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[2012] ZASCA 83
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Gungudoo and Another v Hannover Reinsurance Group Africa (Pty) Ltd and Another (585/11) [2012] ZASCA 83; [2012] 3 All SA 609 (SCA); 2012 (6) SA 537 (SCA) (30 May 2012)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 585/11
Reportable
In the matter between:
SHAUN GUNGUDOO
......................................................................
FIRST
APPELLANT
AYESHA GUNGUDOO
..............................................................
SECOND
APPELLANT
and
HANNOVER REINSURANCE GROUP
AFRICA (PTY) LTD
......................................................................
FIRST
RESPONDENT
HANNOVER REINSURANCE AFRICA LTD
..........................
SECOND
RESPONDENT
Neutral citation:
Gungudoo v
Hannover Reinsurance Group Africa
(585/11)
[2012] ZASCA 83
(30
May 2012)
Coram
: Mthiyane DP, Nugent,
Cachalia, Mhlantla JJA and Ndita AJA
Heard: 8 May 2012
Delivered: 30 May 2012
Summary: Sequestration –
debtor failing to dispute claims on reasonable and bona fide grounds
– Sections 9(4A), 11(2A)
and 11(4) requiring service of
sequestration application on employees of debtor – Service
required only on employees of business,
not all employees.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
South Gauteng
High Court, Johannesburg (Tsoka J sitting as court of first
instance):
The appeal is dismissed with costs of
two counsel.
________________________________________________________________
JUDGMENT
________________________________________________________________
CACHALIA JA (MTHIYANE DP, NUGENT,
MHLANTLA JJA AND NDITA AJA CONCURRING):
[1] This is an appeal against an order
of the South Gauteng High Court (Tsoka J) finally sequestrating the
joint estate of the appellants
who are married in community of
property. The appellants come before us with leave of the high court.
[2] The appellants do not contest the
finding that they are insolvent. They confine their appeal to three
grounds. First, that the
respondents had failed to make out a case
for relief in their founding papers; second, that the respondents’
claims were
disputed on bona fide and reasonable grounds; and
finally, that the respondents had not properly notified the
appellants’
employees of the sequestration proceedings in line
with the relevant provisions of the
Insolvency Act 24 of 1936
.
[3] It is important to understand the
circumstances that led to the respondents instituting sequestration
proceedings against the
appellants. The second respondent is a wholly
owned subsidiary of the first respondent and carries on business as a
re-insurer.
The first appellant, Mr Gungudoo, commenced working for
the first respondent as an accounting clerk in 1986. In April 1995 he
was
promoted to the position of Investment Manager, and in July 2002,
to Senior Investment Manager of the Investment Unit. Here, he
was
responsible for managing the company’s investment assets valued
at R3,4 billion, which evidently required a high level
of trust. A
significant portion of these assets were invested in listed equities
and corporate bonds. Mr Gungudoo was, effectively,
the only person
authorised to instruct stockbrokers on these investments.
[4] During July and August 2009 the
first respondent’s audit committee discovered that Mr Gungudoo
had taken a number of allegedly
unauthorised ‘short positions’
in the equity market, which resulted in a loss to the respondents of
R9,5 million. Such
transactions, known as ‘short sales’,
differ from the usual ‘long sale’ of stocks where an
investor buys
stock in the expectation that it will increase in
value. In a short sale the investor will sell short if he believes
that a stock
is overpriced, and expects its price to decline.
[5] A short sale works this way: The
investor identifies an overpriced stock, which he does not own. He
needs to sell it at a higher
price before buying it back at a lower
price to take advantage of the expected decline in the price of the
stock. To enable the
physical transfer of the stock to the buyer, he
borrows the share temporarily, through a broker, from the owner. Once
he has physical
possession of the stock, he sells it in the market,
and pays the proceeds of the sale to the lender as collateral. After
a period
the investor will buy the stock back at an expected lower
price than the price for which it was sold. He will then return the
stock
to the lender who in turn will repay the collateral. The
difference between the price paid for the stock by the investor and
the
amount of the repaid collateral represents the investor’s
profit. Of course if the share price does not decline as expected,
but instead improves, and the investor is compelled to sell it at the
increased price, he will incur a loss. These transactions
are complex
and risky. In this case when the respondents became aware of the
transactions they decided to close the short positions
immediately
incurring losses in the process.
