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Re-volt KZN Projects CC v Lallisa Investments (PTY) LTD (11969/18P) [2022] ZAKZPHC 17 (11 May 2022)

80 Reportability
Insolvency Law
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Brief Summary

Companies — Liquidation — Inquiry under sections 417 and 418 of the Companies Act 61 of 1973 — Applicant sought to hold an inquiry into the affairs of a company in liquidation — Counter-application by intervening parties to set aside the ex parte order granting the inquiry — Intervening parties contended that the inquiry was improper and sought to protect their interests as creditors — Court reconsidered the ex parte order and set it aside, ordering the applicant to pay costs of the counter-application.

Comprehensive Summary

Summary of Judgment


1. Introduction


The proceedings concerned a counter-application for reconsideration and setting aside of an urgent ex parte order obtained to convene and conduct an enquiry under sections 417 and 418 of the Companies Act 61 of 1973 in relation to a company in liquidation. The judgment was delivered in the KwaZulu-Natal Division, Pietermaritzburg, by Mngadi J on 11 May 2022.


The applicant in the original ex parte application was Re-Volt KZN Projects CC (“Re-Volt”), a creditor of the company in liquidation. The respondent was Lallisa Investments (Pty) Ltd (“Lallisa”), a company in liquidation. Two parties intervened to challenge the ex parte order, namely Wulaganathan Reddy N.O. as trustee for the Steve Reddy Family Trust (the first intervening party) and Wulaganathan Reddy in his personal capacity (the second intervening party) (collectively, “the intervening parties”).


Procedurally, an ex parte order was granted on 28 November 2019 (Seegobin J) authorising an interrogation purportedly in terms of sections 417 and 418. The order was later suspended on 18 December 2019. The intervening parties delivered a counter-application on 26 February 2020 seeking reconsideration and rescission of that ex parte order. Various interlocutory steps followed, including competing strike-out applications and an application for condonation for late filing of an answering affidavit, which was granted on 23 July 2021. The main dispute ultimately fell to be determined in May 2022.


The subject matter of the dispute was whether the court-authorised enquiry under sections 417–418 should stand, given objections that the ex parte order was procedurally and substantively irregular, allegedly abusive, and impermissibly conferred control of a liquidation enquiry on a creditor rather than the statutory functionaries (the Master/liquidators).


2. Material Facts


Lallisa was finally wound up after Re-Volt (as creditor) had instituted liquidation proceedings based on non-payment for construction work relating to a partially completed shopping centre development. A final liquidation order was granted on 29 March 2019, and three final joint liquidators were appointed. The liquidators agreed that one of them, Ranjith Choonilall, would act as lead liquidator.


It was common cause that there had previously been an attempt to hold an enquiry related to Lallisa’s winding-up before a magistrate. That enquiry was later found to be null and void because the Master’s consent had not been obtained for the holding of the enquiry (as required on the facts and the way the enquiry had been set in motion). The fact that the aborted enquiry occurred, and that it was set aside for lack of the Master’s consent, was treated by the court as common cause.


Re-Volt’s case in the ex parte application was that an enquiry under sections 417 and 418 was necessary to assist the liquidation, that the directors and related persons (including Mr Reddy and family-related entities) had not cooperated sufficiently, and that delay created a risk of disappearance of documents and dissipation or devaluation of assets. Re-Volt also relied on the fact that creditors had passed resolutions authorising the liquidators to hold enquiries under the Companies Act.


The intervening parties disputed that the ex parte order had been properly sought and obtained. In particular, they alleged that the application was driven by an ulterior motive (to support other litigation and to advance Re-Volt’s interests in relation to sale of development properties), that the order was framed too broadly and enabled a “fishing expedition”, and that there was a risk that the costs of the enquiry would be borne by the insolvent estate to the prejudice of creditors. They also alleged that the Master had indicated (in earlier correspondence) scepticism about the value of an enquiry and had required that a creditor insisting on an enquiry would need to undertake to bear the costs, and that Re-Volt failed to disclose this to the court when obtaining the ex parte order.


On the papers, there was also a dispute about the adequacy of documentation already available to the liquidators and whether the enquiry was truly necessary. The court ultimately treated it as material that the applicant did not explain why the liquidators had not conducted an enquiry pursuant to creditors’ resolutions, nor why the Master’s queries (raised in connection with consent for an enquiry) had not been addressed.


3. Legal Issues


The central legal questions were whether the intervening parties were entitled, procedurally, to seek reconsideration of the ex parte order, and whether the order should be set aside on reconsideration. This required the court to determine issues of procedure, statutory competence, and discretion in the context of liquidation enquiries.


The dispute involved a combination of law and application of law to fact. The court was required to determine, among other things, whether the intervening parties had locus standi and whether Rule 6 mechanisms permitting reconsideration of urgent ex parte orders were available to them, given that the initial order was not framed as a rule nisi with a return date.


A further legal issue concerned the status and use of information from the previously aborted enquiry: whether the record of that enquiry or evidence derived from it could be relied upon in these proceedings, and whether confidentiality could be waived by a witness.


Finally, a substantive question was whether the ex parte order was legally competent in that it purported to authorise a creditor to “hold” an interrogation under sections 417–418, and whether a proper case had been made for a court enquiry (as distinct from a Master’s or liquidators’ enquiry), particularly given the statutory safeguards and the Master’s supervisory role over costs and subpoenas.


4. Court’s Reasoning


The court addressed the interlocutory strike-out skirmishes in a pragmatic manner. It emphasised that strike-out applications require a showing of prejudice, and that even where matter is hearsay, speculative, or irrelevant, a court does not necessarily strike it out if there is no demonstrated prejudice. It considered that the papers were complete and that both sides had already dealt with the contentious allegations in their answering and replying affidavits. The court indicated that it would give no weight to clearly inadmissible assertions rather than embarking on an exhaustive strike-out exercise.


