after the confirmation of the final account
relating to
an insolvent estate; and destroying documents in his own office
relating to insolvent estates after five years have
elapsed since the
rehabilitation of an insolvent (section 155);
zz)
Apply policy determined by the Minister (section 158 read with
section 57(5)).
THE
COMPANIES ACT 61 OF 1973
20.
Although the 1973 Act has been repeated, Item 9 of the Fifth Schedule
to the new
Companies Act 71 of 2008
determines that chapter XIV of
the former Act shall continue to apply until a date to be determined
by the Minister when the new
structures to deal with liquidations are
in place.
21.
Section 339
of the
Companies Act (CA
) provides that the law of
insolvency applies mutatis mutandis to the winding-up of companies.
Many of the functions the Master
exercises in sequestration matters
are mirrored in the administration of companies that are wound up. As
is the case in sequestration
proceedings, the Master has the power to
appoint liquidators and to decline to appoint a liquidator, although
s 379
(2) provides expressly that the court may do so if the Master
fails to exercise this function.
22.)
It is not necessary to fist all the relevant provisions of the CA. It
will be sufficient to deal with those sections that have
no
equivalent in the insolvency Act but impose functions and duties upon
the Master:
a)
Section 343 CA provides that the Master may apply for the compulsory
liquidation of a company that is wound up voluntarily;
b)
Section 363 (3) CA allows the Master to exempt persons from filing a
statement of affairs relating to companies under winding-up
if such
person is unable to provide any information;
c)
Section 418 CA empowers the Master to appoint commissioners for
confidential enquiries into the affairs of a company, a power
that is
granted to the court as well;
d)
Sections 427 CA to 440 CA deal with judicial management, a process
that is now replaced by the business rescue provisions of
the 2008
Act. The Master's duties and functions regarding the appointment of
and control over judicial managers and provisional
judicial managers
run parallel to those that apply to liquidators and provisional
liquidators and need not be discussed separately
for purposes of this
judgment.
THE
CLOSE CORPORATIONS ACT 69 OF 1984
23.
Part IX
of the
Close Corporations Act, dealing
with the liquidation
of close corporations, contains provisions that are virtually
identical to those that apply to the liquidation
of companies and the
sequestration of estates.
Section 66
expressly imports Chapter XIV of
the 1973
Companies Act into
the
Close Corporations Act, subject
to
some exceptions
24
The Master's duties and functions in respect of insolvent close
corporations do not differ in any essential respect from those
he
exercises in the case of companies and estates. It is therefore not
necessary to deal with individual sections of Act 69 of
1984.
DISCUSSION
25.
Every stage of the administration of insolvent estates and companies
and close corporations under winding up, from the launching
of the
original sequestration or liquidation application to the
rehabilitation of the insolvent or the deregistralion of the
corporate
entity is controlled by the Master's office. Its duties
include many specialised functions and administrative tasks that can
only
be carried out efficiently by a dedicated organisation that
exists specifically for that purpose.
26.
An organisation of this nature has the institutional knowledge and
expertise to apply policy and to assess the ability and integrity
of
trustees and liquidators and is therefore able to judge whether or
not individuals are duly qualified to be appointed, either
at all or
to a specific estate. In this respect Lipschitz v Wattrus NO
1980 (1)
SA 662
(T), a Full Bench decision of this court, provides useful
guidance. It upheld the Master's decision no longer to allow a
particular
individual to be appointed to any of the provisional
offices under the former's control In doing so, the court emphasized
the intricacy
and volume of work that the Master's office has to
perform, and recognised that the Master keeps lists of the names of
potential
trustees, liquidators and judicial managers composed of
persons who are prima facie qualified to be appointed. If the Master
comes
to the bona fide conclusion that a particular person is no
longer fit to fulfil the role of provisional trustee, liquidator or
judicial manager he has the power, but also the duty to prevent such
person's appointment. See further Krumm & Another v The
Master &
Another
1989 (3) SA 944
(D & CLD).
