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[2017] ZAECPEHC 23
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Eastern Cape Development Corporation v Master of the High Court, Port Elizabeth and Others (3203/2016) [2017] ZAECPEHC 23 (28 March 2017)
IN THE HIGH COURT
OF SOUTH AFRICA
(EASTERN
CAPE LOCAL DIVISION, PORT ELIZABETH)
Case
No. 3203/2016
In
the matter between:
EASTERN
CAPE DEVELOPMENT CORPORATION
Applicant
and
MASTER
OF THE HIGH COURT, PORT ELIZABETH
First
Respondent
MANTIS
INVESTMENT HOLDINGS (PTY) LTD
Second
Respondent
W
DE JAGER N.O.
Third
Respondent
C
A SCHROEDER N.
O.
Fourth
Respondent
JUDGMENT
MBENENGE
J:
[1]
In pursuit of its statutory mandate and obligations to plan, finance,
co-ordinate, market, promote and implement the development
of the
Eastern Cape Province and all its people in the fields of industry,
commerce, agriculture, transport and finance,
[1]
the applicant advanced monies to a company known as Bushman Sands
Developments (Pty) Ltd (Bushman Sands), which played a pivotal
role
in the development of the Bushman Sands Resort near Alicedale in the
Eastern Cape Province.
[2]
It came to pass that a company known as No 1 Watt Street (Pty) Ltd
(previously known as Mantis Group Holdings (Pty) Ltd) (No
1 Watt
Street) bound itself as surety and co-principal debtor with Bushman
Sands for the due payment of such amounts as were payable
by Bushman
Sands to the applicant from time to-time arising from the granting of
a loan facility in December 2005 (referred to
as the indicative term
sheet).
[3]
Bushman Sands became unable to re-pay the amount due by it to the
applicant. This resulted in the applicant instituting
proceedings before this Court based on the suretyship referred to
above for payment of R19 357 645.40.
[4]
No 1 Watt Street raised a plethora of contentions in pursuit of its
defence to the action.
[2]
After pre-trial procedures had been complied with and the action
involving the applicant and No 1 Watt Street enrolled for
hearing on
17 November 2014, the second respondent launched an application for
the liquidation of No 1 Watt Street. A provisional
and final
order of liquidation was granted, with the consequence that the
action aborted.
[5]
The third and fourth respondents were thereupon appointed as joint
liquidators of No 1 Watt Street (hereinafter conveniently
referred to
as the company in liquidation).
[6]
The applicant and the second respondent sought to prove claims at the
first meeting of creditors or at an adjournment thereof.
The
second respondent disputed the applicant’s entitlement to prove
its claim on two bases. In the first place, the
same defences
raised in the aborted action (between the company in liquidation and
the applicant) were raised and, second, it was
contended that there
had been non-compliance with section 359 of the Companies Act 61 of
1973.
[7]
After hearing the applicant’s claim, in due course, the first
respondent made a ruling admitting the applicant’s
claim and
thus rendering the applicant a creditor in the company in
liquidation. It is trite law that the admission was provisional
only
[3]
and it is available to
the trustee to dispute the claim in relation to any aspect thereof,
subject to the Master having the ultimate
say in relation to such
dispute apart from that of the Court.
[4]
The admission has the effect of placing the onus of disproving the
existence of the claim on the trustee.
[5]
[8]
The second respondent has adopted the stance that it is entitled
through interrogation of the applicant’s representatives
or
former representative to establish whether or not the previously
accepted claim should be allowed to stand or expunged.
During
the stage of argument before the first respondent, the second
respondent sought to dispute the applicant’s claim on
precisely
the same grounds as were originally raised in the aborted action.
