Summary of Judgment

1. Introduction

The proceedings took the form of an opposed motion application brought in the Free State Division of the High Court, Bloemfontein. The applicants, Karen Fortein N.O. and Hassen Kajie N.O., acted in their representative capacities as the joint liquidators of CRE Stropers CC (in liquidation). The first respondent, Jacobus Cornelius Conraad Roux, opposed the relief sought. The second respondent was the Master of the High Court, Bloemfontein, cited in relation to the administration of the liquidation.

The application arose in the context of the liquidation of CRE Stropers CC. The liquidators sought to recover monies they alleged had been paid to the first respondent as an impermissible transaction after the commencement of winding-up, and they sought declaratory relief that the payment was void and liable to be set aside.

The dispute concerned, in general terms, the lawfulness and recoverability of a payment made to a creditor of the close corporation after the close corporation had been placed in liquidation, with particular reference to whether there had been a void disposition falling within the scope of the statutory winding-up provisions applied to close corporations.

2. Material Facts

CRE Stropers CC was subjected to liquidation proceedings initiated by a creditor on 15 January 2020. The liquidation application was unopposed. The close corporation was provisionally placed in liquidation on 27 February 2020, and a final liquidation order was granted on 13 August 2020. The applicants were appointed as liquidators by the Master on 6 July 2020.

In investigating the affairs of the insolvent estate, the liquidators identified an invoice issued in the name of CRE Stropers to J.J.B. Bester van Niekerk Boerdery (Pty) Ltd for harvesting services. The founding papers alleged that on 25 September 2020 CRE Stropers issued an invoice in the amount of R374 808.00, and that the close corporation’s sole member instructed the debtor company to pay R107 000.00 of that amount directly to the first respondent, who was a creditor of the close corporation.

In the answering papers, the first respondent disputed the liquidators’ legal characterisation of the payment as a void disposition under section 341(2) of the Companies Act 61 of 1973. He contended, in substance, that the amount paid to him did not constitute “property” of the insolvent close corporation at the time of payment, that the payment was not made from the insolvent’s bank account, and that there had not been a disposition of a “right of action” to him (including because there was no cession). He also advanced the contention that any claim lay against the debtor company, not against him.

In reply, the liquidators relied on an affidavit by Jenetha van Niekerk, the director of the debtor company. This evidence altered the factual footing in a material respect. It indicated that the payment to the first respondent was made not on the instruction of the close corporation’s member, but rather after the first respondent approached the director and requested that the amount owed to him by CRE Stropers be deducted from what was due to CRE Stropers and paid to him.

The affidavit and attached payment documentation reflected that an amount of R107 553.75 (not R107 000.00) was paid to the first respondent on 3 March 2020, which was after the date of provisional liquidation (27 February 2020). The liquidators amended their notice of motion to claim R107 553.75.

The record of an enquiry into the affairs of CRE Stropers (referred to in the judgment) corroborated the director’s version to the extent that the close corporation’s member testified that the first respondent likely requested payment because he realised CRE Stropers was insolvent and feared non-payment.

The documentation also indicated that the invoice rendered on 25 September 2020 reflected the first respondent’s payment as already deducted from the total invoiced amount, and that the balance was paid to CRE Stropers on that later date.

3. Legal Issues

The primary legal questions the court was required to determine were whether the payment to the first respondent involved a “disposition of its property (including rights of action)” by a company (as applied to a close corporation) after the commencement of winding-up, and if so, whether that disposition was void under section 341(2) of the Companies Act 61 of 1973, as incorporated into close corporation liquidations.

A connected issue, arising from the replying evidence, was whether—on the facts established on the papers—the payment could be characterised as a disposition by CRE Stropers itself, given that the payment appeared to have been procured at the instance of the first respondent from a third-party debtor.

The matter involved a combination of fact and law, including fact-finding on the motion papers about who initiated and procured the payment, and legal classification of the established facts against the statutory requirement of a “disposition” by the entity being wound up. It also engaged an evaluative judgment concerning the protection of the concursus creditorum and the impropriety of a creditor securing payment to the prejudice of other creditors after liquidation has commenced.