On the admissibility and use of material from the aborted enquiry, the court reasoned that the aborted enquiry was a nullity and that its record could not be used to prove facts by reference to what was said in that proceeding. It further held that, because section 417(4) renders such enquiries private and confidential unless directed otherwise by the court or Master, a witness or other person cannot unilaterally waive that confidentiality. The court therefore rejected the proposition that Mr Reddy could, by referring to the enquiry, waive confidentiality. It also held that excerpts of incomplete evidence from the aborted enquiry could not be selectively used. At the same time, the court distinguished between the enquiry record (inadmissible to prove what was said) and documents that existed independently of that enquiry: such pre-existing documents did not become inadmissible merely because they had surfaced during the aborted process.


On standing and procedure, the court accepted that although Rule 6(12)(c) contemplates reconsideration by a person against whom an order was granted in their absence, the relief granted ex parte plainly affected persons beyond the nominal respondent. It considered that the intervening parties had a direct and substantial interest in the order and its consequences. Importantly, it reasoned that once leave to intervene had been granted and the ex parte order had been suspended at their instance, they were properly treated as persons entitled to approach the court for reconsideration. The counter-application was treated, in substance, as a proper invocation of the court’s reconsideration power under Rule 6.


The court then set out the statutory scheme and purpose of sections 417 and 418. It emphasised that the primary purpose of the enquiry mechanism is to assist the liquidators to ascertain the company’s affairs, assets and liabilities and to discharge their duties effectively and expeditiously in the interests of creditors. It described the enquiry as a robust and potentially draconian process, justified by the urgent nature of liquidation, and underlined the importance of statutory safeguards, including the role of the liquidators and the Master as impartial office-holders who must act independently and even-handedly.


Although the court recognised that applications for intervention under sections 417–418 may, in appropriate circumstances, be brought ex parte, and that technical defects may sometimes be overlooked in the interests of the liquidation process, it nonetheless held that the applicant’s papers revealed significant non-disclosures and difficulties. The court identified several respects in which it found that the applicant had misled the court when seeking the ex parte order, including failing to disclose that despite creditors’ resolutions the liquidators had not convened an enquiry; failing to disclose the absence of a creditors’ resolution authorising the applicant itself to seek a court enquiry; failing to disclose that not all liquidators supported the application; failing to disclose that the Master had raised queries which had not been addressed; and failing to disclose that the applicant had conveyed to the Master that it would carry the costs of the enquiry, while seeking an order that the costs be borne by the estate.


In dealing with the allegation of abuse and ulterior motive, the court reiterated that a party alleging abuse bears the onus and must establish a clear case. It accepted that the mere fact that information obtained in a section 417 enquiry may later be used in civil litigation does not, without more, establish abuse. It also accepted that a major creditor is entitled to pursue lawful means to recover its debt. However, the decisive point was not a finding of proven abuse, but that the applicant had not established a proper need for a court enquiry in circumstances where ordinary liquidation mechanisms (a liquidators’ enquiry or Master’s enquiry) remained available, and where the applicant had not explained the failure to pursue those routes properly.


The critical defect, as ultimately framed by the court, lay in the terms of the ex parte order itself. The order purported to authorise the applicant creditor to “hold” the interrogation under sections 417–418. The court reasoned that the statutory framework provides for a Master’s enquiry or a court enquiry (with referral to a commissioner), not for an enquiry “held” by a private creditor. In consequence, the order granted was characterised as not provided for by the Act and therefore unlawful/irregular. The applicant’s attempt, during oral argument, to seek a substantial amendment from the bar was rejected as procedurally improper and prejudicial, particularly in the absence of a proper application and without any tender of costs occasioned by such a late shift.


On this reasoning, the court concluded that the applicant had not shown a need for a court-driven section 417 enquiry, that the applicant could still pursue an enquiry through proper channels, and that the order as granted could not stand.


5. Outcome and Relief


The court granted the counter-application. The ex parte order granted on 28 November 2019 was reconsidered and set aside.


The court ordered that the costs of the interlocutory applications would be costs in the counter-application. Re-Volt was ordered to pay the costs of the counter-application, including the costs of senior counsel where employed.


Cases Cited


Putco Ltd v TV & Radio Guarantee Co (Ltd) 1984 (1) SA 443 (W).


Beinash v Wixley 1997 (3) SA 721 (SCA).


Fullard v Fullard 1979 (1) SA 368 (T).


Roering and another NNO v Mahlangu (581/2015) [2016] ZASCA 79.


Bernstein and others v Bester and others NNO [1996] ZACC 2; 1996 (2) SA 751 (CC).


Legislation Cited


Companies Act 61 of 1973 (sections 414(2), 417, 418).


Rules of Court Cited


Uniform Rules of Court, Rule 6(5)(b)(iii).


Uniform Rules of Court, Rule 6(8).


Uniform Rules of Court, Rule 6(12)(c).


Held


The intervening parties were held to have a direct and substantial interest in the ex parte order authorising a liquidation enquiry and, having been permitted to intervene and having procured suspension of the order, were entitled to seek reconsideration in terms of the urgent procedure applicable to orders granted in their absence.


The court held that the earlier aborted section 417 enquiry was a nullity and that its record could not prove facts in these proceedings. It further held that confidentiality attached to a section 417 enquiry is not waivable at the instance of a witness. Pre-existing documents did not become inadmissible merely because they had featured in the aborted enquiry.


On reconsideration, the ex parte order was held to be irregular and substantively defective because it purported to authorise a creditor to “hold” an enquiry under sections 417–418, whereas the statutory scheme contemplates enquiries conducted under the authority of the Master or the court (often through the liquidators and a commissioner), subject to safeguards. The applicant had also failed to justify why the ordinary liquidation enquiry mechanisms had not been properly utilised and had not made out a need for a court enquiry.


Accordingly, the ex parte order was set aside and the applicant was ordered to pay the costs of the counter-application (including senior counsel where employed), with interlocutory costs to be costs in the counter-application.