[9]
The applicant, on the other hand, is of the view that the
circumstances in which the company in litigation was placed under
liquidation and the disposal of assets previously held by that
company would be the subject of an enquiry of the applicant and
it
would be demonstrated that a number of assets of the company in
liquidation were disposed of under circumstances which may give
rise
to further actions or applications to set aside inappropriate or
voidable dispositions. The applicant has throughout
been of the
view that any attempt on the part of the second respondent to
subpoena and interrogate employees and agents of the
applicant (both
past and present) in respect of precisely those defences not pursued
in the aborted action would constitute an
abuse of the process
envisaged in the Companies Act and,
inter
alia,
section
44
of the
Insolvency Act 24 of 1936
.
[10]
The following extract from a letter penned on behalf of the applicant
captures the essence of the applicant’s contentions
to the
envisaged interrogation:
“
We
wish to record that any attempt to revisit and challenge our client’s
claim will be resisted on the following grounds:
1.
Our
client’s claim has now been proved, notwithstanding objection
thereto by Mantis. It is correct that the
Insolvency Act makes
it clear that notwithstanding the proof of a claim, the liquidator is
entitled, under certain circumstances, to request the Master
to
revisit the validity of a claim already proved.
2.
Nevertheless
the circumstances under which this may occur is extremely limited and
circumscribed. A liquidator must have a
reasonable belief,
based on facts ascertained by him, that the estate is not in fact
indebted to the creditor concerned.
Mere suspicion about the
claim would not be sufficient.
3.
The
procedure for disputing a claim is set out in the relevant
regulations to the
Insolvency Act, as
read together with the Act
itself.
4.
In
the present instance the liquidators are of course well aware that
there was an action in the High Court in which pleadings were
filed,
discovery was made, and that action was due to be heard in the High
Court.
5.
A
conscious decision was made by those in control of the company now in
liquidation, not to proceed with their defence but to place
the
company in liquidation. It was suggested that this was for ‘
financial
reasons’
but subsequent events have of course shown this to be entirely
incorrect. The same personalities that were essentially in
control of the company now in liquidation are of course also in
control of Mantis Investment Holdings.
6.
We
record that it is entirely impermissible for Mantis now to seek to
conduct the trial which they previously avoided, within the
context
of a belated challenge to our client’s claim.
7.
Any
such procedure is in our view an abuse of process envisaged,
inter
alia
,
in
section 44
of the
Insolvency Act.
8.
Moreover
the liquidators would have to be satisfied that the defences raised
by the company in liquidation, in the High Court, were good.
The mere say so of Mantis is insufficient. Mantis chose not to
proceed with those defences.
In
the circumstances any subpoena to be served upon, officials of the
ECDC, in a belated attempt to now challenge our client’s
claim,
will be an abuse and our clients reserve the right to take
appropriate steps to set aside any such subpoenas.”
[11]
The letter quoted above attracted the following response embodying
the upshot of the second respondent’s stance:
“
1.
The claim of the ECDC was provisionally approved at the second
creditors meeting and this much was confirmed by Mr Jogee at the
meeting. Your Counsel was present at the meeting and no
objection was made to this – presumably because an objection
would hold no merit.
2.
2.1.
[Yours] and your client’s contentions that our client, as an
admitted creditor, is not entitled to interrogate
you clients on its
claims, are simply disingenuous. Our client’s contentions
are that your client has no genuine claims
and this will become
apparent from the interrogation.
2.2
We point out that it is not only the validity of your client’s
claims that [are] disputed, but also
the quantum.
2.3
The interrogation will establish to the liquidator that your client’s
claims have no validity or basis,
and this is with respect, the
purpose of an interrogation.
3.
Our client accordingly persists with its dispute and
defences to your client’s claims, and we re-iterate that
at no
stage did our client abandon its defences to the claims.
4.
We point out that in terms
section 65
of the
Insolvency Act, a
creditor is entitled to investigate the affairs of the insolvent, and
investigating and interrogating a disputed claim is just
that.
5.
Your contentions are accordingly rejected and we look forward to an
interrogation.
6.