[6] When the respondents confronted Mr
Gungudoo with this discovery, he resigned suddenly on 4 August 2009,
without explanation.
At that stage he had had twenty-three years of
service. He was immediately placed on special leave pending further
investigation.
The company’s auditors, Deloitte, prepared a
report identifying another potential loss to the second respondent of
R23 million,
flowing from Mr Gungudoo’s alleged
misrepresentations to Sanlam Private Investments (Pty) Ltd. As this
is not a liquidated
claim, nothing further need be said about it.
[7] On 20 August 2009 the respondents
launched proceedings, on a semi-urgent basis, to sequestrate the
appellants. The alleged loss
of R9,5 million was made up of five
transactions and formed the basis of their cause of action. The
founding affidavit stated presciently
that Mr Gungudoo’s
affairs were still under investigation and that further claims were
likely to come to light.
[8] Mr Gungudoo filed his answering
affidavit on 30 August 2009. He admitted the transactions, and stated
that he had had his employer’s
authority to take short
positions. He asserted that the respondents’ Investment
Committee and its top management were aware
of this practice since
1995, when he became the investment manager, but he produced no proof
to support this assertion. The senior
managers of the Investment
Committee subsequently all made affidavits denying that the practice
of short trading was part of their
investment strategy, or that they
were aware that Mr Gungudoo was trading in this manner.
[9] On 11 September 2009 the
respondents filed their replying affidavit in which they stated that
Deloitte had been tasked with
reconciling all the transactions
recorded in the second respondent’s data capturing system with
those recorded in the brokers’
notes for the period January
2007 to June 2009. The purpose of this exercise was to ascertain
whether Mr Gungudoo had misappropriated
any of the second
respondent’s shares or cash.
[10] The respondents discovered, as
they had predicted they would when preparing their founding
affidavit, that during the period
under investigation Mr Gungudoo
had transferred shares and cash to the value of some R27 million from
its brokers Barnard
Jacobs Mellet (BJM) and Sanlam Private
Investments (Pty) Ltd (SPI) broker accounts to a close corporation,
Shaneil, of which Mr Gungudoo
is the sole member. It appeared
that Mr Gungudoo had used the assets of the respondents as collateral
to conclude short sale transactions
for the benefit of his close
corporation. These transactions involved shares of Anglo American
(Anglo), Sappi, Harmony, Goldfields,
Dynamic Cables and certain cash
transfers. (The amount of R27 million was later reduced to R25
million after Mr Gungudoo had
provided an explanation for R2
million involving the Goldfields transaction.)
[11] In addition to these transfers,
the respondents ascertained that three other share transfers from the
respondents’ broker
accounts into the accounts of third parties
had been made. The shares were of Goldfields, Absa and Cape
Empowerment, and resulted
in a further loss of R16 million. The
respondents allege that as Mr Gungudoo had the sole mandate to trade
on the first respondent’s
broker accounts, which is not
disputed, only he could have brought about these transactions. They
say that he not only concealed
the transactions from the Investment
Committee, but disguised them to look like inter-group business deals
by the careful use of
encryption codes so that it appeared that
Shaneil was a public company and a subsidiary of the respondents.
[12] The respondents convincingly
demonstrated this deception in their replying affidavit by reference
to a document – the
‘securities borrowing agreement’
– which they obtained from BJM on 18 August 2009. The parties
to this agreement
were the respondents, Shaneil Financial Management
Limited, Compass Insurance Company Ltd – all defined as part of
the Hannover-Re
Group – and Finsettle (Pty) Ltd, an
inter-broker house. Mr Gungudoo and Mr Bill Skirving, the
respondents’ compliance
officer, signed the agreement on behalf
of respondents. Mr Skirving had no recollection of the agreement and
says that Mr Gungudoo
had probably placed the document before
him for signature; he had signed it without reading it – as he
had done with other
documents. What is clear is that the agreement
unmistakeably and falsely misrepresented Shaneil as being a member of
the Hannover-Re
Group.