LEGAL PRINCIPLES


A strike-out application is not determined solely by identifying hearsay, speculation, or irrelevance; the applicant must show prejudice in the conduct of the case if the material is not struck out. Even if matter is not formally struck out, a court may attach no weight to inadmissible hearsay or unsupported opinion.


An enquiry under sections 417 and 418 of the Companies Act 61 of 1973 serves the primary purpose of enabling liquidators to obtain information necessary to identify and recover assets, determine liabilities, and administer the winding-up efficiently in the interests of creditors. It is a stringent mechanism within an urgent liquidation process, and its use is tempered by safeguards associated with the roles of the Master and liquidators as independent office-holders.


Confidentiality attaching to section 417 enquiries (subject to statutory exceptions) is not something that a witness can waive unilaterally. Where an enquiry is set aside as a nullity, the record of what was said in that enquiry cannot be used to prove facts in later proceedings; however, documents and information existing independently of the enquiry do not become inadmissible merely because they were used or obtained during that process.


In reconsidering urgent ex parte relief, a party with a direct and substantial interest affected by the order may have standing to seek reconsideration where the order was granted in its absence and materially affects its interests, particularly after leave to intervene has been granted and interim suspension obtained.


A court order authorising a section 417–418 process must align with the statutory framework. An order that purports to authorise a private creditor to “hold” a statutory interrogation, rather than an enquiry conducted under the authority of the Master or the court (typically through a commissioner and driven by liquidators), is vulnerable as irregular and not authorised by the Act.

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[2022] ZAKZPHC 17
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Re-volt KZN Projects CC v Lallisa Investments (PTY) LTD (11969/18P) [2022] ZAKZPHC 17 (11 May 2022)

IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
No: 11969/1BP
In
the matter between:
RE-VOLT
KZN PROJECTS CC
APPLICANT
CK
NO. 2005/106008/23
And
LALLISA
INVESTMENTS (PTY) LTD
RESPONDENT
WULAGANATHAN
REDDY N.O. AS TRUSTEE
FOR
THE STEVE REDDY FAMILY TRUST

FIRST INTERVENING PARTY
WULAGANATHAN
REDDY

SECOND INTERVENING PARTY
ORDER
1.
The counter application is granted.
2. The
order granted on 28 November 2019 is reconsidered and it is set
aside.
3.
The costs of interlocutory applications are ordered to be costs in
the counter application.
4.
The applicant (Re-volt KZN Projects CC) is ordered to pay costs of
the counter application, including costs of senior counsel,
where so
employed.
JUDGMENT
Mngadi
J
[1]
On 9 July 2020 by means of an urgent ex-parte application, Re-Volt
KZN Projects CC (Revolt) a duly registered and incorporated
close
corporation (Revolt) citing Lallisa Investments (Pty) Ltd (Lallisa)
sought an order directing the holding of an enquiry in
terms in terms
of s417 read with s 418 of the Companies Act 61 of 1973 (the Act) in
respect of Lallisa a company in liquidation.
[2]
The ex-parte application relied on a founding affidavit deposed to by
Jaybalan Pillay (Pillay). Pillay stated that he was a
member and
representative of Revolt and he was duly authorized by member's
resolution, which authorized the institution of an application
for an
order to convene an investigation and appointed him to represent and
act on behalf of Revolt in such application.
[3]
Pillay stated that Revolt instituted liquidation of Lallisa due to
the failure of Lallisa to pay it a substantial amount for
the
construction of a partially completed shopping Centre which indicated
that Lallisa was unable to pay its debts. A final liquidation
order
was granted on 29 March 2019. Ranjith Choorilall, Aneel Darmalingam
and Pierre Berrange were pointed final joint liquidation
of Lallisa.
The joint liquidators agreed amongst themselves that Choonilall would
act as the lead liquidator.
[4]
He stated that the creditors of Lallisa authorized the final joint
liquidators top hold enquiries in terms of the provisions
of the Act
which covered the interrogation provided for in s417 and s418 if the
Act. Chonilall obtained the consent of the magistrate
of Durban to
convene the investigation. The investigation proceeded before the
Magistrate. The directors of Lallisa in particular
Steve Reddy
(Reddy) and members of his family and attorney Moodley were
represented by attorneys De Villiers and Petit. In the
course of the
enquiry Reddy's lawyers contended that the enquiry was improper, null
and void. This resulted in litigation, which
has not been finalized
in that an order was made that the enquiry was null and void becasuse
the Master of the High Court had not
given consent for the holding of
the enquiry.
[5]
Pillaly stated that Revolt requested by a letter dated 19 November
2019 that the liquidators obtain the Mater's consent and
the enquiry
be held. To date the Master has not authorized the holding of an
investigation despite numerous request made to the
joint liquidators
and the Master.
[6]
Pillay stated that it is necessary that an investigation in terms of
the Act be held. He stated that Lallisa contracted the
appointment of
various service providers to erect a shopping complex on a property
consisting of three sub-divisions owned by three
different legal
entities. He stated that to facilitate the development, the three
sub­ divisions were notarial tied in terms
of a notarial tie
agreement, which restricted the right of each individual owner to
alienate or encumber or lease each sub-division
separately.
[7] Pillay
stated that notwithstanding that the deemed date of liquidation of
Lallisa was 18 October 2018 and the provisional
order of liquidation
was granted by consent on 15 February 2019, the subdivisions were
sold and transferred to Redacres Property
Group (Pty) Ltd
(Redacress)  on 18 March 2019.  The sole director and
shareholder of Redacress is Pragasen Reddy
who is the son of Reddy
the director of Revolt. The sale of the sub-divisions to Redacres has
on 27 May 2019 been set aside by
a court order.
[8]
Pillay stated that it is essential for the general body of Lallisa's
creditors that the mechanism provided for in section 417
read with
s418 of the Act be utilised to investigate the trade, dealings,
affairs, assets and property of Lallisa. Pillay stated
that Lallisa
disclosed in affidavits that for the development it used certain of
its funds, borrowed funds from shareholders and
other related
parties, when these funds were exhausted, its attempts to raise funds
from numerous sources including from financial
institutions failed.
[9]
Pillay stated that it is urgent to hold the enquiry because the
information obtained at the commission will assist the liquidators
to
know what steps are required to be taken and not delay the
administration of the affairs of the company to the detriment of
the
general body of its creditors. He stated that the directors of the
company have failed to furnish any material information
to the
liquidators despite a letter served on Reddy, on 13 March 2019 by the
sheriff. The delay causes a real risk that relevant
documents may
disappear and the assets of Lallisa may lose their value.
[10]
Pilllay stated that an estate of an insolvent company should be
administered and finalised expeditiously. The liquidators have
been
unable to do so primarily due to the reluctance and non-cooperation
of the directors and other persons who are in possession
of
information relevant to the administration of the Estate.
[11]
Ranjith Chronilall (Choonilall) confirmatory affidavit, stated
that he was one of the three joint liquidators of Lallisa, he has