The liquidator has been forwarded with a list of persons and
documents we require to be subpoenaed. With
respect, if there
was no basis for an interrogation then the liquidator and the Master
(and your Counsel) would not have confirmed
that our client may also
request documents and persons of your client to be subpoenaed for
purposes of an interrogation.
”
[12]
Once the applicant was of the view that the second respondent had
evinced a settled determination to proceed with the interrogation
of
certain persons involved, or previously involved, with the applicant,
with a view to
revisiting
the
aborted
action and some or all of the defences raised therein,
[6]
and the first respondent had issued the relevant subpoenas pursuant
to a mere request by the second respondent, the instant proceedings
were resorted to, with the applicant seeking an order reviewing and
setting aside the subpoenas issued by the first respondent
in respect
of the company in liquidation for the persons mentioned in the notice
of motion and the decision of the second respondent
to issue the
subpoenas. Costs are being sought against the second respondent
and any further respondents opposing the application
only in the
event of such opposition.
[13]
The second respondent is opposed to the grant of the relief sought by
the applicant. Neither the first respondent (the
Master of the
High Court whose decision is also under attack) nor the third and
fourth respondents (the liquidators) oppose the
application.
[14]
At the hearing before me the issue for determination crystallized to
one of interpretation and procedure. It was contented,
by Mr
Buchanan
for the applicant, that after the applicant’s claim was,
despite opposition from the second respondent’s camp, allowed
as proven by the first respondent without the second respondent
invoking the provisions of
section 44(7)
and asking for an
interrogation, the appropriate procedure for revisiting and expunging
a proved claim is that set out in
section 45(3)
, which has not been
complied with in the instant matter; the issuing of subpoenas without
compliance with the requirements of
section 45(3)
has rendered the
issuing of the subpoenas unlawful.
[7]
Mr
Beyleveld
,
for the second respondent, argued to the contrary, pointing out that,
upon its proper construction,
section 44(7)
accords the second
respondent the right to interrogate a creditor who has proved a claim
for purposes of determining “
sufficient
facts to convince the liquidator to then invoke the provisions of
section 45(3)
,”
which is not where the impugned proceedings are at this stage.
[15]
Section 44
deals with “
[p]roof
of liquidated claims against estate.”
To that end, sub-section 44(1) provides that any persons or the
representative of any person who has a liquidated claim against
an
insolvent estate, the cause of which arose before the sequestration
of that estate, may at any time before the final distribution
of that
estate prove that claim in the manner provided for in
section 44.
In terms of
section 44(3)
a claim made against an insolvent estate
should be proved at a meeting of the creditors of that estate to the
satisfaction of the
officer presiding who should admit or reject the
claim
.
[16]
Section 44(7)
is of significance, and provides:
“
(7)
The officer presiding at any meeting of creditors may of his own
motion or at the request of the
trustee or his agent or at the
request of any creditor who has proved his claim, or his agent,
call
upon any person present
at
the meeting
who wishes to prove or who has at any time proved a claim against the
estate to take an oath, to be administered by the said officer,
and
to submit to interrogation by the said officer or by the trustee or
his agent or by a creditor or agent of a creditor whose
claim has
been proved, in regard to the said claim
[8]
.”
[17]
On the other hand
section 45(3)
relating to the examination of claims
reads:
“
(3)
If the trustee disputes a claim
after
it has been proved against the estate at a meeting of creditors
,
he shall report the fact in writing to the Master and shall state in
his report his reasons for disputing the claim. Thereupon
the
Master may confirm the claim, or he may, after having afforded the
claimant an opportunity to substantiate his claim, reduce
or disallow
the claim, and if he has done so, he shall forthwith notify the
claimant in writing: Provided that such reduction or
disallowance
shall not debar the claimant from establishing his claim by an action
at law, but subject to the provisions of section
seventy-five”
[9]
[18]
Section 44(7)
accords the second respondent, as a proven creditor,
the express entitlement to request the presiding officer at any
meeting of
creditors to cause the applicant (and thus its
representatives) to submit to an interrogation. But the
question is- at what
stage of the process is it appropriate to invoke
the section?