27.
It is clear that the Master has knowledge concerning the ability,
integrity, honesty and dedication of persons who may wish
to be
considered as trustees, liquidators and judicial managers, whether
provisional or otherwise. This enables the Master to carry
out the
policy to appoint persons from a previously disadvantaged background
as additional trustees or liquidators in addition
to those elected by
the creditors. The Master's office is also more likely to be aware of
any potential or actual conflict of interest
a candidate might have
in a particular instance that would prevent her or his appointment.
This is information that is built up
in the office dedicated to the
administration and oversight of insolvencies and liquidations over a
period of many years. It is
information that the court simply does
not possess and that does not form part of the facts that are
disclosed to the court when
application is made for a provisional
sequestration or liquidation.
28.
The South African insolvency system is creditor - driven. The
majority of creditors in number or claims have the right to elect
trustees and liquidators and to take decisions in respect of the
manner in which assets failing into the estate or constituting
property of a corporate body in winding-up should be dealt with.
9
Nonetheless, their choice of trustee is subject to the Master's
approval and the exercise of their functions is subject to the
Master's control.
29.
En practice, individuals vying for the appointment to a provisional
office present requisitions by creditors to the Master prior
to a
provisional appointment being made. The creditors are entitled to
have their views recorded and considered, a process that
by
definition can only commence after the court has made a provisional
order of sequestration or liquidation. By appointing an
individual to
the position the court pays heed only to the request
be
the applicant creditor, who may turn out to be in a minority of both
numbers and claims.
30.
In venturing to appoint a provisional trustee or other officers, the
court might therefore cause severe prejudice to interested
parties
such as creditors, members and directors of companies, the Master in
the exercise if her or his duties and to the insolvent
or the
corporate entity being wound up.
31.
The Legislature has over time given recognition to these
considerations by incrementally reducing the court's involvement in
the appointment of these officers. Prior to the promulgation of the
1916
Insolvency Act, the
court was responsible for the appointment of
trustees and exercised control over their activities - see
Gotldseller v Hill
1908 TS 822.
The 1916 Act placed the duty upon the
court to appoint a provisional trustee. Ex parte Grkin Bros (Pty) Ltd
1921 TS 466.
(Similarly, the 1926
Companies Act (46
of 1926) vested
the power to appoint a judicial manager in the court: See Ex parte
Morley & Cohen: In re Mining Material Merchants
Ltd v Miodownik &
Co {Pty} Ltd
1940 WLD 95)
, The present
Insolvency Act transferred
this power to the Master - see the discussion of
s 18
supra - but
originally still vested the court with the power to remove trustees
in terms of
s 60.
This section was amended In 1965, see par 17 supra
In Gotdfields Trading Co (Pty) Lid v Schutte
1956 (3) SA 1
(O)
Potgieter J declared: "The appointment of a provisional trustee
is purely statutory and i cannot see how the Court has
any inherent
power where such power is vested in the Master by statute." This
is a succinct summary of the law since 1965.
32.
The attempt to ensure the appointment of a particular individual by
the court may have been driven not only by the wish to have
someone
perceived to be positively inclined toward the applicant creditor
appointed to the relevant position, but also by real
or perceived
challenges that may be experienced in dealing with the administration
of the Master's office. No such evidence has
been presented to the
court, nor could such considerations influence the outcome of the
issue raised the Master The relevant statutes
contain sufficient
provisions to enable creditors and other interested parties to hold
the Master and his office to account. The
Master performs
administrative functions (see Hartley NO v The Master
1921 AD 403)
and is therefore subject to the provisions of the
Promotion of
Administrative Justice Act 3 of 2000
. The insolvency Act in any event
provides in section 151 that ... any decision, ruling, order or
taxation of the Master or by a
decision, ruling or order of an
officer presiding at a meeting of creditors..' way be taken on review
by any person aggrieved thereby.
33.