read the affidavit deposed to by the Pillay and he confirmed the
allegations relating to him and his firm. Choonilall is an attorney

and insolvency practitioner. In his subsequent affidavit he stated
that the lnterverning Parties have not furnished material documents

and information required for proper liquidation process of the
company in liquidation. The analysis of the documents he has received

requires that Reddy explain certain transactions but he has not done
so. It is essential that an enquiry in terms of s417 of the
Companies
Act be held.
[12]
On 28 November 2019 the court (Seegobin J) granted the ex
parte order. On 26 February 2020 a counter-application by Intervening
Parties was lodged. It sought the reconsideration and setting aside
of the ex parte order granted on 28 November 2019 which had
been
suspended on 18 December 2019. The Intervening Parties were the Steve
Reddy Family Trust (the Trust) the First Intervening
Party and
Wulaganathan Reddy (Reddy) the second Intervening Party.
[13]
The counter application is supported by a founding affidavit deposed
to by Reddy. He stated that he is the second intervening
party and he
represent the first intervening party of which he was a trustee and
he was authorised by his co-trustees.
[14]
Reddy stated that the ex-parte application was brought with an
ulterior motive to ground or support to the applicant's application

to sell the development property and take the proceeds for itself.
This is evident in a pending court application instituted by
the
applicant. He stated that the s417 inquiry is intended merely as a
fishing expedition and an attempt to harass and subject
him and his
to interrogations. Choonilall was endeavoring to bring about sale of
all the three sub-divisions although only the
owner of the one
sub-division was in liquidation. The applicant's Mr Bann Pillay was
anxious to try and effectively take over the
entire development by
forcing an auction of all three sub-divisions. In case 6421/19P the
joint liquidators sought a court order
for the sale of all three
sub-divisions and the proceeds thereof to firstly be used to pay the
applicants claim in full and the
balance to the other creditors.
[15] Reddy
stated that all documentations and relevant financial information has
been obtained by the applicant and Choonilall
from Lallisa and its
auditors have been examined extensively. The applicants, he stated,
has an ulterior motive in wishing to cross-examine
him and general
harass him and his immediate family who all have been subpoenaed. The
applicant wants to obtain the information
from him in s417 enquiry in
order to use it in the then pending litigation not related to the
liquidation of Lallisa.
[16]
Reddy
stated that the applicant ought to have cited the liquidators of
Lallisa when it launched the application. It also failed
cite the
Master, other creditors and the Chief Magistrate of Durban. The
applicant requested Berrange, one of the joint liquidators,
to pay
R20 000 before he could be furnished with the copy of the set of
application papers, but  Choonilall was furnished
with a set of
papers and a confirmatory  affidavit obtained from him. He
stated that on 18 December 2019, the applicant agreed
for the papers
to be kept confidential and such an order was made without out any
averments in the papers justify such an order.
[17]
Reddy stated that the order of 28 November 2019, granted leave
to the applicant, a creditor to hold s417 interrogations and to
subpoena
any person and any document, which is so vague and results
in abuse. The applicant has subpoenaed him, his wife, daughter, his
son, and others. Previously, Choonlilall subpoenaed his accountant,
his bankers, his previous attorneys, his current attorney of
record
and his secretary, but subpoena against his current attorney and his
secretary was subsequently withdrawn. He stated that
the applicant
before he is granted authority, must give reasons why it is necessary
to subpoena a particular person.
[18]
Reddy stated that there is no money in the estate to fund the
interrogation. In the earlier enquiry, the Master indicated that the

applicant would have to pay costs of the interrogation. The applicant
failed to advise the court of the requirements of the Master.
It
obtained an order that the costs of the enquiry be paid by the
company in liquidation. Intervening Parties are concerned as

creditors of Lallisa they shall be required to carry the costs of
s417 enquiry. The applicant by approaching the court is avoiding

carrying the costs of the enquiry.
[19]
Reddy stated that he is the director of Nightingale
Investments (Pty (Ltd) which owns one of the three sub-divisions and
the other
sub-divisions are owned by his wife. The properties were
sold in order to raise funds by having a mortgage registered in order
to pay Lallisa creditors, which sale was opposed by Revolt and
cancelled by a court order.
[20]
The applicant responded to the counter application by an answering
affidavit deposed to by Pillay. Pillay indicated that because
of
events subsequent to the main application, it is necessary for
himself to disclose all material facts. He then deposed to an