[19]
The following remarks by Van der Linde J in
Constantia
Insurance Co Ltd v The Master of the High Court, Johannesburg and
others
[10]
demonstrative of how
sections 44(7)
and
45
(3) are related to one
another are apposite:
“
[30]
One is entitled to accept then that, when the liquidators submit
their written report to the Master under
s 45(3)
, they will be fully
equipped to make out their case for disallowance of the claims.
[31]
It is also relevant to bear in mind that the report to the Master
under
s 45(3)
could conceivably have been preceded by an examination
of the creditor under
s 44(7)
of the
Insolvency Act. This
is an
opportunity designed to interrogate the creditor about the legitimacy
of the claim. At such an opportunity the liquidators
would be
able to obtain relevant information which they could place before the
Master in their report under
s 45(3).
”
[20]
Upon a proper reading of
section 44(7)
the interrogation following
the issuing of subpoenas is a step taken within the context of a duly
and properly convened meeting
of creditors. The four types of
creditors’ meetings by means of which insolvents’
creditors establish their claims
are the following:
(a)
first meeting, the purpose of which is to enable creditors of the
estate to prove their
claims against the estate and elect a
trustee;
[11]
(b)
second meeting, the purpose of which is to enable creditors to prove
their claims, receive
the trustee’s report on the affairs and
condition of the estate, and give the trustee directions in
connection with the administration
of the estate;
[12]
(c)
special meeting called either for proof of claims against the estate
or for the purpose
of interrogating the insolvent;
[13]
and
(d)
general meeting, for the purpose of giving the trustee instructions
concerning any matter
relating to the administration of the
estate.
[14]
[21]
As far as I could have ascertained, in this matter the impugned
subpoenas were issued pursuant to a mere request embodied in
a
letter, which the first respondent granted without further ado, and
at a time when the claim in question had already been proven,
albeit
provisionally. In this regard, it is well for us to remind
ourselves of the remarks by Levinson J in
Caldeira
v The Master and Another
:
[15]
“
The
Insolvency Act 24 of 1936
has in
s 44
laid down the procedure for the
proof of liquidated claims against an insolvent estate. The
proof of claim of procedure enables
creditors to prove their claims
in a relatively simple and expeditious fashion. In the instant
case the applicant submitted
his claim in the proper form and it was
admitted and duly proved by the presiding officer. It was of
course open to the liquidator
to have requested the presiding officer
at the meeting of creditors to call upon the applicant to submit
interrogation in terms
s 44(7).
This was not done.
After claims are
proved the Act in s 45 directs the officer who presided at the
meeting to deliver to the trustee ‘every claim
proved against
the insolvent estate at that meeting and every document submitted in
support of the claim’. In s 45(2)
the trustee is enjoined
as follows:
‘
The
trustee shall examine all available books and documents relating to
the insolvent estate for the purpose of ascertaining whether
the
estate in fact owes the claimant the amount claimed.’
Now it seems to me
that the Legislature envisaged that the trustee, from records in his
possession, would make an independent inquiry
to determine whether
the records of the insolvent estate refer to the indebtedness which
is the subject-matter of the proved claim.
Section 45(3)
provides as follows:
‘
If the
trustee disputes a claim after it has been proved against the estate
at a meeting of creditors, he shall report the fact
in writing to the
Master and shall state in his report his reasons for disputing the
claim. Thereupon the Master may confirm
the claim, reduce or
disallow the claim, and if he has done so, he shall forthwith notify
the claimant in writing: Provided that
such reduction or disallowance
shall not debar the claimant from establishing his claim by an action
at law, but subject to the
provisions of s 75.’