It must therefore be held that, as a matter of law, the Master is
the only functionary entitled to appoint provisional trustees,
liquidators and judicial managers and, taking into account creditors'
directives, trustees, liquidators and judicial managers
SHOULD
A DECLARATORY ORDER BE ISSUED?
34.
The Master and the Amici Curiae are all agreed that only the Master
is entitled to effect appointments to the offices discussed
in this
judgment. 8oth the law Society of the Northern Provinces and the
Pretoria Society of Advocates argue, however, that it
would be
inappropriate to issue a declaratory order and that the court should
rather refer the matter to the Honourable Deputy
Judge President of
this court with the request to consider the issuing of a practice
directive to reflect the correct state of
the law. They submit that
the present application does net disclose sufficient grounds for the
granting of a declaratory order
as the court's finding would not
relate to an existing dispute and would not affect a contingent,
existing or prospective right.
35.
The two amici submit that a declaratory order would therefore relate
to future matters that might never occur and would be a
brutum
fulmen. Nobody would be directly affected or bound by the order,
white, seen against the backdrop of the orders made by
this court
that clearly do not accord with the fetter of the law a declarator
would "... in a way operate against itself..."and
would be
"... tantamount to a single Judge potentially binding all Judges
of ail courts in South Africa, including the Supreme
Court of Appeal
and the Constitutional Court."
36.
These concerns can be laid to rest immediately. It is not uncommon
for a single judge to hold that previous decisions by single
judges
were clearly incorrect on a particular point of law that has been
placed before that single judge for decision- Such finding
may either
find favour with other courts and be followed, or, if not, the
conflicting interpretations of the law will eventually
have to be
resolved by higher authority. No single judge can bind courts of
other divisions, let alone the Republic's highest courts.
If the
interpretation of the law in this case had been controversial, it
might have been advisable to refer the issue whether the
Master is
the only functionary entitled to appoint officers dealing with
insolvent estates and corporate entities in winding up
to a full
bench As the Master and the amid are m agreement on how the law must
be applied such referral is unwarranted.
37.
The aforesaid amici raise the further argument that a declaratory
order could affect orders made in the past. That fear is unfounded.
Orders of court, whether they were issued correctly or incorrectly,
remain valid and enforceable until they have been set aside
by a
competent court. The Master does not seek a retroactive order, but
one that will fay existing problems to rest
ex nunc
.
38.
Declaratory orders are only called for if an actual or potential
controversy concerning an "... existing, future or contingent
right or obligation'
10
has arisen that needs to be addressed in the interest of the party
that has approached the court and others.
11
(Dit) moet wet as vereiste gestei word da? Caar
belanghebhendes is vir wie die verktarende bevelbindendsal wees."
12
39.
The Master is faced with the emergence of a practice that is in
conflict with the applicable statutes and the positive law and
mat
interferes with the proper exercise of his or her duties. This is a
live issue that affects not only the Master's duty (and
concomitant
right) to ensure that the law is applied correctly, but also involves
all insolvency practitioners who have a vital
interest in the
procedures that apply to their appointment to the various offices
referred to above. The same applies to the parties
that become
embroiled in insolvencies or liquidations as creditors or
respondents. The present matter is therefore one that calls
for a
declaratory order to clearly interpret the law.
40.
A practice directive does not bind either the court or the
practitioners, It is no more than a guide to the way the court's
business should be conducted In the interests of an efficient
administration of justice, but by the very nature thereof it allows
the court to deviate from the preferred approach in circumstances the
court regards as appropriate. The Master's concerns do not
relate to
matters of practice or procedure, but to the correct interpretation
of the law. The law cannot be established by practice
directives, but
only by binding judicial
pronouncements.