affidavit of 100 pages with paragraphs. In my view, Pillay's
affidavit takes a form of a founding affidavit rather than an
answering
affidavit.
[21]
Pillay stated that since Reddy referred to evidence obtained in the
first enquiry he has waived the confidentiality attached
to the first
enquiry which means he has admitted that the evidence obtained in the
first enquiry is admissible against him in these
proceedings.
[22]
Pillay raised various
points in limine,
namely;
(a)
The counter application is brought in terms of Rule 6 (12) c but the
Intervening Parties are not parties against whom the order
of 28
November 2019 was granted. (b)The Intervening Parties have not joined
the three joint liquidators, other proved creditors
although their
identities and interests are known to them.
(c)
Reddy is cited as a singular trustee but there are three
trustees in the Trust. Reddy has no authority to represent the other
two
trustees, which constitutes non-joinder.
(d)
None of the Intervening Parties are creditors in the estate of
Lallisa. The Interning Parties seek to set aside the entire enquiry,

a right they do not have. They are not seeking relief exusing them
from attending the enquiry nor complain against any subpoena
directed
at them.
[23]
Pillay, further, stated in answering relating to the merits as
follows;
(1) any
person known or suspected to have in their possession any property of
the company, or is believed to be indebted to
the company or deemed
capable of giving information concerning the trade, dealings, affairs
of property of the company may be summoned
to give evidence or
produce documents. The Intervening Parties are such persons and they
make no case for actual abuse except suspicion
of abuse. He stated
that Reddy was sole director and the controlling mind of Lallisa. The
Trust in which Reddy was a trustee was
the sole shareholder of
Lallisa. There is a trail of funds from Lallisa to Reddy and to the
entities Reddy and his family members
had interest. The development
property was owned by entities Reddy and his family had interests in.
Reddy concluded deals with
entities his family were controlling which
resulted in funds flowing away from Lallisa. Reddy on behalf of
Lallisa concluded a
building contract with applicant but failed to
pay the applicant for the work done. The applicant's claim is secured
as it holds
undisturbed builders lien over all three sub-divisions.
[24]
Pillay stated the documents and information in possession of the
liquidators is wholly inadequate and lacking for the liquidators
to
perform their statutory duties. He stated that the role of Reddy in
Lallisa indicates that he is a person whose has an interest
in and
the direct knowledge relating to the dealings and affairs of Lallisa.
Reddy listed the documents relevant that the liquidators
did not
have. Pillay referred to the uncompleted evidence of Reddy in the
first enquiry and the suspicion coming from that evidence.
[25]
Pillay then refers to a list of questions the liquidators are
entitled to have answers on. He also refers to proved claims
against
Lallisa in total of R28 689 707, 18.
[26]
Pillay pointed out that although called by the Master to do so on 7
November 2019 Reddy has failed to complete and deliver
a proper
statement of affairs on form CM 100. Pillay concluded that there are
genuine well founded and bona fide reasons for the
enquiry in terms
of s417 and s418 of the Act and for Reddy to be interrogated. He
stated that the ex parte application was by a
major and secured
creditor. There is no evidence that the Master would have fixed any
conditions with the approval and consent
to hold the enquiry. He
denied that the applicant required the inquiry to gather support for
the other pending litigation and he
stated the enquiry is essential
for the proper administration of the estate of Lallisa for benefit of
the creditors.
[27] Pillay
contends that the order made on 28 November 2019 is highly workable
and it is essential. The improvements on the
sub-divisions is
estimated at R36 million, which is at the expense of the creditors of
Lallisa and the enquiry, is on a creditor's
application and not a
liquidator's application. The matter, contends Pillay, in an enquiry
the court cannot make any ruling regarding
the costs of the enquiry.
[28]
Pillay contends that the second enquiry is present to any application
by a creditor. The application and the enquiry remain
confidential.
The applicant was not oblige to serve papers on the master or the
liquidators. Reddy has not furnished all the required
books. He has
not logged any claim against Lallisa and he has done nothing to
preserve the property of Lallisa He has behaved in
a delinquent or
reluctant manner by abandoning the first meeting of creditors and
failed to attend second meeting of creditors.
He failed to complete
statements of affairs on form CM 100 and he failed to comply with
other requirements to furnish documents.
He interdicted and had the
first enquiry set aside. Reddy, thereafter, interdicted and sought to
set aside the second enquiry.
His reasons for not wanting the enquiry
to proceed are all apocryphal. He has breached the confidentiality
attached to the s417
enquiry. The Intervening Parties are not
entitled to the information they sought.
[29]
Pillay concluded by asking for the dismissal of the counter
application with costs on the punitive scale.
[30]
On 18 June 2020, the applicant applied to strike out certain parts of
Reddy's affidavits in support of the counter application.
It paras
1.4; 3.3; 3.4; 3.5; 4.1.2; 4.6.3; 4.11;16; 24; 25.2; 25.4; 28; 30.3;
31; 38.1; 38.2;and 41 either as being speculative
with no factual
foundation or being hearsay. On 13 august 2020, the Intervening
Parties filed an application supported by an affidavit
seeking to
strike out opposing papers to the counter application on the grounds,
inter alia,
that the answering affidavit was filed late out of
time, it was not accompanied by an application for condonation, and
it was unlawful
and inadmissible. Subsequently, the applicant applied
for condonation to the late filing of the answering affidavit which
application
was granted on 23 July 2021.
[31]
Reddy responding to the answering affidavit stated that he has never
waived confidentiality attached to the first enquiry,
all the
information and documentation relating to the enquiry are invalid as
pro non scripto.
The applicant admits that it has received
copies of bank statements received as a result of subpoena issued in
the initial enquiry.
The applicant in the  hearing on 18
December 2019 merely advised the court that all the joint liquidators
were in support
of the order sought in the ex-parte application
whereas one Berrange had not given his support to such an
application.
[32]
Reddy stated that the order granted ex-parte is so wide in that it
allowed applicant to subpoena whoever they liked without
any control.
The applicant on 18 December 2019 assured the court that the court
that the application needed to be kept private
and confidential and
now he refers and incorporates in his papers evidence obtained in the
first s417 enquiry.. There is no reason
why the other creditors
should be burdened with costs of this application or the costs of the
enquiry, the applicant has
carte blanche
to subpoena whoever
it likes all at the expense of the creditors and worse still not
under the control of the master or other join
t liquidators.
[33]
The applicant filed an affidavit, deposed to by Pillay, opposing the
Intervening Parties application to strike out and constituting
its
founding affidavit for condonation for late delivery of the answering
affidavit and forming the basis of its strike out application.
In my
view, it is not necessary to traverse the averments in that
affidavit. Firstly, the court granted the applicant condonation
for
late delivery of the answering affidavit. That court, in my view,
would not have granted condonation for filing an affidavit
liable to
be strike out
in toto.
Pillay made the averments,
inter
alia,
to show that the Intervening Parties, were intent on
delaying the matter. In my view, this aspect of the matter, at this
stage requires
no further investigation because the parties have
filed their complete set of papers. Pillay, in addition, concentrated
on the
averments in the affidavit to be struck out in that they were
either speculative, hearsay, and irrelevant. Again, in my view, it
is
not necessary to analyze whether each averment alleged to be liable
to be strike out ought to be strike out because each party
has
responded to the alleged averments and each party has not alleged nor
shown any prejudice to it if the offending averment is
not strike
out.
[34]
The Intervening Parties maintained that when the applicant applied
for an ex parte it assured the court that the enquiry was
private and
confidential.  Even after the order was granted, the applicant
refused to give papers relating there to on the
basis that they were
private and confidential. It follows, they contend, that evidence and
documents obtained in the first enquiry
remains private and
confidential. In addition, they contend, the first enquiry has been
found to have been irregular which renders
it a nullity. They contend
that such evidence and documents are inadmissible.
[35]
Pillay maintained that the disclosures did not materially interfere
with the confidentiality of the evidence of the enquiry
as a whole.
Pillay contends that evidence lead in the botched enquiry is
admissible for the following reasons; Reddy by introducing
the
evidence in his founding affidavit waived any confidentiality
attached to the enquiry. The invalidity of the enquiry was founded
in
a technicality, namely; lack of the Master's written consent to
convene the enquiry, there was no deliberate violation of any
rights
of Reddy; the intervening creditors have not have not alleged any
breach of their rights protected under chapter 2 of the
constitution.
Pillay contends that there are cogent reasons to admit the evidence.
It was part of a process believed to be a lawful
process. The
documents obtained during the enquiry were documents that needed to
be obtained for the proper administration of the
estate. The validity
of the enquiry does not affect the right of the liquidators to be in
possession and have access to the documents.
[36]
Pillay stated that the facts that the liquidators have in their
possession bank statements of Lallisa, it does not mean that
the
applicant has in its possession the bank statements, and the
Intervening Parties have not shown any prejudice caused to them.
The
applicant and the joint liquidators will suffer substantial prejudice
if the affidavit of Choonilall is strike out as it refers
to the
unexplained movement of Lallisa's fund which is a highly relevant
factor in respect of the relief.
[37] Pillay
denied that the court was not advised that all the joint liquidators
were in support of the ex-parte joint application.
It was meant that
all liquidators were in support of holding an enquiry.  Berrange
was not opposed to the holding of an enquiry.
Pillay disputed that
the applicant will have
carte blanche
to subpoena whomever it
likes. He stated that the joint liquidators will, most certainly, be
present in the s417 enquiry and participate
therein. Reddy is as a
sole director of Lallisa is obliged to present at the enquiry and he
has a right to participate and be legally
represented. The subpoena
will have to be applied for through the magistrate who will exercise
a discretion before authorizing
the issue of subpoena. Pillay stated
that costs incurred in the application for the enquiry and the
enquiry are subject to Master's
approval when they are claimed in the
liquidation and distribution account. The intervening parties have a
right of objection.
The decision of the Master may be taken on
judicial review.
[38]
On 24 August 2021 the intervening parties filed a replying affidavits
deposed to by Reddy. The intervening parties stated the
following as
points in limine:,
namely;
(1)
Non-Joinder: The ex-parte order ought not to have been granted
ex-parte
but the applicant should have cited the following;
Creditors of Lallisa including the Intervening Parties , the Master
of the High
Court, the Chief magistrate of Durban and the liquidators
of Lallisa. The parties with direct and substantial interest in the
outcome
of the application. (2) The citation of Lallisa was
defective. It was not cited as a company in liquidation and the joint
liquidators
were not cited. (3) The application was meant to bypass
the Master's decisions. The master in a letter dated 14 March 2019
doubted
whether anything would be achieved by s417 enquiry and
indicated that a creditor insisting on holding the enquiry must
undertake
to bear the costs. The applicant, if not happy with the
Master's decision should have taken the decision of review. (4)
It
has not been shown that the holding of an enquiry is likely to
benefit Lallisa. It must be shown that the holding of an enquiry

