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[2010] ZASCA 34
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Duet and Magnum Financial Services CC (In Liquidation) v Koster (168/09) [2010] ZASCA 34; 2010 (4) SA 499 (SCA) ; [2010] 4 All SA 154 (SCA) (29 March 2010)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
JUDGMENT
Case
No: 168/09
In
the matter between:
DUET
AND MAGNUM FINANCIAL
SERVICES
CC (IN LIQUIDATION)
Appellant
and
J
H KOSTER
Respondent
Neutral
citation
:
Duet
and Magnum Financial Services v Koster
(168/09)
[2010] ZASCA 34
(29 March 2010)
Coram:
NUGENT,
HEHER and VAN HEERDEN JJA and THERON, SERITI AJJA
Heard:
15
MARCH 2010
Delivered: 29
MARCH 2010
Summary:
Insolvency
– dispositions – liquidator’s right to apply for setting aside
under ss 26, 29 and 30 of
Insolvency Act 24 of 1936
– when
extinctive prescription begins to run.
___________________________________________________________
ORDER
___________________________________________________________________________
On
appeal from:
North Gauteng
High Court, Pretoria (Preller J
sitting as court of first instance):
The
appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
___________________________
________________________________
NUGENT
JA (HEHER and VAN HEERDEN JJA, THERON and SERITI AJJA):
[1] The
question in this appeal is whether a claim by a liquidator under
s 32
of the
Insolvency Act 24 of 1936
to have a court set aside an
impeachable transaction, and to make a declaration that the
liquidator is entitled to recover the alienated
property, prescribes
under the
Prescription Act 68 of 1969
, and if so, when prescription
starts to run against the claim.
[2]
Duet
and Magnum Financial Services
CC
carried on business as a micro-lender. An order for its winding up
1
was made on 17 May 2001 and the liquidators, the present appellants,
were appointed on 18 July 2001.
[3] On
12 July 2005 the liquidators caused a summons to be served on
Mr Koster, the respondent, in which they alleged that certain
dispositions had been made by the close corporation that fell within
the ambit of either
s 26(1)(b)
or
s 30(1)
or
s 29(1)
of the
Insolvency Act. They
claimed an order setting aside the
dispositions, and an order declaring Mr Koster obliged to pay to them
certain moneys that were
alleged to have been alienated under the
dispositions from September 2000 until the date of the winding-up
order. (Different amounts
were claimed in the alternative but that is
not material for present purposes.)
[4] Mr
Koster filed a special plea of prescription and pleaded over on the
merits. Only the plea of prescription is relevant here.
Mr Koster
pleaded that, in respect of each of the dispositions relied on by the
liquidators, prescription commenced to run from a
date before 12 July
2002 (which was three years before the summons was issued) and
averred that the liquidators had knowledge of
the relevant facts
before that date, or could have acquired such knowledge by exercising
reasonable care. In the premises, so the
plea ran, the claim has
expired.
[5] In
a replication the liquidators raised two answers to the special plea.
They pleaded that, because the liquidators were not entitled
to
recover the disposition until the court made the order sought by
them, there was no present ‘debt’ as contemplated by
s 11(d)
of the
Prescription Act, and
thus prescription has not commenced to
run. In the alternative, the liquidators pleaded that they obtained
knowledge of the facts
upon which the claim was based at an enquiry
held in terms of
s 152
of the
Insolvency Act on
4 August 2003,
having acted reasonably and with due care, and that the running of
prescription was thus delayed until that date under
s 12(3)
of
the
Prescription Act.
[6
] The
matter came to trial before Preller J in the Pretoria High Court.
The court ordered, under
Rule 33(4)
, that the only question to be
tried initially was whether ‘the plaintiff’s claims as formulated
in the particulars of claim constitute
a “debt” as contemplated
in
sections 10
,
11
and
12
of [the Prescription Act]’ in which event
the parties agreed that the claims had become prescribed.
[7] After
hearing argument the learned judge upheld the special plea with
costs. In doing so he declined to follow
Barnard
and Lynn NNO v Schoeman
,
2
which concerned a similar claim, and adopted the contrary conclusion
reached by Nel J (Potgieter AJ concurring) in
Burley
Appliances Ltd v Grobbelaar NO
3
and
by Goodey AJ in
Barnard
NO v Bezuidenhout
,
4
in
relation to analogous claims.