41.The
Pretoria Society of Advocates has suggested that the court should
approve of a practice that would allow applicants to request
the
court to recommend the appointment of a particular individual,
especially in intricate matters involving the liquidation of
groups
of companies. Much as one must appreciate the need to ensure that
competent insolvency practitioners are appointed in every
instance,
and that such appointments are effected in a
transparent and
efficient fashion, the court must refrain from expressing a
preference for any individual for exactly the same reasons
that
motivate the declaratory order the Master has sought. The practical
effect of the formal expression of a judicial opinion
would differ
little from a direct appointment that is beyond the court's power. (t
is therefore objects enable to suggest to a
court that an endorsement
of a particular individual by way of a recommendation would be
acceptable.
42.
During argument it emerged that not all interested bodies were
formally notified of the Master's intention to approach the court
for
a declaratory order. In particular, two bodies representing
Insolvency practitioners, the South African insolvency Practitioners7
Society and the Association for the Advancement of Black Insolvency
Practitioners were not sen/ed with the papers. In the light
of the
importance of the issues raised by this application it is preferable
to issue a rule nisi in order to ensure that every
party that might
potentially be interested in the outcome of the application is given
the opportunity to engage the court on the
return day.
THE
ROLE OF OFFICERS OF THIS COURT
43.
Both the Master and the Johannesburg Society of Advocates have
expressed stern criticism of the conduct of counsel and attorneys
who
were responsible for moving orders for the provisional sequestration
or liquidation of the relevant respondents that included
prayers for
the appointment of a particular individual to the office of
provisional trustee or liquidator, without drawing the
court's
attention to the correct interpretation of the statute or the
authorities that are against the granting of such relief.
They
emphasised that practitioners are obliged to keep themselves up to
date with the recent authorities in their field
13
and to point them out to the court, particularly if they do not
support the result contended for by the practitioner. No attorney
or
advocate may ever knowingly mislead the court or withhold relevant
information that may affect the courts decision: Rondel v
Worstey
[1966] 3 ALL ER 657
CA; Toto v Special Investigation Unit &
others
2001 (1) SA 673
(ECD) at 683 A-G.
44.
This court will refrain from expressing an opinion on the conduct of
the practitioners involved in the matters referred to by
the Master
as they have had no opportunity to deal with any criticism that might
be expressed of their conduct. It is regrettable
however, that the
courts that issued these orders were apparently neither informed of
the correct interpretation of the statutes
nor was their attention
drawn to applicable authorities.
THE
ORDER
A
rule nisi, returnable on the 8/8/2011 issued, calling upon all
interested parties to show cause why the following declarator should
not be confirmed:
1.
It is declared that the Master of the High Court of South Africa is
the only official authorised to appoint
1.1
1 trustees and provisional trustees of sequestrated and provisionally
sequestrated estates;
1.1.2
liquidators and provisional liquidators of companies and close
corporations in liquidation or provisional liquidation; and
1.1.3
judicial managers and provisional judicial managers of companies in
judicial management and provisional judicial management;
and
1.2
No Judge of the High Court of South Africa has authority or
jurisdiction to effect any appointment of any person to any of the
positions referred to in par 1, nor to make any recommendations to
the Master in respect of any appointment to any of these positions.
2.
This order is to be served upon:
2.1
The Association for the Advancement of Black Insolvency Practitioners
at c/o Lebogang Michael Moloto. 97 Michelle Avenue, Randhart.
Alberton; and upon
2.2The
South African Insolvency Practitioners' Society at c/o Samanth
Ponnen.
Matasis
House, 16 Eton Road, Parktown; and upon 2.3AII the parties that
received service of the papers prior to the enrolment of
the
application;
3.
The order is to be published in one edition of the Sunday Times and
one edition of the Rapport within fourteen days of the date
of this
order.
4.
Par 1
will be of immediate effect pending the return day.
Signed
at Pretoria on this 27
th
day of June 2011.
E
BERTELSMANN
Judge of the High Court
1
For
an overview of the historical roots of the
South
African insolvency
regime
see Mars,
The
law or insolvency in South Africa,
9
th
edition by Bertelsmann & others, pp 6-10.
