Brief Summary

Companies — Liquidation — Locus standi of liquidators to challenge decisions of Master — Applicants, as liquidators of Retro Reflective (Pty) Ltd, sought to review the Master's decision to appoint an evidence leader for an enquiry into their conduct — Respondents contended that the applicants lacked locus standi, arguing that the decisions did not affect their rights — Court held that the applicants had a direct and substantial interest in the decisions, as findings against them could adversely impact their personal and professional standing as liquidators, thus granting them the right to challenge the Master's decisions.

Comprehensive Summary

Summary of Judgment

Introduction

This matter concerned a review application brought in the Eastern Cape High Court, Gqeberha, in relation to steps taken by the Master of the High Court in the winding-up of Retro Reflective (Pty) Ltd (in liquidation). The applicants sought to set aside decisions associated with a statutory enquiry into a liquidator’s conduct, as well as consequential relief aimed at invalidating the enquiry proceedings that had already occurred.

The parties were Andre Charl van Heerden (in his personal capacity) as the first applicant, and Andre Charl van Heerden N.O. (in his capacity as joint liquidator of Retro Reflective (Pty) Ltd (in liquidation)) as the second applicant. The Master of the Eastern Cape High Court, Port Elizabeth was cited as the first respondent. Advocate Brian van Zyl (the appointed “evidence leader”) was the second respondent. Hantle Infra Planning (Pty) Ltd, a proven creditor of the company in liquidation and the complainant that sought the enquiry, was the third respondent. Sune Smit N.O., the other joint liquidator, was the fourth respondent.

As to procedural history, Retro Reflective (Pty) Ltd was placed under voluntary winding-up on 18 December 2018. The first applicant and the fourth respondent were appointed as provisional liquidators on 14 January 2019 and as final liquidators on 6 February 2019. Following complaints by the third respondent, the Master approved an enquiry under section 381 of the Companies Act 61 of 1973 on 18 August 2020, and later approved the appointment of the second respondent as “evidence leader” on 8 November 2021. The applicants instituted the present review proceedings on 17 May 2022. The Master initially filed a notice to oppose but later withdrew opposition and filed a notice to abide.

The general subject-matter of the dispute was whether the Master acted lawfully in relation to the institution and conduct of a section 381 enquiry into a liquidator’s conduct, specifically concerning the permissibility of appointing an evidence leader and the lawfulness and rationality of appointing the particular evidence leader who had links to the complainant creditor.

Material Facts

Retro Reflective (Pty) Ltd was placed under voluntary winding-up, and the first applicant and fourth respondent were appointed as joint liquidators. The third respondent was a proven creditor of Retro Reflective and lodged complaints regarding the liquidators’ conduct.

On 18 August 2020, the Master approved an enquiry in terms of section 381 of the Companies Act 61 of 1973 to investigate the conduct of the liquidators in the performance of their duties. In communicating that decision, the Master identified six issues for investigation and indicated an intention to utilise an “evidence leader (counsel)” to cross-examine evidence presented to the enquiry. The Master stated that the evidence leader would question witnesses, while the Master would make the final findings.

The Master issued a formal notice to the applicants on 12 October 2020, informing them that the Master would conduct the enquiry under section 381, that the purpose was to investigate the complaints with regard to the execution of fiduciary duties, and that the liquidator was required to attend and had a right to legal representation.

The section 381 enquiry was postponed on multiple occasions. The enquiry was postponed from 17 November 2020 to 29 April 2021, and thereafter postponed to 6 September 2021 to allow a section 417/418 enquiry to be finalised, as the Master considered that evidence in the section 417/418 enquiry would have a bearing on the section 381 enquiry. It was again postponed to 13 December 2021.

On 31 March 2021, the third respondent’s attorneys requested that the Master enquire from the Chief Master whether Adv Brian van Zyl could be appointed as evidence leader for the section 381 enquiry, and indicated that the third respondent tendered to pay the costs of his appointment. The court recorded that the email of 6 March 2021 referred to in this request (which allegedly contained reasons) was not included in the papers, and those reasons were not disclosed in the affidavits.

On 8 November 2021, the Master approved the appointment of the second respondent as evidence leader, expressly consenting that the costs of the evidence leader be paid by the third respondent as the creditor who had requested the section 381 enquiry.

It was undisputed that the second respondent had represented, and continued to represent, the third respondent in the section 417/418 enquiry and in litigation before the High Court involving Retro Reflective and its liquidators, including the applicants.

The Master did not file an answering affidavit explaining the reasons for the decision to appoint the second respondent, and did not place reasons before the court for either the approval of the appointment or the manner in which it was made. This absence of reasons was treated by the court as significant to the review.

Legal Issues

The court was required to determine, first, certain preliminary issues concerning the maintainability of the review. These included whether the applicants had locus standi to challenge the Master’s decisions; whether the impugned decisions constituted administrative action under the Promotion of Administrative Justice Act 3 of 2000 (PAJA); and whether there had been an unreasonable delay in instituting review proceedings, requiring condonation or an extension of time.