In
view of the conflict between those decisions Preller J granted the
appellant leave to appeal to this court. During April Mr Koster’s
attorneys of record withdrew. We were advised by Mr Koster in a
letter received by the registrar of this court on 12 March 2010 that
he would not be represented at the appeal, citing lack of funds to
employ counsel.
[8] In
support of their contention that their claim has not prescribed
counsel for the liquidators submitted that because Mr Koster
is not
yet liable to repay the moneys that are now claimed, no ‘debt’ as
envisaged by the
Prescription Act is
in existence. A similar
submission
5
was made in
Burley
and rejected
.
Upon
being asked during argument in this case when the cause of action
that has been pleaded will arise counsel for the liquidators
said
that it will arise only once judgment setting aside the effective
dispositions is entered in favour of the liquidators. The
notion that
a claim can be founded upon a cause of action that arises only once a
court has given judgment on the claim is not one
that appeals to me.
[9] It
seems to me that the liquidators misunderstand their own claim.
Prescription is about rights that have come into existence
but have
ceased to exist by the passage of time. If a right has not come into
existence then there is nothing that is capable of
expiring. That is
why prescription is raised in a plea. If no existing right has been
alleged in the particulars of claim then the
particulars of claim are
excipiable and will not attract a plea. It is only once facts have
been alleged that establish the existence
of a right that the
question whether that right has expired is capable of arising.
[10] It
is perfectly correct, as counsel for the liquidators submitted, that
Mr Koster has no present obligation to pay the moneys
that are
claimed. It is also perfectly correct that Mr Koster will become
obliged to pay the money only once a court has made a declaration
to
that effect. But the claim of the liquidators is not founded upon a
present right to be paid by Mr Koster.
[11] Orders
that are made by courts generally declare that a debt then exists and
allow for its enforcement by the ordinary process
of execution. But
the declarations that are sought in this case are declarations of an
altogether different kind. They are declarations
that have the effect
of bringing into
existence
a debt that did not exist before. The liquidators become entitled to
obtain
such a declaration once certain events have occurred and that is the
right that they now seek to enforce. They do not ask the
court to
declare Mr Koster to be an existing debtor. They ask the court to
make Mr Koster into a debtor when he was not a debtor
before. If they
were to show that the events alleged in the particulars of claim have
occurred then they are entitled to a declaration
of that kind and
that is the existing right upon which they rely.
[12] The
sections of the
Insolvency Act with
which we are concerned are not
merely a novel procedure for enforcing existing debts. They create
for liquidators a remedy in addition
to any remedies that might be
available at common law. It might be that the liquidators have a
claim against Mr Koster for recovery
of a present debt under the
common law remedies for fraud, or under the
actio
Pauliana
,
6
but they are not pursuing remedies of that kind. In addition to those
remedies the
Insolvency Act creates
a different and wider remedy that
is given to liquidators to recover assets that have been removed from
an estate before insolvency.
A similar remedy is given to
liquidators
7
by s 424(1) of the Companies Act, in addition to any common law
remedies that creditors might have, to recover loss that has been
brought about by those who carry on the business of a company
recklessly or with intent to defraud creditors.
[13] In
both cases a liquidator is entitled to have a declaration made by a
court that brings a debt into existence once it has been
shown that a
particular event has occurred. In the case of the
Insolvency Act that
event is a disposition of property that falls within the terms of
ss 26
to
31
. Once it is shown that such a disposition has
occurred then
s 32(3)
entitles the liquidator to ask a court to set
aside the disposition and to declare that the liquidator is entitled
to recover the
property or its value. In the case of s 424(1) of
the Companies Act, once it is shown that the business of a company
has been
carried on recklessly or with intent to defraud creditors,
the liquidator is entitled to ask a court to declare ‘any person
who
was knowingly a party to the carrying on of the business’ in
that manner to be ‘personally responsible for all or any of the
debts or other liabilities of the company as the Court may direct’.
In both cases the declaration that is made by the court brings
into
existence debts that did not exist before and simultaneously enables
the debts immediately to be enforced through the ordinary
process of
execution.