[13] A perusal of the front page of
the agreement reveals that Shaneil is falsely described as a public
company by the use of the
word ‘Limited’, and is given a
registration number – 97/055477/06 – that has artfully
been changed to substitute
the suffix ‘23’ to ‘06’.
The suffix ‘06’ is used to designate a public company,
and the suffix
‘23’, a close corporation.
[14] Mr Gungudoo’s explanation –
proffered in a further affidavit – of how his close corporation
came to be described
as a public company and included in this
agreement was that BJM had made this error. But this account lacks
credibility. He signed
the agreement knowing that Shaneil was not
part of the Hannover–Re Group. And he falsely suggested that
the suffix which
reflects ‘06’ instead of ‘23’
was a bona fide error on his part; it is obvious that the suffix was
consciously
inserted to make Shaneil appear to be a public company
that was associated with the Group.
[15] The first respondent also
revealed in a further affidavit that Mr Gungudoo had signed a
Financial Intelligence Centre Act 38
of 2001 (FICA) compliance
document soon after concluding the securities borrowing agreement,
and had submitted it to BJM. The document
falsely misrepresents the
respondents’ Group Managing Director and its then Financial
Officer as directors of Shaneil. Again,
Mr Gungudoo was not able to
offer a plausible explanation for how he came to sign a document that
contained patently false information.
[16] So it is hardly surprising that
both Willis J, who granted the provisional sequestration order
against the appellants, and
Tsoka J, in granting the final order,
concluded that Mr Gungudoo had fraudulently woven a close
corporation, owned and controlled
by him, into the fabric of the
respondents’ relationship with their stockbrokers to facilitate
the movement of shares between
the respondents and Shaneil. This
finding is relevant, though not conclusive, in the assessment of
whether the appellants are contesting
the respondents’ claims
on reasonable and bona fide grounds.
[17] But I must begin with the first
ground of appeal – the alleged failure of the respondents to
make out a case for the
relief claimed in their founding affidavit.
The point can be disposed of quickly. In their founding affidavit the
respondents stated
that the sequestration proceedings were brought in
haste after the discovery of some irregular transactions, and that
further investigations
were likely to uncover more claims. In the
face of Mr Gungudoo’s denial of any wrongdoing in his answering
affidavit the
respondents set out details of the additional claims in
their replying affidavit. The dispute was then ventilated fully in
further
affidavits filed with leave of the court. In addition to his
answering affidavit, Mr Gungudoo filed four further sets of
affidavits
and the respondents filed two more after their replying
affidavit. In granting the provisional and final orders the high
court
considered all the material before it. In the absence of any
attack by the appellants on the exercise of the court’s
discretion
in permitting the filing of further affidavits, and to
consider all the evidence before it, this ground must fail.
1
[18] I turn to consider whether Mr
Gungudoo disputes the claims against him on reasonable and bona fide
grounds – the second
ground of appeal. It was not in issue that
the claims against the appellants involving the misappropriation of
shares
2
and cash were all liquidated claims.
Mr Gungudoo was therefore required, in good faith, to adduce facts
which, if proved at trial,
would constitute good defences to each of
the claims against him.
3
For its part, all that the respondents
need establish before us is a single claim in excess of R100, as
s 9(1)
of the
Insolvency Act 24 of 1936
requires, which the
appellants are unable to contest on reasonable and bona fide grounds.