2
It
reads as follows: "In she winding-up of a company unable to
pav
its debts provision of the law relating to insolvency shall,
insofar as they are applicable, be applied
mutotis
mutandis
in
respect of any matter not specifically proceed for by this Act."
3
18.
Appointment of provisional trustee by Master.-—
(1)
As
soon as an estate has been sequestrated [whether provisionally or
finally J or when a person appointed as trustee ceases to
be trustee
or to function as such, the Master may. in accordance with policy
determined by the Minister, appoint a provisional
trustee to the
estate in question who shall give security
to
the satisfaction of the Master for the proper performance of his or
her duties as provisional trustee and shall hold office
until the
appointment of a trustee.
(2)
At
anytime before the meeting of the creditors of an insolvent estate
in terms of section forty, the Master may, subject to the
provisions
of subsection (3) of this section, give such directions to the
provisional trustee as could be given to a trustee
by the creditors
at a meeting of creditors.
(3)
A
provisional trustee shall have die powers and the duties of a
trustee, as provided in this Act, except that without the authority
of the court or for the purpose of obtaining such authority he shall
not bring or defend any legal proceedings and that without
the
authority of the court or Master he shall not self any property
belonging to the estate in question. Such sale shall furthermore
be
after such notices and subject to such conditions as the Master may
direct.
(4)
When
a meeting of creditors for the election of a trustee has been held
in terms of section forty and no trustee has been elected,
and the
Master has appointed a provisional trustee in the estate in
question, the Master snail appoint him as trustee on his
finding
such additional security as the Master may have required.
4
40.
First and second meetings of creditors.—
(1)
On
the receipt of an order of the court sequestrating an estate
finally, the Master shall immediately convene by notice in the
Gazette, a first meeting of the creditors of (he estate for the
proof of their claims against the estate and for the election
of a
trustee.
(2)
The
Master shall publish such notice on a date not less than ten days
before the date upon which the meeting is to be held and
shall in
such notice state the time and place at which the meeting is to be
held.
(3)
(a) After the first meeting of creditors and the appointment of a
trustee, the Master shall appoint a second meeting of creditors
for
the proof of chums against the estate, and for the purpose of
receiving the report of the trustee on the affairs and condition
of
the estate and giving the trustee directions in Connection with 'he
administration of the estate.
(b)
The
trustee shall convene the second meeting of creditors
b\
notice
in the Gazette and in one or more newspapers circulating in the
district in which the insolvent resides or his principal
place of
business is silicate. <cl Whenever the notice referred to in
paragraph (b) is published in any newspaper, the publication
shall
lake place simultaneous^ in the Afrikaans language and in the
English language and in the case of each such language in
a
newspaper circulating in the district referred to in the said
paragraph
which
appears mainly in that language and the publication in each such
language shall as far as practicable occupy the same amount
of
space: Provided that where in the district in question any newspaper
appears substantially in both such languages publication
in both
such languages may take place in that newspaper.
5
54
Election
of trustee.—
{I)
At the first meeting of the creditors of an insolvent estate the
creditor* who
have
proved their claims
3gaffist
the
estate may elect one or two trustees.
(2)
Any
person who has obtained a majority in number and in value of the
votes of the creditors entitled to vote. who voted at such
meeting,
shall be elected trustee.
(3)
If no person has obtained such a majority of votes then—
(a)
If the person who has obtained a majority of votes In number, when
no other person has obtained a majority of votes in value,
or has
obtained a majority of votes in value, when no other person has
obtained a majority of votes in number, shall be deemed
to be
elected sole trustee:
(b)
if one person has obtained a majority of votes in value and another
a majority of votes in number. both such persons shall
be deemed to
be elected trustees, and if either person declines a joint
trusteeship, the other shall be deemed to be elected
sole trustee.
(4)
for the purposes of this section "majoritv of votes in number"
means a greater number of votes (apart from the value
of the claims
which they represent, but subject to the provisions of subsection of
section fifty-two) ;than has been obtained
by any competitor and
"majority of votes in value" means votes representing
claims of a greater aggregate value mart
the votes obtained by any
competitor.