[14] Those
special remedies originate from comparable English legislation that
has been exported to other countries as well. In
Burley
,
to which I will return, Nel J referred to the decision of the Court
of Appeal of New Zealand in
Re
Maney and Sons De Luxe Service Station Limited; Maney v Cowan
,
8
which I have found to be helpful. That case concerned s 320 of the
Companies Act 1955 of that country, which is comparable to s 424(1)
of our Companies Act. The decision is not directly in point because
nobody was so bold as to suggest in that case that the cause
of
action arose only once the declaration of liability was made. But it
is nonetheless instructive for the basis upon which the case
was
argued and decided.
[15] The
question under consideration was whether the limitation period
provided for in s 4 of the Limitation Act 1950
9
commenced to run when the delinquent act occurred, or whether it
commenced only when the company was placed under winding-up. It
was
argued in support of the former that the section created no new
rights, but merely provided for a summary procedure, available
to a
liquidator upon winding-up, to recover an existing indebtedness that
arose when the delinquent act occurred, and thus the cause
of action
accrued at that date.
10
North P rejected that submission in the following terms:
‘
In
my opinion it is plain that s 320 does create a new cause of action
for it confers on a liquidator, a creditor or a contributory
on
liquidation the right to ask the Court, in the circumstances stated,
to require the offending party to pay the debts or other
liabilities
of the company. This is surely a new liability and a new right not
previously known to the law…. I am accordingly of
the opinion that
the liquidation is a material part of the cause of action and
therefore the period of limitation does not begin
to run until the
commencement of the winding up and perhaps not until the appointment
of a liquidator (a distinction which is of
no importance in the
present case).’
[16] In
Burley
Nel J also referred to what was said by the authors of a standard
English work on company law,
Gore-Browne
on Companies
,
in relation to s 214 of the Insolvency Act 1986 of that country.
Under that section a court may, on the application of the liquidator
of a company, ‘declare [a director or former director of the
company] to be liable to make such contribution…to the company’s
assets as the court thinks proper.’ In the current edition of that
work the authors say the following:
11
‘
Proceedings
under s 214 must be commenced within six years of the company’s
going into insolvent liquidation, which is the date
when the
“cause of action” accrues for purposes of s 9 of the Limitations
Act 1980.’
[17] One
of the cases cited by the authors in support of that statement is the
decision of the Court of Appeal (Civil Division) in
Re
Farmizer Ltd.
12
It was argued in that case that the limitation period under s 9(1) of
the Limitation Act 1980
13
never commences to run against actions under s 214 of the Insolvency
Act, though for reasons different from those that were advanced
before us. In the Chancery Division Blackburne J rejected the
submission in the following terms, and the Court of Appeal agreed:
‘
In
my view it is clear that the facts which a liquidator must prove to
establish a claim for wrongful trading are those set out in
subs. (2)
of the section and no others. The statutory cause of action created
by the section accrues on the occurrence of the latest
of the matters
to which the subsection refers: that is self-evidently when the
company in question goes into insolvent liquidation’.
[18] In
both those cases it was recognized by the respective courts that the
relevant legislation gave to liquidators a new right
in addition to
any rights that they or creditors might otherwise have – which was
the right to have a debt created where no debt
might have existed
before. The provisions of the Insolvency Act give to liquidators a
similar right and that is the right that the
liquidators now seek to
enforce.
[19] That
was also recognized by Nel J in
Burley.
In
that case a creditor of a close corporation claimed declarations
under ss 64(1) and 65 of the Close Corporations Act 69. Section
64(1) is in much the same terms as s 424(1) of the Companies
Act. Section 65 entitles a court to declare that a close corporation
‘is to be deemed not to be a juristic person’ in certain
circumstances, which has consequences for the liability of its
members.
[20] The
plaintiff took exception to a plea of prescription on much the same
lines that the plea was resisted in this case. According
to the
judgment the submission that was made by counsel in support of the
exception, echoing what was submitted in this case, was
that
‘
the
action instituted by Burley in terms of ss 64 and 65 of the Close
Corporations Act is not affected by the provisions of the
Prescription Act in
that the
Prescription Act only
applies to
“debts”, and before a Court “directs” in terms of
s 64
or
“declares” in terms of
s 65
, no “debt” exists.’
14
The
exception was dismissed. In a thoughtful and helpful judgment, the
learned judge concluded as follows:
‘
In
my view, s 64 of the Close Corporations Act (and the corresponding
section in the Companies Act) created a new remedy, or “right”
which becomes available to a creditor in the circumstances set out in
the section.’
