Summary of Judgment

1. Introduction

These were two opposed applications brought in the Free State Division of the High Court, Bloemfontein, by the joint liquidators of Golden Ribbon Trading 86 (Pty) Ltd (in liquidation). The liquidators sought orders declaring certain payments made by the company after the lodging of a winding-up application to be void dispositions and to be set aside, with consequential repayment, interest, and costs.

In case number 4220/2022, the respondents were the trustees of the Magnus Boerdery Trust (Mr Frederich Wilhelm Alexander Magnus N.O., Mrs Maria Magdalena Magnus N.O., and Mr Johannes Jacobus Joubert N.O.), cited in their representative capacities. In case number 4221/2022, the respondent was Mr Jacobus Matjam Jooste. In both matters, the Master of the High Court was cited, but no substantive relief was sought against the Master.

The procedural background was that First National Bank (FNB) launched an application to liquidate Golden Ribbon on 17 July 2019 while the company was under business rescue. A provisional winding-up order was granted on 10 October 2019, and at the same time the court ordered the termination of business rescue proceedings. A final winding-up order followed on 20 February 2020. The present applications were launched thereafter by the liquidators to impugn the payments made in the period after 17 July 2019 but before 10 October 2019.

The general subject-matter of the dispute concerned the interaction between statutory avoidance of dispositions in liquidation under section 341(2) read with section 348 of the Companies Act 61 of 1973, and the fact that Golden Ribbon was in business rescue when the payments were made, with the respondents contending that the payments were effectively connected to the ongoing business rescue and should not be undone.

2. Material Facts

Golden Ribbon was financially distressed and was placed in business rescue on 10 August 2018. A business rescue practitioner (BRP) was appointed and continued to act under business rescue, including dealing with the company’s farming-related agreements.

Golden Ribbon had lease and/or harvest arrangements with the respondents (who were effectively landlords/farm owners). In case 4220/2022, Golden Ribbon made two payments to the Magnus Boerdery Trust: R490,360.00 on 26 July 2019 and R21,632.82 on 4 September 2019, totalling R512,023.00, arising from a harvest/lease agreement relating to the Trust’s farm. In case 4221/2022, Golden Ribbon made a payment of R698,469.51 on 26 July 2019 to Mr Jooste in relation to a written lease of his farm.

It was common cause that these payments were made after the liquidation application was lodged on 17 July 2019, but before the provisional liquidation order granted on 10 October 2019. The payments were made by the BRP while Golden Ribbon remained in business rescue (until its termination on 10 October 2019).

The respondents’ case, as relied upon by the court for purposes of its discretionary assessment, was that at the time of payment the landlords had preferent and secure claims, including a lien over crops, and that this was acknowledged by those involved (including FNB and the BRP). A contemporaneous letter from the respondents’ attorneys asserted that the farmers had rented land on which crops were planted, that they held and exercised a lien over the crops, and that their aggregate claims and anticipated crop income were substantial. The respondents also alleged that payment was made under valid agreements and in respect of their secured claims, and that the payments facilitated obtaining the proceeds of the crop for the benefit of the general body of creditors.

The judgment recorded that these allegations (particularly that the payments were made to the advantage of creditors as a whole to realise crop proceeds) were not seriously placed in dispute by the applicants in reply.

3. Legal Issues

The central legal questions were whether the impugned payments constituted void dispositions under section 341(2) of the Companies Act 61 of 1973, read with section 348, given that business rescue was still extant at the time the payments were made, and the winding-up application had already been presented.

A further central issue concerned the proper exercise of the court’s discretion under the proviso in section 341(2) (“unless the Court otherwise orders”), namely whether, even if the dispositions were void by default, the court should validate them by ordering otherwise.

The dispute was primarily about the application of law to largely common-cause chronology, together with an evaluative determination (a discretionary judgment) as to whether the facts justified the court departing from the statutory default position of voidness.

A preliminary procedural issue also arose: whether there was a fatal non-joinder because the business rescue practitioner was not cited. The court treated this as a point in limine and determined whether the BRP had a direct and substantial interest in the relief sought.

4. Court’s Reasoning

The court approached the matter from the statutory framework of sections 341(2) and 348 of the Companies Act 61 of 1973. It emphasised that, by virtue of section 348, liquidation is deemed to commence at the time the winding-up application is presented to court. On the undisputed dates, the payments occurred after 17 July 2019 (presentation) and before the 10 October 2019 provisional order, thus falling within the period to which section 341(2) applies.

In rejecting the respondents’ primary contention that section 341(2) did not apply because Golden Ribbon was in business rescue, the court relied on Supreme Court of Appeal authority affirming the clarity and reach of section 341(2). The judgment referred to Mazars Recovery & Restructuring (Pty) Ltd and Others v Montic Dairy (Pty) Ltd (in liquidation) and Others which cited with approval Pride Milling Company (Pty) Ltd v Bekker NO and Another, confirming that the default position is that every disposition by a company being wound up and unable to pay its debts after commencement is void, subject only to the court ordering otherwise. The judgment also referenced Eravin Construction CC v Bekker NO and Others in this line of authority.

