About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2013
>>
[2013] ZASCA 185
|
|
Motala and Others v Master of the High Court and Others (313/13) [2013] ZASCA 185; [2014] 2 All SA 154 (SCA) (29 November 2013)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
no: 313/13
Reportable
In
the matter between:
Enver
Mohammed
Motala
.......................................................
First
Appellant
Mathole
Serofo Motshekga
...............................................
Second
Appellant
Khathazile
Simon Mahlango
................................................
Third
Appellant
Gail
Lyn
Warricker
..............................................................
Fourth
Appellant
and
Master
of the High Court (North Gauteng)
......................
First
Respondent
The
Registrar of
Companies
..........................................
Second
Respondent
The
Receiver of
Revenue
..................................................
Third
Respondent
The
Minister of
Finance
....................................................
Fourth
Respondent
Boake
Incorporated
..............................................................
Fifth
Respondent
Kevin
Peter
Wiles
.................................................................
Sixth
Respondent
Master
of the High Court (South Gauteng)
..................
Seventh
Respondent
Neutral
citation:
Motala
v
The
Master
(313/13)[2013]
ZASCA 185 (29 November 2013)
Coram:
BRAND,
TSHIQI, WALLIS and WILLIS JJA and VAN DER MERWE AJA.
Heard
:
22 November 2013
Delivered
:
29 November 2013
Summary:
Company
- dissolution in terms of s 419 of Companies Act 61 of 1973 -
application to declare dissolution void in terms of s 420
of
Companies Act - effect of - court’s discretion to declare
dissolution void - exercise of.
ORDER
On
appeal from:
South
Gauteng High Court (Vermeulen AJ sitting as court of first instance):
The
appeal is dismissed with costs, such costs to include the costs of
the applications for condonation, and are to be paid by the
appellants jointly and severally, the one paying the other to be
absolved.
JUDGMENT
WALLIS
JA (BRAND, TSHIQI and WILLIS JJA and VAN DER MERWE AJA concurring:
[1]
On
28 July 2003 the first appellant, Mr Motala, was appointed jointly
with three colleagues as the liquidator of Cement Board Industries
(Pty) Ltd (CBI). In February 2005 the liquidators instituted an
action before the South Gauteng High Court against the fifth
respondent,
Boake Incorporated (Boake Inc), a firm of accountants and
auditors, and the sixth respondent, Mr Kevin Wiles. That action
proceeded
at a snail’s pace and, from a procedural perspective,
was still ongoing in August 2010, when Mr Wiles’ attorney
discovered
that CBI had been dissolved in terms of s 419 of the
Companies Act 61 of 1973 (the Act). That revelation prompted this
application,
in terms of s 420 of the Act, for a declaration that the
dissolution was void and ancillary relief. The application was
opposed
by Boake Inc and Mr Wiles and dismissed by Vermeulen AJ in
the South Gauteng High Court. This appeal is with his leave.
[2]
In
his founding affidavit Mr Motala explained rather tersely the
circumstances in which CBI came to be dissolved, notwithstanding
the
fact that its liquidators were engaged in litigation against Boake
Inc and Mr Wiles. Apparently the joint liquidators arranged
among
themselves for a firm in which one of them had an interest to
undertake the day to day administrative work involved in the
liquidation. Mr Murray, the employee of that firm who was dealing
with CBI wrote to the Master of the High Court (the Master) on
8
February 2006 attaching certain documents and saying:
‘
We confirm that we
have no objection to the Section 419 Certificate being issued.’
He added a request that
the securities furnished by the liquidators be released. The Master
acceded to this request and, on 14 September
2006, released the
securities and issued a certificate of dissolution in respect of CBI.
[3]
Although
challenged to provide a fuller explanation Mr Motala did not do so.
Nor, beyond a standard form confirmatory affidavit,
did Mr Murray.
This was notwithstanding the fact that annexed to Mr Wiles’
answering affidavit was the amended first and
final liquidation
account lodged with the Master and supported by affidavits by all
four joint liquidators, sworn at various times
between 18 May 2005
and 12 July 2005. This last affidavit was Mr Motala’s and it
attested to the finality of the liquidation
process.
[4]
The
sole purpose of the application was to enable the litigation between
the liquidators on the one hand and Boake Inc and Mr Wiles
on the
other to resume from where it left off after the discovery in
September 2010 that CBI had been dissolved or at least from
the stage
it had reached in September 2006 when CBI was dissolved. Unless it
could achieve that there was no purpose in pursuing
the application.