4. Court’s Reasoning

The court approached the matter by first identifying the statutory framework relied upon. It noted the wording of section 341(2) of the Companies Act 61 of 1973, which renders void every disposition of property (including rights of action) by a company being wound up and unable to pay its debts, if made after the commencement of the winding-up, unless a court orders otherwise. The court further noted that the Companies Act winding-up provisions apply mutatis mutandis to close corporations in terms of the Close Corporations Act 69 of 1984.

On the evidence as ultimately presented (including the replying affidavit), the court found that there was no proof on the papers that CRE Stropers itself had been complicit in, or involved in, the request that resulted in the payment made on 3 March 2020. The evidence indicated that the payment was made because the first respondent approached the debtor company and insisted on the deduction and payment to him. In the court’s view, the statutory invalidity contemplated by section 341(2) required a disposition by the company being wound up. Since the court was not persuaded on the papers that the payment was the product of a disposition by CRE Stropers itself, it stated that it could not find that there was a disposition by CRE Stropers that should be declared void in those terms.

The court nevertheless proceeded to consider whether the first respondent was liable to repay the amount to the liquidators. In doing so, it emphasised two considerations tied to the liquidation regime and the concursus creditorum.

First, the court reasoned that once the final liquidation order had been granted and the close corporation was in the hands of the liquidators, CRE Stropers could not properly issue an invoice and deal with proceeds as if it remained entitled to do so, because the right to recover and administer amounts due to the insolvent estate vested in the liquidators for distribution within the concursus creditorum.

Secondly, the court held that after the provisional liquidation date (27 February 2020) the first respondent could not properly assert and secure payment of what was owed to him in a manner that benefitted him to the detriment of other creditors. The court articulated the principle that nothing should be allowed to be done by a creditor to prejudice the rights of other creditors in the concursus creditorum. On the court’s assessment, the first respondent’s procurement of payment from the debtor company brought about an impermissible preference, undermining the collective nature of insolvency distribution.

On that basis, the court concluded that the liquidators’ claim for repayment against the first respondent should succeed, notwithstanding its earlier finding that the evidence did not establish a “disposition” by CRE Stropers itself for purposes of section 341(2) on the papers as presented.

5. Outcome and Relief

The court granted judgment in favour of the applicants (in their capacities as joint liquidators of CRE Stropers CC in liquidation). The first respondent was ordered to pay R107 553.75 to the liquidators, together with interest tempore morae calculated from 25 September 2020 to date of payment.

The court also granted an order that the first respondent pay the costs of suit.

Cases Cited

No reported cases were cited in the judgment.

Legislation Cited

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

Close Corporations Act 69 of 1984, section 66.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that, on the evidence presented, it could not find that there was a disposition by CRE Stropers CC itself as required by section 341(2) of the Companies Act 61 of 1973, because the payment to the first respondent appeared to have been procured at the insistence of the first respondent from a third party and there was no evidence of the close corporation’s complicity.

Notwithstanding this, the court held that the first respondent was not entitled, after the commencement of liquidation, to secure payment of his claim to the prejudice of other creditors in the concursus creditorum, and that the liquidators’ claim for repayment of the amount paid to him should succeed.

LEGAL PRINCIPLES

Section 341(2) of the Companies Act 61 of 1973 (as applied to close corporations) requires, for its operation, a disposition of property or rights of action by the entity being wound up after commencement of winding-up; the statutory language contemplates a disposition “by” the company (or close corporation), and the presence or absence of such a disposition is a fact-sensitive inquiry on the papers.

Upon liquidation, the concursus creditorum is established, and the system of insolvency administration requires that claims and recoveries be dealt with for distribution among creditors as a body. A creditor should not be permitted, after the commencement of liquidation, to act in a manner that prejudices other creditors by obtaining a benefit for itself outside the collective process.