[19] Regarding the transactions that
make up the claim for R25 million mentioned earlier, it is convenient
to deal with the Anglo,
Sappi and Harmony shares together. These
shares were transferred on Mr Gungudoo’s instructions from the
second respondent
to Shaneil. On the face of it, therefore, the
shares were misappropriated from the second respondent. Mr Gungudoo
asserts that
Shaneil is the beneficial owner of those shares and had
lent them to the second respondent in a short sale transaction; and
that
the transfer of the shares to Shaneil constituted a return of
those shares. Cumulatively the transfer of these shares amounted to
R17 366 100. Mr Gungudoo, therefore, had to adduce facts to show that
Shaneil was the beneficial owner of the shares and that they
were
transferred to Shaneil as a loan. In this regard I assume in his
favour that he was authorised to engage in transactions of
this
nature.
[20] The Anglo transaction involved
the transfer of 20 000 shares from the second respondent’s
account at BJM to Shaneil’s
BJM account on 22 May 2008. To
substantiate his assertion that this was a short sale transaction,
and constituted a return of the
shares Shaneil had lent to the second
respondent, Mr Gungudoo relied on a statement purporting to be
Shaneil’s BJM statement
for the period ending 28 December 2007,
which bore the description ‘delivered to you’. This
demonstrated, he asserted,
that Shaneil delivered these shares to the
second respondent as a loan.
[21] To verify this, the respondents’
attorneys obtained a copy of the original BJM statement from BJM.
Upon perusal, the
copy of the original statement appeared to be
exactly the same as the copy on which Gungudoo relied, except that in
place of the
entry bearing the ‘delivered to you’
description, the narrative ‘sold’ appeared in its place.
Further investigations
by the respondents showed conclusively, from a
contract note found on Mr Gungudoo’s laptop, that these shares
were in fact
sold on 4 December 2007. The change in the narrative
invited the inference that Mr Gungudoo had tampered with the document
on which
he relied in an attempt to demonstrate that it supported his
version that Shaneil had lent the shares to the second respondent.
[22] Faced with this inconsistency, Mr
Gungudoo changed tack. In his supplementary further affidavit he
attributed the inconsistency
to an error that BJM had made when
capturing the data – an assertion for which there was no
confirmation, and contradicted
Mr Gungudoo’s earlier assertion
under oath that the shares were delivered to the second respondent as
part of a short sale
transaction during December 2007.
[23] Mr Gungudoo then stated that
Shaneil had transferred the shares to the respondents during February
2006, and not in December
2007, as he had said earlier. He supported
this changed stance by reference to another BJM statement recording
Shaneil’s
transactions for February 2006. One of the entries on
this statement recorded that 20 000 shares were ‘delivered to
you’,
which Mr Gungudoo claimed was a delivery of the
shares to Shaneil. However, the respondents refuted this by pointing
to a
second recordal on the same statement showing that the shares
were ‘received from you’. This demonstrated, the
respondents
contended persuasively, that there had been a broker
error, which is confirmed by a BJM Broker Dealer Account report
showing a
number of broker errors on 6 February 2006.
[24] Mr Gungudoo’s version is in
any event inherently improbable: there was no need for the second
respondent to have borrowed
shares from Shaneil as the very same BJM
statement for February 2006 that he had relied upon to prove that the
transaction represented
the closing of a short position also shows
that the second respondent bought 30 000 Anglo shares on 30 January
2006, a month before
the alleged borrowing of the 20 000 shares
occurred. The papers show that as at February 2006, the second
respondent held 90 000
Anglo shares.
[25] In yet another affidavit –
the appellants’ second supplementary further affidavit –
Mr Gungudoo again attempted
to show by reference to two further BJM
broker statements for May 2008 that the transaction demonstrated the
closing of a short
position. He asserted that the narratives
‘collateral delivered’, ‘col due to you’,
‘col position
closed’ and ‘collateral returned’
in the second respondent’s statement from BJM were all
consistent with
the transaction having been a short sale transaction.
[26] The assertion does not bear
scrutiny. Mr Gungudoo’s transfer of 20 000 Anglo shares on 22
May 2008 from the second respondent’s
accounts created a
negative position of 792 Anglo shares in its account. This appears to
explain the use of the narratives in the
second respondent’s
May statement. The transfer on 22 May 2008 reduced Shaneil’s
negative opening balance of 50 468
shares to a still negative balance
of 30 368 shares. And this clarifies why the narratives ‘received
from you’, ‘loan
returned by you’ and ‘loan
position closed’ appear on the May 2008 statement of Shaneil.