15
[21] The
limitation statutes in England and New Zealand at the time those
cases were decided provided for the expiration of the right
to bring
an action rather than the expiration of the right itself that was
sought to be enforced. The same approach was adopted in
this country
before 1969. Under the Prescription Act 1943 extinctive prescription
was ‘the rendering unenforceable of a right by
the lapse of time’,
but the right itself remained in existence for a further period, and
could thus operate to set-off countervailing
debts.
16
But the
Prescription Act 1969
operates instead to extinguish the
right – referred to in the Act as a ‘debt’ – with the natural
consequence that nothing
remains to enforce (or to set-off against
countervailing debts).
[22] Under
the Act of 1943 every civil action for the enforcement of a right
expired at one time or another – if only after expiry
of the
default period of thirty years. Unless it is to be said that the 1969
Act was intended to remove some rights from the scope
of prescription
– and I do not think that was the case – then it seems to me that
‘debt’ under the 1969 Act must be taken
to encompass all those
rights that were subject to prescription under the 1943 Act, which
would include the right that is asserted
by the liquidators in this
case.
[23] Indeed,
it is not unusual when dealing with prescription for courts to ask
only when the ‘right of action’ arose, leaving
it to implication
that its complement is a ‘debt’.
17
Thus in
Mazibuko
v Singer,
18
which has often been cited in this court, Colman J referred to the
‘right of action’ prescribing, implying that its complement
was a
‘debt’. Trollip JA said that expressly
19
in
Evins
v Shield Insurance Co Ltd,
20
when he said
‘“
Cause
of action” is ordinarily used to describe the factual basis, the
set of material facts, that begets the plaintiff’s legal
right of
action and, complementarily, the defendant’s “debt”, the word
used in the Prescription Act.’
[24] A
‘debt’ for purposes of the Act is sometimes described as
entailing a right on one side and a corresponding ‘obligation’
on
the other.
21
But if ‘obligation’ is taken to mean that a ‘debt’ exists
only when the ‘debtor’ is required to do something then I think
the word is too limiting. At times the exercise of a right calls for
no action on the part of the ‘debtor’ but only for the ‘debtor’
to submit himself or herself to the exercise of the right. And if a
‘debt’ is merely the complement of a ‘right’, and if
all
‘rights’ are susceptible to prescription, then it seems to me
that the converse of a ‘right’ is better described as a
‘liability, which admits of both an active and a passive meaning.
22
[25] Having
found that the Close Corporations Act created a new ‘right’ the
learned judge in
Burley
went on to find that the complement of that right was a ‘debt’
against which prescription commenced to run once the right had
accrued. The approach that was taken in that case has the support of
the authors of all the standard texts in this country on the
law of
insolvency and company law
23
and I have pointed out that other jurisdictions that have similar
remedies take the same approach. The only case that I am aware
of,
either in this country or abroad, that supports the proposition that
was advanced by the liquidators, is the decision in
Barnard
and Lynn NNO v Schoeman
.
24
That case concerned the statutory provisions that are now before us.
It was found that the claim by the liquidators was not subject
to
prescription and four reasons were given for that conclusion. Three
of those reasons were convincingly rebutted by Nel J in
Burley
and I need not repeat what the learned judge said in that regard. The
fourth reason given by the learned judge for his conclusion
is little
more than a statement of the proposition that is now contended for by
the liquidators.
[26] It
seems to me that the conclusion that was reached in
Barnard
and Lynn
is inconsistent with a considerable body of authority and is
inconsistent with the principles underlying every decision of this
court
on prescription. In my view that case was incorrectly decided
and it must be taken to be overruled.
[27] I
agree with the conclusion of Nel J in
Burley
,
and with his reasons for that conclusion,
25
and in my view they apply as much in this case. I think it is clear
that the sections of the Insolvency Act with which we are concerned
give a right to a liquidator, in prescribed circumstances, to have a
person declared to be a debtor of the estate, and its complement
is a
‘debt’ for purposes of prescription, in that the person concerned
is liable to have such a declaration made. This case is
distinguishable from
Burley
only in this respect that under the Insolvency Act the right accrues
only in a winding-up. Whether the relevant date for the commencement
of prescription is the date
that
the winding
-up
commences, or the date that a liquidator is appointed, is not a
matter with which we need concern ourselves – the effect of
s 12(3)
of the
Prescription Act is
that that question will never arise. It is
sufficient to say that prescription ordinarily commences to run no
later than the date
upon which a liquidator is appointed. Whether the
commencement of prescription has been delayed in this case under the
provisions
of
s 12(3)
of the
Prescription Act is
not a matter
that we are called upon to decide.