This section enjoins
the trustee, if he disputes the claim, to report to the Master his
reasons for doing so. It seems to
me that if a trustee disputes
the claim he must have a reasonable belief based on facts ascertained
by him that the insolvent estate
is not in fact indebted to the
creditor concerned. Mere suspicion about the claim would not be
sufficient. This belief
would, I think, generally arise after
the examination of the Company’s records and the conclusion
derived from the records
that the indebtedness does not exist or has
been extinguished. Of course, the facts giving rise to the
belief may not necessarily
be derived from the company’s
records, they could arise, for example, from the records of an
interrogation conducted at the
meeting of creditors.
The
Legislature, as I have said, intended that creditors of insolvent
estates be permitted to prove their claims simply and expeditiously.
Before the Master expunges a proved claim – a power which to
some extent is far-reaching, he should apply his mind to the
reasons
given by the trust. The claim is not expunged simply on the
request of the trustee.”
[22]
Here, too, it is not available to the second respondent to seek to
revisit a proven claim without an invocation of section
45(3).
When the claim in question was still a subject of the meetings
contemplated in section 44, and before proof thereof,
section 44(7)
was not invoked. Convening a meeting at this stage purely for
the purpose of conducting an interrogation after
the relevant claim
has been proven would constitute an abuse of the process envisaged in
sections 44 and 45.
[16]
[23]
In my view, therefore, nothing stands in the way to granting the
relief sought by the applicant. There is also no reason
why
costs should not follow the result.
[24]
I therefore grant the following order:
24.1
The subpoenas issued by the first respondent in respect of No 1 Watt
Street (Pty) Ltd (in liquidation) for
the following persons:
(a)
Mr N B Dlulane;
(b)
Mr C Bierman;
(c)
Mr J Uren;
(d)
Mr A Radhakrishna;
(e)
Mr M D Matshamba;
(f)
Mr J Buchner;
(g)
Ms G Maree;
(h)
Mr M Lwana; and
(i)
Mr S Mase,
are
hereby reviewed and set aside.
24.2
The decision of the second respondent to issue the subpoenas set out
in sub-paragraph 1 above is hereby similarly
reviewed and set aside.
24.3
The subpoenas are void and of no force and effect.
24.4
The second respondent is directed to pay the costs of this
application.
________________________
S
M MBENENGE
JUDGE
OF THE HIGH COURT
Counsel
for the Appellant
:
R G Buchanan SC
Instructed
by
: Smith Tabata
Counsel
for the First Respondent
:
A Beyleveld
SC
Instructed
by
: BLC Attorneys
Date
heard
: 9 February 2017
Judgment
delivered :
28 March 2017
[1]
See
section 3 of the Eastern Cape Development Corporation Act 2 of 1997.
[2]
Including the
following namely, that certain suspensive conditions of the
indicative term sheet had not been fulfilled; the indicative
term
sheet was void for vagueness; the Bushman Sand’s liability
towards the applicant had been extinguished by virtue of
a written
deed of release; No 1 Watt Street had been released as surety in
terms of an oral agreement and that the relevant certificate
of
balance was not valid.
[3]
Cachalia v
De Klerk Noord Benjamin
140
1952 (4) SA 672
(T);
Brenda
NO v The Master of the High Court, Kimberly
(20537/2014)
[2015] ZASCA 166
(26 November 2015) at para [23].
[4]
Spark v
Palte Ltd
(2)
1956 (3) SA 27
(SR) at 30.
[5]
Chappel v The Master and
Other
1928 CPD 289
291.
[6]
The second
respondent is of the view that it is not revisiting
a
defence and believes that the company in liquidation was possessed
of a valid defence which should be investigated.
[7]
All references to sections 44
and 45 hereinafter must be construed as referring to the
Insolvency
Act.
[8
]
My emphasis.
[9]
Ibid.
[10]
2016 (6) SA
386
(GJ) at paras [30] and [31].
[11]
Section 40(1).
[12]
Section 40(3)(a).
[13]
Section 42(2).
[14]
Section 41.
[15]
1996 (1) SA 868
(NPD) at 873H -
874-F.
[16]
Compore Marques and Another v
De Villiers and Another NNO
1990
(4) SA 415
(W).