The narratives are,
therefore, consistent with the second
respondent’s shareholding going into a negative shareholding
position after the share
transfer to Shaneil on 22 May 2008, and
negate Mr Gungudoo’s suggestion that they demonstrate the
closing of a short
position.
[27] It thus becomes apparent that Mr
Gungudoo transferred the 20 000 shares to Shaneil on 22 May 2008 to
offset the negative balance
in its accounts. So even if we assume in
his favour that he was authorised to engage in short sale
transactions, he produced no
proof that Shaneil was the beneficial
owner of the Anglo shares. The transaction was, therefore, obviously
an unlawful transfer
of shares to Shaneil.
[28] In any event I think that Mr
Gungudoo’s assertion that he executed the Anglo transaction and
the other transactions in
issue with the authority and knowledge of
the respondents is also inherently improbable. There is just no
evidence, other than
his say so, that these transactions were
authorised. I cannot imagine the senior managers of the respondents
approving transactions
between them and a close corporation in which
their investment manager not only has a direct interest, but is
effectively acting
on behalf of both sides.
[29] Moreover, the respondents have
demonstrated by reference to the securities borrowing agreement and
the FICA document that Mr
Gungudoo had engaged in an elaborate
subterfuge to make this transaction between his close corporation and
the second respondent
– as he did with other transactions –
appear to be legitimate. Mr Gungudoo produced no evidence at all to
show that
Shaneil had been the beneficial owner of these shares at
any stage, and has therefore not been able to reasonably and in good
faith
dispute the respondents’ claim that he misappropriated
the shares to the value of R10 840 000. That being so, it is
unnecessary
to examine any of the other transactions in issue.
[30] I turn to consider the
appellants’ third and final ground of appeal – the
respondents’ alleged non-compliance
with the provisions of the
Act requiring notice of the sequestration proceedings to be given to
a debtor’s employees, and
where applicable, to their trade
unions. First, the appellants contend that by omitting to serve the
sequestration application
on the appellants’ employees before
obtaining the provisional order the respondents did not comply with
s 9(4A)
(a)
(ii)
of the Act; second, they assert that by neglecting to notify the
employees of the extensions and the actual return day of the
provisional order the respondents did not act in accordance with s
11(2A); and third, they claim that the respondents did not ensure
that the sheriff of the high court complied with his obligation to
establish whether the employees were represented by any trade
unions
or whether there was a notice board inside the appellants’
premises so that service on the unions could be effected
by affixing
a copy of the petition on the notice board in a manner contemplated
by
s 11(4)
of the
Insolvency Act. The
appellants submit that
non-compliance with any and all of these peremptory requirements of
the Act vitiates the application.
[31] Before I consider this submission
a brief factual background is necessary. The respondents sought and
obtained a provisional
order on 31 August 2010. On 27 October
2010, shortly before the return day of the provisional order on
2 November 2010,
the appellants filed a further affidavit
alleging that the respondents had not complied with
s 9(4A)
(a)
(ii)
of the
Insolvency Act because
they had failed to serve a copy of the
sequestration application on the appellants’ employees before
the provisional order
was granted – an assertion that the high
court was not asked to consider at the provisional sequestration
hearing. Mr Gungudoo
identified seven such employees: one
security guard, two other security guards who are also drivers, three
domestic workers and
a bookkeeper-administrator. They each filed
affidavits confirming their employment with the Gungudoos, but none
asserted any interest
in the sequestration proceedings, and
importantly for present purposes, none claimed to be employed in any
business of the appellants,
nor did the Gungudoos make such a claim.