On the merits, the central legal questions were whether section 381(1) of the Companies Act 61 of 1973 permitted the Master to appoint an “evidence leader” to assist in a section 381 enquiry, including whether such an appointment could extend beyond officials within the Master’s office; and whether the particular appointment of Adv Brian van Zyl was susceptible to being reviewed and set aside on the grounds relied on by the applicants.

The dispute therefore primarily concerned questions of law (statutory interpretation and the nature of administrative action), together with the application of legality and rationality principles to the facts (in particular, the absence of reasons and explanation by the Master for the appointment). The court noted, but ultimately did not decide, issues concerning the proper standard for assessing alleged bias in the appointment of an evidence leader, because the matter was resolved on different grounds.

Court’s Reasoning

On locus standi, the court approached the issue on the basis that the applicants’ challenge was directed at decisions purportedly made under section 381, and that the enquiry authorised by the Master was aimed at investigating the conduct of the first applicant as liquidator. The court reasoned that findings adverse to the liquidator could affect him both personally and in his representative capacity. It held that the applicants therefore had a direct and substantial interest and could challenge decisions with the potential to adversely affect them. The court also stated that whether the decision constituted administrative action under PAJA was not determinative of locus standi at the stage it was considering that point.

On whether the decisions were administrative action, the court reasoned that the Master is an organ of state and was exercising a public function under legislation when initiating the enquiry and appointing an evidence leader. The court relied on the approach in Grey’s Marine Hout Bay (Pty) Ltd and Others v Minister of Public Works and Others [2005] ZASCA 43; 2005 (6) SA 313 (SCA) regarding the meaning of “adversely affects rights” and “direct, external legal effect,” treating administrative action as conduct that has the capacity to affect rights and that impacts directly and immediately on individuals. On that approach, the court found the Master’s decisions bore the attributes of administrative action under PAJA, and rejected the contention that the decisions were not administrative action.

On delay, the respondents argued that the applicants had knowledge of the decisions long before the institution of proceedings and were out of time. The applicants sought condonation (and relied on common-law/legality review principles and section 9 of PAJA), explaining that the first applicant had not been legally represented, believed the issue should be raised at the enquiry, and in fact raised the issue with the Master when advised of possible unlawfulness. The court considered that the applicants had attempted to resolve the issue through engagement with the Master before resorting to litigation, and held that parties should be encouraged to resolve disputes before litigating. It concluded that there was no unreasonable delay, alternatively that any delay was not unreasonable and was condoned.

On the first substantive merits question—whether section 381 permits the appointment of someone other than the Master to “conduct” the enquiry—the court held that, on the facts, the question did not truly arise because the Master had appointed the second respondent as evidence leader in an enquiry to be presided over by the Master, rather than delegating the presiding function itself. The court nonetheless engaged the argument in the form it was advanced, treating it as a vires question regarding the Master’s powers to appoint an evidence leader.

The court interpreted section 381 purposively and contextually, noting the statutory purpose of enabling the Master to exercise control over liquidators and to enquire into complaints. It reasoned that section 381 does not prescribe how the Master must conduct such an enquiry, nor does it expressly preclude the use of an evidence leader. The court held that a restrictive reading that prevented the Master from appointing an evidence leader could frustrate the purpose of the section and potentially lead to absurdity, given that the complexity of different enquiries may vary. It further reasoned that the power to appoint an evidence leader was logically necessary to exercise the Master’s section 381 powers effectively and did not extend beyond the Master’s powers or interfere with rights beyond what section 381 permits. The court also rejected the applicants’ contention that any evidence leader must be confined to officials within the Master’s offices, stating that the exigencies of an enquiry might require an appointment from outside the Master’s office, particularly because the evidence leader does not make the final decisions.

For these reasons, the court held that the Master’s decision (contained in the letter of 18 August 2020) to appoint an evidence leader in principle was not ultra vires section 381, and that the applicants’ attack on that decision could not succeed.

On the separate question of the lawfulness of appointing Adv Brian van Zyl, the court recorded that the appointment occurred at the instance of the third respondent, which also tendered to pay the costs. It further recorded the undisputed fact that the second respondent represented the third respondent in related proceedings, including the section 417/418 enquiry and litigation involving the liquidators. Although the applicants contended they had a reasonable apprehension of bias, the court held it was unnecessary to decide the bias issue (or whether the standard discussed in S v Zuma and Another 2022 (1) SACR 575 (KZP) applied in this context), because the matter could be resolved on other grounds.

The decisive reasoning was that the Master failed to provide reasons or an affidavit explaining the basis for appointing the second respondent, and the record before the court lacked the “reasons” allegedly contained in the third respondent’s earlier correspondence. The court stated it was left in the dark as to the Master’s justification and had to assume the decision was taken without good reasons or was influenced by the unwarranted dictates of the creditor. Relying on Kalil NO and Others v Mangaung Metropolitan Municipality and Others 2014 (5) SA 123 (SCA), the court emphasised that public officials have a duty to take the court into their confidence and fully explain the facts so that an informed decision may be taken in the public interest. The Master’s failure to do so was treated as a failure of that duty.