shall not dissipate funds of Lallisa that would otherwise be
available to creditors. The Master required the applicant to bear
the
costs of the enquiry which Re-Volt seeks to avoid which constitutes
an ulterior motive. (5) No approval by all joint liquidators.

Berrange does not support holding of an enquiry. The enquiry is to
the prejudice of the general body of creditors.  The applicants

want to use the enquiry to collect the evidence to use in the
litigation it is involved with, without itself bearing the costs
of
the enquiry.
[39]
Reddy denied that he waived any confidentiality attaching to the
first enquiry. The evidence obtained unlawfully at the first
enquiry
is not admissible. He indicated that the transcripts of portions of
his evidence do not disprove what he has said in the
affidavits. He
denies also that the counter application is any way defective. Reddy
stated that he is a substantial creditor in
the estate of Lallisa. He
lent Lallisa in excess of R44 million rand. He has not proved a claim
because of certainty of a contribution
by concurrent creditors
primarily owing to the reckless and incompetent manner in which
Choonilall is conducting the affairs of
Lallisa's liquidation at the
behest of the applicant. Reddy admitted that the applicant proved a
claim at the first meeting of
creditors but does not support that its
claim is secured in the form undisturbed builder's lien over all the
three properties.
Reddy stated the claims on loan account reflected
as from Steve Reddy Family Trust whereas the loan were from him
personally emanating
from the Trust. Reddy stated that there was
request to deliver from CM 100, which was erroneously left out, and
it was later sent
under cover of a letter dated 18 July 2019.
[40]
Reddy reiterated that he supplied the liquidators with all the
documents relating to the dealings and financial affairs of Lallisa.