The court further noted that the purpose of section 341(2) is to prevent dissipation of assets by a company threatened with winding-up, citing Lane v Olivier Transport. Against this backdrop, the court concluded that the dispositions in question fell under section 341 and were void unless the court exercised its discretion to validate them.

On the point in limine relating to the non-joinder of the BRP, the court found that the BRP had no direct and substantial interest in the orders sought. On that basis, the objection was dismissed, and the judgment recorded that, to the extent not expressly dealt with, all points in limine were dismissed.

The core of the judgment lay in the exercise of discretion under section 341(2). The court reiterated (with reference to Pride Milling) that the discretion to validate dispositions is exercisable in relation to payments made between the date of lodging the winding-up application and the granting of the provisional order, which described precisely the period during which the payments were made in this case. The court indicated that it had taken note of the guidelines summarised in Lane v Olivier Transport.

Applying these principles to the facts, the court placed weight on several considerations emerging from the affidavits as material to the discretionary outcome. The respondents, as landlords, were treated as holding preferent and secured claims at the time, which was said to have been acknowledged by all concerned, including FNB and the BRP. The payments were made by the BRP, who was described as acting “statutorily” on behalf of the present applicants at the relevant time. The court drew the conclusion that the payments were bona fide.

The court accepted, on the papers, that the landlords asserted a lien over crops and that payment operated to address claims tied to that security, and that the payments appeared aimed at obtaining the proceeds of the crop for the general advantage of creditors. Because these allegations were not seriously disputed in reply, the court treated them as materially persuasive in exercising its discretion.

A further evaluative consideration was the court’s view of fairness and propriety in the circumstances: it considered it improper for a business rescue practitioner to make payment, thereby inducing a secured creditor to effectively relinquish security, only for the liquidators later to seek repayment once liquidation ensued. On this reasoning, the court found that the dispositions were of the kind that should not be left void, and the discretion under section 341(2) should be exercised to validate them.

5. Outcome and Relief

The court dismissed both main applications brought by the liquidators and granted the relief sought in the respondents’ conditional counter-applications by declaring the relevant payments ratified, confirmed, and valid.

In case number 4220/2022, the court declared valid the payments of R490,360.00 (26 July 2019) and R21,632.82 (4 September 2019) made to the trustees of the Magnus Boerdery Trust. In case number 4221/2022, the court declared valid the payment of R698,469.51 (26 July 2019) made to Mr Jooste.

The court ordered that the applicants (the liquidators) pay the costs in both matters.

Cases Cited

Mazars Recovery & Restructuring (Pty) Ltd and Others v Montic Dairy (Pty) Ltd (in liquidation) and Others 2023 (1) SA 398 (SCA).

Pride Milling Company (Pty) Ltd v Bekker NO and Another 2022 (2) SA 410 (SCA).

Eravin Construction CC v Bekker NO and Others 2016 (6) SA 589 (SCA).

Lane v Olivier Transport 1979 (1) SA 383 (C).

Legislation Cited

Companies Act 61 of 1973, section 341(2).

Companies Act 61 of 1973, section 348.

Companies Act 71 of 2008, section 132.

Companies Act 71 of 2008, section 135(4).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the payments made by Golden Ribbon after the presentation of the winding-up application on 17 July 2019, but before the provisional winding-up order on 10 October 2019, fell within the scope of section 341(2) read with section 348 of the Companies Act 61 of 1973 and were therefore void by default unless the court ordered otherwise.

The court further held that the business rescue practitioner did not have a direct and substantial interest requiring joinder, and the points in limine were dismissed.

Exercising the discretion conferred by section 341(2), the court held that the circumstances justified an order validating the dispositions. The main applications were dismissed, and the payments were declared ratified, confirmed, and valid, with costs awarded against the liquidators.

LEGAL PRINCIPLES

Section 341(2) of the Companies Act 61 of 1973 establishes a default rule that every disposition of property by a company being wound up and unable to pay its debts, made after the commencement of winding-up, is void, subject to the court’s power to order otherwise.

By virtue of section 348 of the Companies Act 61 of 1973, the winding-up of a company is deemed to commence at the time of the presentation of the winding-up application to court, with the result that dispositions made after that date and before the provisional order fall within the statutory net.

The proviso (“unless the Court otherwise orders”) confers a broad discretion on the court to validate dispositions made in the period between the presentation of the winding-up application and the granting of a provisional winding-up order, and in exercising that discretion the court considers factors aligned with the purpose of the provision, including the interests of creditors and the position of the beneficiary of the disposition.

The purpose of section 341(2) is to prevent the improper dissipation of the company’s assets to the prejudice of creditors during the period when winding-up is impending.