[32] On 2 November 2010, the return
day, the provisional order was extended until 16 November 2010 to
allow the respondents to serve
the papers on the employees. On 14
November 2010, respondents’ legal representative served the
papers at the Gungudoo’s
residence. On 16 November 2010, the
matter was postponed, and thereafter it was postponed once more. It
was finally heard on 22 March
2011. The appellants also complain
that the employees were not given notice of the actual date of the
hearing.
[33] As is apparent the respondents
had not served the application on the employees before obtaining the
provisional order. The
argument before us, and before the court
below, was concerned primarily with two aspects. First, whether the
relevant provisions
of the
Insolvency Act, 9(4A)(a), 11(2A
) and
11(4), applied to the seven employees even though they were not
employees of any business of the Gungudoos; and secondly if
the
provisions did apply to them, whether they were peremptory or
directory in nature. I turn to consider the first question.
[34]
Section 9(4A)(a)
provides as
follows:
‘
When
a petition is presented to the court, the petitioner must furnish a
copy of the petition-
(i)
to every registered trade union that, as far as the petitioner can
reasonably ascertain, represents any of the debtor's employees;
and
(ii)
to the employees themselves-
(aa)
by affixing a copy of the petition to any notice board to which
the petitioner and the employees have access inside the debtor's
premises; or
(bb)
if there is no access to the premises by the petitioner and the
employees, by affixing a copy of the petition to the front gate of
the premises, where applicable, failing which to the front door of
the premises from which the debtor conducted any business at
the time
of the presentation of the petition;
.
. .’
Sections 11(2A)
and
11
(4) provide as
follows:
Section
11(2A):
‘A copy of the rule
nisi
must
be served on-
(a)
any
trade union referred to in subsection (4);
(b)
the
debtor's employees by affixing a copy of the petition to any notice
board to which the employees have access inside the debtor's
premises, or if there is no access to the premises by the employees,
by affixing a copy to the front gate, where applicable, failing
which
to the front door of the premises from which the debtor conducted any
business at the time of the presentation of the petition;
.
. .’
Section
11(4):
‘
For
the purposes of serving the rule
nisi
in
terms of subsection (2A), the sheriff must establish whether the
employees are represented by a registered trade union and determine
whether there is a notice board inside the employer's premises to
which the employees have access.’
[35] Before considering the purpose
and effect of these provisions, some background to the adoption of
the legislation is necessary.
In 2002 the
Insolvency Act and
the
Companies Act 61 of 1973 were amended by Act 69 of 2002. Among the
objects of these amendments was to ensure that employees
of debtors
facing sequestration or winding-up were notified of the proceedings.
The amended
s 9(4A)
of
the
Insolvency Act
4
was inserted to require that notice be
given to the debtor’s employees before a provisional order was
granted and the amended
s 11(4)
5
anc" HREF="#sdfootnote5sym">
5
provided for service of a rule
nisi
on the employees. Likewise,
the amended s 346(4A)
6
of the Companies Act called for notice
to be given to the company’s employees before the grant of a
provisional order, and
the amended s 346A
7
,
for service of the winding-up order on the company’s employees.
The Amendment Act came into effect on 1 January 2003.
[36] It is significant that these
amendments were preceded by an amendment to the Labour Relations Act
66 of 1995 (the LRA). The
LRA amendment, s 197B
8
,
which came into operation on 1 August 2002, requires an employer
facing financial difficulties that may result in sequestration
or
winding-up to notify a ‘consulting party’ contemplated in
s 189(1) of the LRA of this fact. An employer that applies
to be
wound up or sequestrated, or receives an application for its
winding-up or sequestration, must supply a copy of the application
to
the ‘consulting party’.
9
[37] A ‘consulting party’
is not defined in the LRA, but s 189(1) of the LRA calls for an
employer that contemplates
dismissing one or more workers for
operational requirements to consult employees in terms of a
collective agreement, or in the
absence of a collective agreement,
with a workplace forum, trade union or other representative body of
the employees. So, s 189
requires the employer to consult only with
employees that face dismissal for the operational requirements of the
employer –
not all employees that fall within the broad
definition of an employee in s 213 of the LRA.