Lallisa was a property development company. The liquidators have had
access to all of the building contract payments made, bank
statements
etc. It is not clear why the information supplied is insufficient to
enable the joint liquidators to perform the statutory
duties.
[41]
After the file was allocated to me for hearing on the opposed
roll, it was not clear what issues were for determination. On enquiry

directed at the parties, the response indicated differing views. The
Intervening Parties adopted the stance that the struck out

application be determined first, so that, in case it does not
succeed, they shall consider supplementing the replying affidavit.

The applicant on the other hand contended that the striking out
application(s) be determined together with the main application.

After perusing the papers and to avoid the unnecessary postponement
of the matter, ten (10) days before the date of hearing, I
directed
that the applications for strike out shall be determined
simultaneously with the main application on the date of the hearing.
[42]
I gave the above-mentioned directive in view of the history of the
litigation, the main issue for determination and because
a full set
of papers had been filed. Further, the general rule is that striking
out application should be set down for hearing
at the same time as
the hearing of the main application. In application for the strike
out is an interlocutory application or applications
incidental to
pending proceedings. Courts generally refuse to hear applications for
strike out of alleged offending matter prior
to the filing of the
answering or replying affidavit. Therefore there bearing no
opportunity to object until the matter is before
the court on its
merits, the allegation to which objection is intended to be made must
meanwhile be dealt with in the answering
or replying affidavit
although this does not contribute a waive if the right to object. I
took the above general rule as not inflexible,
if demonstrated
otherwise, the court can hear and rule on the strike out application,
before the matter is enrolled for the hearing
of the main relief. In
this matter the Intervening Parties did not indicate in what manner
they indicated to seek leave to file
a supplementary affidavit if
their application to strike out did not succeed.
[43]
Both parties have made much store or averment in affidavits to be
strike out mainly as hearsay. Neither party indicated what
prejudice
would be caused by the averment if not struck out. It is trite that
the court may not strike out the averment, even if
the ground to
strike out is established, unless the applicant will be prejudiced in
the claim or defence. (See
Putio
Ltd
v
TV
&
Radio
Guarantee
Co
(Ltd)
1984 (1) SA
443(W)
at 465D-F;
Beinash v Wixley
1997 (3) 721 (SCA) at
7338). However, the fact that offending averments are not struck out;
it does not mean that they shall be
ignored. The court shall give no
weight to averments, which are clearly hearsay, or averments, which
are conclusions or opinions
not supported by any facts; the deponent
has no personal knowledge of.
[44] The
parties in their affidavits have traversed issues repeatedly and at
length. The applicant sought relief by means of
an
ex-parte
application. When responded to it, the Intervening Parties
responded by a counter application supported by an affidavit. The
applicant
responded by a lengthy answering affidavit expanding to its
founding affidavit to the  ex-parte application, which elicited

a lengthy replying affidavit with
lengthy
averments.
[45]
There is an argument whether evidence and documents obtained during
the aborted s417 enquiry are admissible to be used in this

application. Both parties when it suited them referred to the aborted
s417 enquiry. The fact that the aborted enquiry took place
and the
issues around it, including the reasons for it to be aborted are
common cause. In my view, no general rule relating to
admissibility
need to be founded, it depends what piece of evidence and for what
purpose is being introduced and the basis it is
objected to. In this
matter, nothing much turns on that. The aborted enquiry is a nullity
and the record of the said inquiry can
prove nothing. It is
inadmissible to prove a fact by a transcript of the record of the
enquiry of what a person said at the enquiry.
However, evidence
presented before the enquiry, which existed it, does not become
inadmissible because it was presented in the
aborted enquiry. In
terms of s417 (4) of the Act, the enquiry is private and confidential
except if the court or master has ordered
otherwise. Therefore, a
witness or any other person cannot waive the privacy and
confidentiality of the s417 enquiry. Reddy had
not completed giving
evidence before the enquiry when it was aborted. Therefore, no
excerpts of his incomplete evidence can selectively
be used.
[46]
The Intervening Parties make a case that no proper case has been made
for the relief obtained in the ex-parte application.
The Master did
not support the application for the relief and neither did all the
joint liquidators. There was also no creditors'
resolution in support
for the relief. There is also no evidence of the either the Master,
all joint liquidators or the creditors
being approached and requested
to give consent to the one creditor to approach court and seek relief
sought in the ex-parte application.
[47] The
enquiry in terms of s417 read with s418 has as its primary purpose to
assist the liquidators of the company to determine
its assets and
liabilities in a way, which will best serve the interests of the
company's creditors. Section 417 provides :
'In
any winding - up of a company unable to pay its debts, the master of
the court may, at any
time,
after a winding -up order has been made summon before him or it
director or officer of the company or person known or suspected
to
have in his possession any property of the company or believed to be
indebted to the company, or any person whom the master
or the Court
deems capable of giving information concerning trade, dealings,
affairs or property of the company'.
The
provisions of s418 provides as follows:
'(1)
(a) Every magistrate and every other person appointed for the purpose
by the Master or the Court shall be a commissioner for
the purpose of
taking evidence or holding any enquiry under this Act in connection
with the winding-up of any company.
(b)
The Master or the Court may refer the whole or any part of the
examination of any witness or of any enquiry under this Act to
any
such commissioner whether or not he is within the jurisdiction of the
court which assigned the winding-up order'.
[48]
The Court or the Master, may examine the summoned person, under oath
or affirmation, either orally or by way of written interrogatories,