In the result two points were argued before the court below and
before us. They were, first, that as a matter
of law an order
declaring the dissolution of a company void in terms of s 420 of the
Act would not have the effect of reviving
the action and, second,
that in the exercise of its discretion the court should refuse the
application. The court below upheld
both arguments.
[5]
The
first point is one of considerable difficulty. Section 420 of the Act
provides that:
'When a company has been
dissolved, the Court may at any time on application ... make an
order, upon such terms as the Court thinks
fit, declaring the
dissolution to have been void, and thereupon any proceedings may be
taken against the company as might have
been taken if the company had
not been dissolved.'
The predecessor to this
section was s 191(1) of the Companies Act 46 of 1926, which in turn
was derived from s 223(1) of the English
Companies (Consolidation)
Act 1908 (8 Edw 7, c 69). There are two differences in wording
between s 420 and its predecessors. The
one of lesser relevance is
that the earlier provisions provided that an application to declare a
dissolution void had to be brought
within two years of the
dissolution, whereas s 420 is not subject to any time limit. The more
significant change lies in the closing
words. The two earlier
sections provided that the court could declare the dissolution void:
‘
... and thereupon
such proceedings may be taken as might have been taken if the company
had not been dissolved.’
The Act restricts this
provision to proceedings ‘against the company’ whereas in
its original form the section did not
draw any distinction between
proceedings by and proceedings against the company
[6]
The
House of Lords considered Section 223(1) of the English Act in Morris
v Harris.
[1]
Harris had commenced
arbitration proceedings claiming damages against a company. After the
arbitrator had been appointed it came
to the attention of his
solicitors that a new company had been formed to take over the assets
of the original company. Assurances
were given that this did not
matter and that, if an award was made in his favour, the new company
would discharge the award. On
the strength of that he pursued the
arbitration and obtained a substantial award. The new company did not
satisfy the award because
it had got into financial difficulties. In
the meantime the old company had been dissolved before any of the
arbitration meetings
took place and before the award was made. An
order avoiding the dissolution was granted under s 223(1) and Harris
sought to prove
a claim under the arbitration award against the
company in liquidation. The claim was rejected by the liquidator and
by a court
of first instance, but upheld by the Court of Appeal. On
further appeal to the House of Lords it was held by a narrow
majority
[2]
that Harris was
entitled to prove in the liquidation for such claims as he could
establish, but not in terms of the arbitration
award.
[7]
Lord
Sumner, giving the leading speech, said that the closing words of s
223(1) pointed to the removal of a bar to proceedings that
had
existed as a result of the dissolution, but did not affect the
validity of anything done during the period of dissolution.
In the
result he said, in regard to Mr Harris’ entitlement to prove a
claim under the arbitration award, that:
‘
The object of the
provision was, I think, to give a fresh start to proceedings, which
owing to the dissolution had been impossible
and had not been taken,
and thereupon it was to be open to those concerned to take them in
the future as if the dissolution had
not happened. In my opinion most
of the proceedings in the arbitration in this case, and, above all,
the award itself, are null,
for they were taken and made against a
company which did not exist, and no subsequent validity has been or
could be given to them.
The respondent must therefore prove his claim
afresh in proceedings, to which the appellant will be a party.’
[8]
When
this court considered s 191(1) in Pieterse v Kramer NO
[3]
,
it came to the same conclusion so far as the effect of the section on
steps taken on behalf of the company during the period of
dissolution
was concerned. It accordingly held that a summons issued by the
liquidator of a company after the company had been
dissolved and
prior to the dissolution being avoided was a nullity. In so doing it
followed the decision in Morris v Harris but
specifically left open
the question of the impact of an order avoiding the dissolution on
proceedings commenced prior to the dissolution.
[9]
There
is authority in England that the dissolution of a company has the
effect of bringing any legal proceedings extant at the time
of
dissolution to an end.
[4]
A similar conclusion has
been reached in two decisions in South African courts under s 420.
[5]
These decisions were
followed by the court below in this case. There are, however, two
dissentient voices.
[6]
The judge in the first of
those cases reasoned that as the dissolution was declared void ab
initio in terms of the court order that
meant that corporate activity
prior to dissolution, including the commencement of legal proceedings
were revived by the avoiding
order.