10
It need hardly be stated that
‘operational requirements’ of an employer can refer only
to the employer’s business
requirements.
11
The rationale for s 189(1) is to
enable employees engaged in the employer’s business operations,
or their representatives,
to explore possible solutions with their
employer to obviate the need for dismissal or to limit the number of
dismissals for operational
reasons. It follows that s 197B of the LRA
requires an employer to disclose information concerning an insolvency
only to those
employees that are employed in the employer’s
business.
[38] In the instant case there is no
suggestion that the seven employees of appellants were employed for
any business purpose or
in any business of the appellants. And the
appellants, correctly, did not suggest that they had any duty to
disclose any information
to these employees regarding the
sequestration proceedings against them – indeed it is common
cause that they did not. It
can thus hardly be contended that the
respondents had an obligation to inform the debtor’s employees
of the sequestration
proceedings when the employer had no such duty.
[39] A closer examination of the
language used in the relevant provisions of the
Insolvency Act bears
this out. It is significant that
s 9
(4A)
(a)
(i)
commences with the requirement that the sequestration ‘petition’
be ‘furnished’ to ‘every trade
union that, as far
as the petitioner can reasonably ascertain, represents any of the
debtor’s employees’. This suggests
that the draftsman had
employees of a business in mind. This view is fortified by the
petitioner’s obligation, in
s 9(4A)
(a
)
(
ii)
(aa)
,
to furnish a copy of the petition to the ‘employees themselves’
‘by affixing a copy of the petition to any notice
board to
which the petitioner and the employees have access inside the
debtor’s premises’. A notice board is associated
with a
business – not a private residence – and the word
‘premises’ is usually used to refer to a house
or
building occupied by a business or for an official purpose.
12
Any doubt that the object of the
notice obligation is aimed at the employees of a business must surely
be dispelled by the language
requiring notice to be given to the
employees, both in
s 9(4A)
(a)
(ii)
(bb)
and
s 11(2A)
(b)
,
at ‘the premises from which the debtor conducted business at
the time of the presentation of the petition’.
[40] Sections 346(4A) and 346A of the
1973 Companies Act
13
are virtually the mirror images of ss
9(4A) and 11(2A) of the Act. While s 346(4A) refers to notice of the
winding-up application
being served on the employees of the company
at its premises, s 346A says that the winding-up order is to be
served on the employees
at the ‘debtor’s premises’.
This obviously refers the company’s business premises,
14
which again strengthens my view that
the reference to the ‘debtor’s premises’ in the ss
9(4A)(ii)
(aa)
and
11(2A)
(b)
of
the
Insolvency Act also
relates to business premises.
[41] What emerges from this analysis
is that the purpose of the relevant provisions of the LRA,
Insolvency
Act and
1973 Companies Act, which were adopted as a package, was to
ensure that where a debtor conducts a business, notice of
sequestration
or winding-up proceedings must be given to employees of
the business. In the present case none of the Gungudoos’
employees
were employed in a business operation; so the respondents
did not attract any obligation to notify them of the sequestration
proceedings.
It follows that there is no merit in the appellants’
submission that the respondents’ failure to comply with
ss
9(4A)
,
11
(2A) and
11
(4) of the
Insolvency Act either
invalidated the
provisional order or precluded the final order from being granted.
[42] The appellants’ contention,
that these provisions are peremptory and not directory therefore need
not be considered.
I expressly leave this question open.
[43] In these circumstances the appeal
is dismissed with costs of two counsel.
_____________
A CACHALIA
JUDGE OF APPEAL
APPEARANCES
For Appellant: A G South
Instructed by:
F Vally Attorneys, Pretoria
Honey Attorneys, Bloemfontein
For Respondent: M R Hellens SC (with
him C L Robertson)
Instructed by:
Webber Wentzel, Johannesburg
Lovius Block, Bloemfontein
1
Ganes
& another v Telecom Namibia Ltd
2004
(3) SA 615
(SCA) para 21.