[28] The
fact alone that the particulars of claim are not excipiable is enough
to tell one that the liquidators assert an existing
right and its
complement, a ‘debt’. What is required is only to identify the
last event that was required to have occurred for
the particulars of
claim not to be excipiable. There is no merit in this appeal and it
is dismissed with costs.
___________________
R
W NUGENT
JUDGE
OF APPEAL
AP
PEARANCES
APPELLANT
: G
Wickins
Instructed
by Brooks & Brand Inc, Johannesburg;
C/O
E G Cooper & Majiedt Inc, Bloemfontein
RESPONDENT
: -
1
Section 66
of the
Close Corporations Act 69 of 1984
read with s
340(2)(a) of the Companies Act 61 of 1973.
2
2000
(3) SA 168
(N).
3
2004
(1) SA 602
(C).
4
2004
(3) SA 274
(T).
5
At 607D.
6
Mars:
The Law of Insolvency in South Africa
9 ed (eds) Eberhard Bertelsman et al (eds) p 138.
7
The remedy is available to others as well but I confine myself now
to the position of liquidators.
8
[1969] NZLR 116.
9
The effect of s 4 of the Limitation Act 1950 was that ‘actions to
recover any sum recoverable by virtue of any enactment …
shall not
be brought after the expiration of six years from the date on which
the cause of action accrued’.
10
At 123 lines 20-30.
11
Alistair Alcock, John Birds and Steve Gale (eds)
Gore-Browne
on Companies
Vol. 2
Part XIII (update 76) para 21B.
12
[1995] 2 BCLC 462.
13
‘An action to recover any sum recoverable by virtue of any
enactment shall not be brought after the expiration of six years

from the date on which the cause of action accrued’.
14
At
607D.
15
At 612
I-J.
16
The debt itself expired after thirty years.
17
Oertel v Direkteur van
Plaaslike Bestuur
1983 (1) SA 354
(A) at 366C-H;
Sentrachem
Ltd v Prinsloo
1997
(2) SA 1
(A) at 15E-16D;
Standard
Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (In
Liquidation)
[1997] ZASCA 94
;
1998 (1)
SA 811
(SCA) at 826A-G;
Drennan
Maud & Partners v Pennington Town Board
[1998] ZASCA 29
;
1998 (3) SA 200
(SCA) at 212E-G;
Provinsie
van die Vrystaat v Williams NO
2000 (3) SA 65
(SCA) paras 24-25.
18
1979 (3) SA 258
(W) at 265D-F.
19
See, too, Eksteen JA in
Sentrachem
,
above, at 15G-H,
20
1980 (2) SA 814
(A) at 825F-H.
21
See, for example,
Electricity
Supply Commission v Stewarts and Lloyds of SA (Pty) Ltd
1981 (3) SA 340
(A) at 344F-G;
Joint
Liquidators of Glen Anil Development Corporation Ltd (In
Liquidation) v Hill Samuel (SA)(Pty) Ltd
1982 (1) 103 (A) 110A-111E;
Desai
NO v Desai
[1995] ZASCA 113
;
1996 (1)
SA 141
(A) at 146I-147A.
22
Shorter Oxford Dictionary
‘1.
Law
The
condition of being liable or answerable by law or equity 2. The
condition of being subject
to
something’.
23
Eberhard Bertelsmann et al (eds)
Mars:
The Law of Insolvency in South Africa
p 249; Justice P.A.M. Magid, Prof Andre Boraine, Jennifer A.
Kunst and Prof A. Burdette (eds)
Meskin:
Insolvency Law
(Service Issue 31) para 5.31.1; Sharrock, Smith and Van der Linde
Hockly’s Insolvency
Law
8ed p 138;
Jennifer A. Kunst, Prof Piet Delport and Prof Quintas Vorster (eds)
Meskin: Henochsberg on
the Companies Act
(Service Issue 30) pp 914-915.
24
Above.
25
The
same conclusion was reached by Goodey AJ in
Barnard
NO v Bezuidenhout
,
but for different reasons.