On that basis, the court concluded that the decision to appoint the second respondent was irrational, and therefore reviewable and liable to be set aside.

Outcome and Relief

The court dismissed the applicants’ attempt to review and set aside the Master’s decision of 18 August 2020 to appoint an evidence leader in the section 381 enquiry, holding that such an appointment was permissible under section 381 and was not ultra vires.

The court reviewed and set aside the Master’s decision to appoint Adv Brian van Zyl as evidence leader in the section 381 enquiry, on the basis that the Master had advanced no reasons and the appointment was irrational in the circumstances described.

The court made no order declaring the enquiry proceedings and record to date null and void, and no such relief appears in the final order.

On costs, the court held that each side achieved substantial success and that the applicants did not persist in seeking costs against the Master. It ordered that each party pay its own costs.

Cases Cited

Desai-Chilwan NO v Ross and Another 2003 (2) SA 644 (C).

Grey’s Marine Hout Bay (Pty) Ltd and Others v Minister of Public Works and Others [2005] ZASCA 43; 2005 (6) SA 313 (SCA).

Trustees for the Time Being of the Legacy Body Corporate v BAE Estates 2022 (1) SA 424.

South African Reserve Bank and Another v Maddock NO and Another 2023 (4) SA 85 (SCA).

CA Focus CC v Village Freezer t/a Ashmel Spar 2013 (6) SA 549 (SCA).

Zweni v Road Accident Fund 2022 (6) SA 639 (WCC).

Kalil NO and Others v Mangaung Metropolitan Municipality and Others 2014 (5) SA 123 (SCA).

S v Zuma and Another 2022 (1) SACR 575 (KZP).

Legislation Cited

Companies Act 61 of 1973, section 381.

Insolvency Act 24 of 1936, section 151.

Promotion of Administrative Justice Act 3 of 2000, sections 1, 3(1), 5(3), 6(1), and 9.

Constitution of the Republic of South Africa, 1996, section 33.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the applicants had locus standi because the section 381 enquiry was directed at their conduct as liquidators and could potentially affect them. It further held that the Master’s decisions bore the attributes of administrative action as contemplated in PAJA, being decisions by an organ of state exercising public powers in terms of legislation with direct and immediate consequences for individuals.

On the merits, the court held that section 381 of the Companies Act 61 of 1973 does not prohibit, and in appropriate cases permits, the Master to appoint an evidence leader to assist in the enquiry, including a person from outside the Master’s office, because the section does not prescribe the manner of enquiry and the appointment may be logically necessary to fulfil the Master’s statutory control function.

However, the court held that the Master’s specific decision appointing Adv Brian van Zyl as evidence leader was irrational and reviewable because the Master failed to place any reasons or explanatory facts before the court, contrary to the duty on public officials to provide an account that enables informed judicial scrutiny. The appointment decision was therefore reviewed and set aside, while the broader challenge to the Master’s power to use an evidence leader was dismissed. Each party was ordered to pay its own costs.

LEGAL PRINCIPLES

The judgment applied the principle that locus standi requires a party to have a direct and substantial interest in the subject-matter, and that persons whose conduct is being investigated in a statutory enquiry and who may be adversely affected by the outcome have standing to challenge decisions authorising or structuring such an enquiry.

In determining whether conduct constitutes administrative action, the judgment applied the approach that the enquiry focuses primarily on the nature of the power being exercised and whether the decision has the capacity to affect rights with direct and external legal effect, rather than being confined to a literal or case-by-case inquiry into actual adverse effect.

The judgment applied established interpretive principles for statutes, namely that statutory provisions are construed according to their text, context, and purpose, and in a manner consistent with the Constitution. On that basis, section 381 was interpreted as conferring sufficient flexibility to permit procedural measures, such as appointing an evidence leader, that are not expressly enumerated but are necessary or expedient to fulfil the Master’s control function over liquidators.

The judgment reaffirmed legality and rationality review principles by holding that where a public functionary makes a decision affecting persons in the exercise of statutory power, the functionary bears a duty to provide an account to the court. A failure to provide reasons or an evidential foundation for a decision may render it irrational and susceptible to being reviewed and set aside, particularly where the decision appears connected to a request by an interested party and the decision-maker provides no independent explanation.

The judgment also applied principles regarding delay in review, holding that the applicant must explain any delay and that condonation may be granted in the interests of justice, including where parties attempted to resolve the dispute before litigating and the delay was not unreasonable in the circumstances.

Van Heerden and Another v Master of the Eastern Cape High Court, Port Elizabeth and Others (1358/2022) [2023] ZAECQBHC 59; [2023] 4 All SA 875 (ECP) (3 October 2023)