[10]
It
is tempting in the light of this conflict of authority and the fact
that
s 83(4)
of the
Companies Act 71 of 2008
retains this provision
in substantially unaltered form to decide which of these conflicting
views is correct. However, I propose
to refrain from doing so. First,
it involves a consideration of the effect of a decision by the House
of Lords where the language
of the leading speech seems ambiguous
and, as the authorities cited by Holmes JA in Pieterse v Kramer NO
[7]
show, there are different
views in that jurisdiction as to its effect. I have read the speech
of Lord Sumner with care and am by
no means satisfied that it has the
effect attributed to it by Megaw LJ in the Foster Yates case. There
is little other relevant
learning on the matter in England and the
provisions of s 1032(1) of the Companies Act, 2006 (2006, c 46) mean
that no further
assistance will be derived from that jurisdiction.
Nor have we been referred to the understanding of the section in
other jurisdictions,
such as Australia and New Zealand that have, or
had, equivalently worded sections in their statutes governing
companies. Second,
there is the difficulty that in 1973 the words
‘against the company’ were introduced into the section
and neither counsel,
nor any of the South African writers on company
law that I have consulted, proffer a helpful explanation of the
reasons for its
inclusion
in the section or its effect on the meaning of the section as a
whole.
Third, the implications of a decision either way seem to me to extend
beyond the particular circumstances of the present
case to matters
such as contractual rights existing prior to the dissolution and we
were not addressed on these points.
[11]
In
those circumstances and since I am clear that, even if the first
question were to be answered in favour of the appellants, the
appeal
must fail on the basis that the court below correctly exercised the
undoubted discretion that s 420 vests in the court by
refusing the
application, I prefer to leave these difficult issues to be
determined on another more appropriate occasion.
[12]
Section
420 exists for certain specific and well-established reasons.
In
Goodman
v Suburban Estates Ltd (In Liquidation) & others
[8]
,
Mason
J said:
‘
.it seems to me
that the Court ought not to avoid a dissolution unless some
unforeseen event such as the discovery of new assets
has occurred or
unless there has been some fraud or concealment practised or unless
the dissolution has become either by reason
of surrounding
circumstances or through some contrivance of parties the instrument
of injustice.’
To similar effect
Hoffmann LJ, in the leading English case of Re Forte’s
(Manufacturing)
[9]
said:
‘
. ordinarily the
purposes of s 651 [the successor to s 223(1)] are either to enable
the liquidator to distribute an overlooked asset
or a creditor to
make a claim which he has not previously made.’
[13]
The
present application is directed at the first of these purposes, but
stands at one remove from it inasmuch as the asset is a
claim that is
the subject of strenuously contested litigation. Accordingly it is
not simply a matter of avoiding the dissolution,
taking possession of
and possibly realising an asset and making a further distribution to
creditors. Here the very existence of
the asset is disputed. That
means that the application is to some measure at least speculative.
To adopt the words of Hoffmann
LJ in Re Forte’s
(Manufacturing)
[10]
it is a ‘shadowy’
claim.
[14]
It
is not the function of liquidators to speculate. They are there to
pursue the interests of creditors and members,
[11]
which in the case of a
company unable to pay its debts means its creditors. That is doubly
important in the present case because
the only source of finance to
pursue the present litigation is the creditors of the company. But
they are conspicuous by their
complete absence from these
proceedings. The founding affidavit identifies two creditors for
whose benefit it is said that the
litigation should be pursued. They
are respectively Findevco (Pty) Ltd (Findevco), which is seeking to
recover some R9.5 million
and Fabcos Holding Company Ltd (Fabcos),
with a claim of R4.7 million. However, neither proved claims in the
liquidation of CBI
and neither has put up an affidavit supporting the
application. Indeed there is no indication that they are aware of
what has happened
to CBI or of the litigation against Boake
Incorporated and Mr Wiles or of this application. There is
accordingly nothing to show
that this application is being pursued in
the interests of creditors and with a view to recovering an asset for
their benefit.
[15]
That
consideration alone is in my view sufficient to warrant the court
refusing the application. But that conclusion is reinforced
by a
number of other features. First, it is unclear whether Mr Motala has
the support of his fellow liquidators in bringing this
application.
He claims to have such support but no supporting affidavits from his
colleagues were presented. When evidence was
tendered that the fourth
appellant, Ms Warricker, claimed to have no knowledge of the
application, no affidavit contradicting this
was delivered in reply.
Second, it is unclear how long the proposed litigation against Boake
Inc and Mr Wiles will take to bring
to completion. It had been
underway for five years before the discovery that CBI had been
dissolved, without much progress having
been made. According to the
affidavits, shortly before the dissolution there was a substantial
amendment to the particulars of
claim. Not only will several years of
pleading have to be redone, but it is plain from this that the action
will not be ready for
trial for some considerable period.