2
Samsudin
v De Villiers Berange NO
[2006] SCA 79
(RSA) para 35.
3
Helderberg
Laboratories CC v Sola Technologies
2008
(2) SA 627
(C) para 23.
4
Subsection
(4A) inserted by
s 2
of Act 69 of 2002.
5
Section
11 substituted by s 3 of Act 69 of 2002.
6
Subsection
(4A) inserted by s 7 of Act 69 of 2002.
7
Section
346A inserted by s 8 of Act 69 of 2002.
8
Section
197B inserted by s 50 of Act 12 of 2002
:
‘
Disclosure of
information concerning insolvency
(1) An employer that is
facing financial difficulties that may reasonably result in the
winding-up or sequestration of the employer,
must advise a
consulting party contemplated in section 189 (1).
(2)
(a)
An employer that applies to be wound
up or sequestrated, whether in terms of the
Insolvency Act, 1936
, or
any other law, must at the time of making application, provide a
consulting party contemplated in
section 189
(1) with a copy of the
application.
(b)
An employer
that receives an application for its winding-up or sequestration
must supply a copy of the application to any consulting
party
contemplated in
section 189
(1), within two days of receipt, or if
the proceedings are urgent, within 12 hours.’
9
Sections
197B(2)
(a)
and
197B
(2)
(b)
of
the LRA.
10
Section
213:
‘
'employee'
means-
(a)
any
person, excluding an independent contractor, who works for another
person or for the State and who receives, or is entitled
to receive,
any
remuneration
;
and
(b)
any
other person who in any manner assists in carrying on or conducting
the business of an employer,
and
'employed'
and
'employment'
have meanings
corresponding to that of 'employee’;
Sibiya & others v
Amalgamated Beverages Ltd
(2001) 22 ILJ 961 (LC).
11
Section
213
of the LRA says that operational requirements concern
‘requirements based on the economic technological, structural
or
similar needs of an employer’.
12
Concise
Oxford English Dictionary 12 ed p 1132.
13
Section
346(4A):
‘
Application for winding-up of company
(a)
When an
application is presented to the court in terms of this section, the
applicant must furnish a copy of the application –
(i) to every registered
trade union that, as far as the applicant can reasonably ascertain,
represents any of the employees of
the company; and
(ii) to the employees
themselves –
(aa)
by fixing a
copy of the application to any notice board to which the applicant
and the employees have access inside the premises
of the company; or
(bb)
if there is
no access to the premises by the applicant and the employees, by
affixing a copy of the application to the front
gate of the premises
where applicable, failing which to the front door of the premises
from which the company conducted any business
at the time of the
application;
(iii) to the South
African Revenue Service; and
(iv) to the company,
unless the application is made by the company, or the court, at its
discretion, dispenses with the furnishing
of a copy where the court
is satisfied that it would be in the interests of the company or of
the creditors to dispense with
it.
(b)
The
applicant must, before or during the hearing, file an affidavit by
the person who furnished a copy of the application which
sets out
the manner in which paragraph
(a)
was complied with.’
Section
346A:
‘
Service
of winding-up order
(1) A copy of a
winding-up order must be served on –
(a)
every
trade union referred to in subsection (2);
(b)
the employees of
the company by affixing a copy of the application to any notice
board to which the employees have access inside
the debtor’s
premises, or if there is no access to the premises by the employees,
by affixing a copy to the front gate,
where applicable, failing
which to the front door of the premises from which the debtor
conducted any business at the time of
the presentation of the
application;
(c)
the
South African Revenue Service; and
(d)
the company,
unless the application was made by the company.
(2)
For the purposes of serving the winding-up order in terms of
subsection (1), the sheriff must establish whether the employees
of
the company are represented by a registered trade union and
determine whether there is a notice board inside the premises
of the
company to which the employees have access.’
14
Hendricks
NO & others v Cape Kingdom (Pty) Ltd
2010 (5) SA 274
(WCC);
Meskin
Henochsberg on the Companies Act
Butterworths Vol 1
Issue 32 p 724 (3).