1.5
j
If
at any meeting of creditor* convened for the purpose of electing a
trustee, no trustee is elected and the estate is not vested
at the
time of that meeting in a provisional trustee, the Master may. in
accordance with policy determined by the Minister, appoint
a trustee
and if he or she does not so appoint a trustee, the Master or the
insolvent with the Master's consent, may apply, at
the cost of the
estate, to the court by petition to set aside the sequestration and
the court may make such order thereon
as it thinks fit.
6
For
a discussion of this question see Mars, op.cft. p 293. See further
Gilbert
•/ Becker & Another
1984
{3) SA 774 (W) at 777F to 7B1G.
7
55.
Persons disqualified from being trustees.—
Any
of the following persons shall be disqualified from being elected or
appointed a trustee:—
(a)
any
insolvent;
(b)
any
person related to the insolvent concerned by consanguinity or
affinity within the third decree:
(c)
a
minor or any other person under legal disability:
(d)
any
person who does not reside in the Republic;
(e)
any
person who has an interest opposed to the general interest of the
creditors of the insolvent estate;
(f)
a
former trustee disqualified under section seventy-two:
(g)
any
person declared under section fifty-nine to be incapacitated for
election as trustee,
w
hile
any such incapacity lasts, or any person removed by the court, on
account of misconduct, from an office of trust;
(h)
a
corporate body:
(i)
Any person who has at any time been con vie led whether in the
Republic or elsewhere) of theft, fraud, forger, or uttering
a forged
document, or perjury and has been sentenced to imprisonment without
the option of a fine, or to a fine exceeding R2
000:
(j)
any person who was. at any time, a party to an agreement or
arrangement with any debtor or creditor whereby he undertook that
he
would, when performing the functions of a trustee or assignee, grant
or endeavour to grant to. or obtain or endeavour to obtain
for any
debtor or creditor any benefit not provided for by law:
(k)
any person who has b> means of any misrepresentation or any
reward or offer of any reward, whether direct or indirect,
induced
or attempted to induce any person to vote for him as a trustee or to
effect or assist in effecting his election as trustee
of any
insolvent estate:
(l)
any person wheat any time during a period of twelve months
immediately preceding the date of sequestration acted as the
bookkeeper, accountant or auditor of the insolvent:
(m)
any agent authorized specially or under a general power of attorney
to vote for or on behalf of a creditor at a meeting of
creditors of
the estate concerned and acting or purporting to act under such
special authority or general power of attorney.
8
60.
Removal of trustee by Master.―
The
Master may remove a trustee from his office on the around―
(a}
that he was not qualified tor election or appointment as trustee or
that his election or appointment was for any other reason
illegal,
or that he has become disqualified from election or appointment as a
trustee or has been authorized, specially or under
a general power
of attorney. to vote for or on behalf of a creditor at a meeting of
creditors of the insolvent estate of which
he is the trustee and has
acted or purported to act under such special authority or general
power of attorney: or
(b)
that he has failed to perform satisfactorily any duly imposed upon
him by this Act or to comply with a lawful demand of the
Master: or
(c)
that he is mentally or physically incapable of performing
satisfactorily his duties as trustee: or
(d)
that the majority f reckoned in number and in value of creditors
entitled to vote at a meeting or creditors has requested
him in
writing to do so: or
(e)
that. In his opinion, the trustee is no longer suitable to be the
trustee of the estate concerned.
9
Mars
op.cit. p3 and
the
authorities
there cited
10
"'Section
15(1)
of
the
Supreme
Court Act 59
of
19S9
11
"
Durban City Conner': v Association of Building Societies
1942 AD
71
;
12
Per
Steyn CJ
in
ex
porte
Nell
1963
(I)
SA
754 (A) at 760 C
13
Ex
parte Hoy
Management
Consultants
(Pry}
Ltd
200
{3}
SA
501 (W) at 506 and authorities there cited