[16]
That
brings me to the third point, which is that Boake Inc and Mr Wiles
have had this litigation hanging over them since 2005 in
relation to
events that took place in 1999. The manifest prejudice to them of
avoiding the dissolution and having the action resume
is not
countered by any indications that the case against them is
overwhelming. In those circumstances the prejudice to them must
count
strongly against the grant of an avoiding order.
[17]
Lastly
there is the complete absence of any explanation of how the company
came to be dissolved when the action was still ongoing.
Mr Motala
says simply that this was the result of an administrative error by Mr
Murray, but does not explain how that error occurred.
The factual
position is that a final liquidation and distribution account was
prepared,
advertised
and lodged with the Master. All four liquidators signed affidavits
saying that this account was a true and correct account
of their
administration,
that ‘all assets and liabilities are reflected herein’
and that all claims had been investigated. The
account does not
mention Findevco or Fabcos or the action against Boake Incorporated
and Mr Wiles. That is extraordinary considering
that the action had
been commenced in February 2005 and the affidavits were signed in
June and July 2005. As Mr Murray had been
delegated responsibility
for the day to day administration of the winding-up of CBI he must
have been aware of the action. Yet
he gives no explanation of his
oversight in submitting the final liquidation and distribution
account in the face of that action.
In addition the action followed
upon an enquiry in terms of sections 417 and 418 so it was hardly a
minor matter, as the amounts
involved demonstrate.
[18]
After
lodging the account with the Master, Mr Murray went on to seek the
release of the security provided by the liquidators by
way of a
letter despatched in August 2005. The response came a year later in
September 2006. At no stage during this entire period,
even though
the action was ongoing and pleadings were being filed, did Mr Murray
or any of the liquidators notice that they had
erred. Nor indeed did
they do so after they were informed of the dissolution in September
2006. It is unnecessary to speculate
about the reasons for this. What
is plain is that the liquidators deliberately sought the dissolution
of the company and continued
with the litigation notwithstanding. It
would require powerful reasons in those circumstances for the court
to exercise its discretion
in their favour by avoiding the
dissolution.
[19]
In
the result the appeal must be dismissed with costs, such costs to
include the costs of the applications for condonation granted
at the
commencement of the hearing. On any footing the liquidators have been
discharged from office as a result of the dissolution
of the company.
It follows that the costs order must lie against them personally and
should be joint and several.
[20]
It
is ordered that the appeal is dismissed with costs, such costs to
include the costs of the applications for condonation, and
to be paid
by the appellants jointly and severally, the one paying the other to
be absolved.
M J D WALLIS
JUDGE OF APPEAL
APPEARANCES:
For
appellant: P J van Blerk SC (with him O Mooki)
Instructed by:
Mchunu Attorneys,
Johannesburg
Bokwa Attorneys,
Bloemfontein
For
fifth respondent: I P Green
Instructed by:
Webber Wentzel,
Johannesburg
Matsepes Inc,
Bloemfontein
For
sixth respondent: E A Limberis SC
Fluxmans, Inc,
Johannesburg
Lovius Block,
Bloemfontein
[1]
Morris
v Harris [1927] AC 252 (HL).
[2]
The
principle dissentient was Lord Wrenbury who, as Buckley LJ, was
responsible for the first seven
editions
of
Buckley on the Companies Act.
[3]
Pieterse
v Kramer NO
1977
(1) SA 589
(A).
[4]
Foster
Yates and Thom Ltd v HW Edgehill Equipment Ltd
(1978)
122 Sol J 860.
[5]
Ebrahim
v Evans NO
1990
(4) SA 424
(D) and
Pyramid
Freight (Pty) Ltd v Incorporated General Insurances Ltd &
another
1993
(2) SA 323 (W).
[6]
Sandton
Town Council v Erf 89 Sandown Extension 2 (Pty) Ltd
1991
(3) SA 846
(W) and
Pieterse
NO & another v The Master & another
2004
(3) SA 593
(C) at 598F.
[7]
Supra
at 601D-H.
[8]
Goodman
v Suburban Estates Ltd (In Liquidation) & others
1915 WLD 15
at
26. See also Cronje NO & others v Hillcrest Village (Pty) Ltd &
another
2009 (6) SA 12
(SCA) para 36.
[9]
Re
Forte’s (Manufacturing) Ltd: Stanhope Pension Trust Ltd v
Registrar of Companies
[1994]
BCC 84
(CA) at 86
[10]
At
90A-B.
[11]
Cronje
NO & others v Hillcrest Village (Pty) Ltd & another,
supra,
para 25.