and may reduce his answers to writing and require him to sign them.
The examination or enquiry is private and confidential unless
the
Court or the Master, as the case may be directs otherwise. Section
418 empowers the Master or the Court as the case may be,
to delegate
its power under s 417 either to a commissioner or in case to the
Court to also either to the Master.
[49] The
winding up of a company in liquidation because of the inability to
pay its debts is an urgent process. The liquidator
is required to
proceed without delay to recover and take possession of all the
assets and property of the company, to apply such
assets and property
in satisfaction of the costs of the winding up process and claims of
creditors and to distribute the residue
amongst the shareholders or
those entitled to it, and to report as required on his findings. The
disadvantage faced by the liquidator
as an outsider is the lack of
knowledge of the company's affairs and dealings,
and
the failure of those knowledgeable, who may be responsible for the
failure of the company, to co-operate in the liquidation
process, and
the unavailability of properly kept company documents.
[50]
The provisions of ss417 and 418 of the Act are part of the urgent
liquidation process. It is a robust process which it should
not be
allowed that it is frustrated by delays. The applicant for a the
intervention in terms of ss417 and 418 is usually the liquidator
but
it could be any person with direct and substantial interest in that
there be an intervention. The application may be made ex
parte as an
urgent application. Technical defects in the application may be
overlooked in particular, if substantively, a good
case for
intervention has been made out.  In my view, some of the issues
raised by the Intervening Parties may be overlooked,
namely; that
persons that may have an interest in the relief sought were not cited
and were not given notice, that the Lallisa
as a company in
liquidation is not properly cited, that the joint liquidators are not
cited.
[51]
The Intervening Parties contend that the applicant sought and
obtained the ex­ parte order as an abuse of the process and
for
an ulterior motive.  They contend that the applicant intends to
use the enquiry to serve its own interest. They refer
to the attempt
by the applicant to alienate the sub-divisions forming the
development property to benefit itself to the exclusion
of other
creditors, its attempt to drive the liquidation process to the
exclusion of the other creditors, the liquidators (excerpt
Choonilall
who is colluding with applicant) and to exclude the Master. The
applicant answers these accusations by pointing that
it is a major
creditor, it is not a liquidator, there has been an unreasonable
delay in the winding up of the estate of Lallisa
to its prejudice.
There is no evidence that it does not intend to use s417 enquiry for
the purpose of such an enquiry, and that
it is agreed by everybody
including Reddy that there is a need for an enquiry. The Intervening
Parties are not, it is contended,
persons against whom the ex parte
order was granted and there is not provision allowing them to
challenge and seek reconsideration
and setting aside of the exparte
order in the manner they have done. They were required to bring an
application joining all the
interested persons.
[52] It
is correct that the counter application is not in a format stipulated
in Rule 6(5) (b)
(iii)
in that it provided for no date for to oppose and for filling of an
opposing affidavit. Rule 6(12)(c) provides that a person
against whom
an order was granted in such persons absence in an urgent application
may by notice set down the matter for reconsideration
of the order.
It is correct that the ex parte order was not granted against
any
person. But it cannot be denied that the relief granted ex parte in
the urgent application affected other person including the

Intervening Parties. Rule 6(8) provides for the anticipation of an
order granted ex parte with a return date by an affected person.

The ex parte order did not have a return date, it was granted as a
final order. It can be accepted that the Intervening Parties
had a
substantial interest in the relief granted in terms of the ex parte
order. It means they have
locus standi.
The court, which
granted the ex parte order (Seegobin J), suspended the ex parte order
at the instance of the Intervening Parties,
which has the effect of a
finding that the Intervening Parties had
locus standi,
and
were granted leave to intervene in the matter. The requirement of
locus standi in judicio
is adequate interest in the subject
matter of litigation, also described as direct and substantial
interest, which is not too far
removed, interest, which is actual,
not abstract or academic, it must be legal interest. In that case,
the granting of leave to
intervene to an interested person with
locus
standi
is a matter of formality
(Fullard v Fullard
1979(1)
SA 368 (T). The Intervening Parties once granted leave to intervene
they became persons against whom the ex-parte order
was given as
envisaged in Rule 6(12)(c)(iii). The counter-application seeking only
the relief to reconsider and set aside the ex-parte
order constituted
a notice setting down the matter for reconsideration of the ex-parte
order. It was not required, in my view,
of the Intervening Parties to
seek to join parties not joined by the applicant when the ex-parte
order was sought. The provisions
of Rule 6(12) are clear, the
Intervening Parties could not seek to be excluded from the ex -parte
order as a relief, they could
only seek its reconsideration. If they
succeed in having the ex parte order reconsidered to the extent of it
being set aside, which
results in the s417 enquiry envisaged in the
ex parte falling away, so be it.
[53] It
is trite that a party alleging abuse bears the onus to prove it, and
a clear case of abuse must be established. The
fact that information
obtained in a s417 enquiry may be used in civil litigation between
the parties does not mean that the holding
of a s417 enquiry for a
purpose to assist the liquidators in the liquidation process of the
company is an abuse
(Roering
&
another
NNO
v
Mah/angu
(581/2015)
[2016] ZASCA 79).
In
Bernstein
and others v Bester and others NNO
[1996) ZACL 2
[1996] ZACC 2
; ;
1996 (2) SA 751
(CC) it was held that a liquidator is entitled to obtain information,
not only to ascertain whether
the
company has a cause of action but also in order to assess
whether the case is sufficiently strong to spend the creditors'
money
in pursuing it, and conversely, to ascertain whether there is an
adequate defence to a claim against the company. In my view,
the
Intervening Parties have alleged abuse but they have proved abuse.
The applicant is a major creditor of Lallisa. It is understandable

that it would be anxious to recover the debt owed to it. Lallisa was
liquidated at the instance of the applicant. The applicant
is
entitled to use any lawful means at its disposal to ensure payment of
its debt. The evidence in its totality show no other objective
on the
part of the applicant other than to recover the debt owed to it. The
applicant has established a compelling case for a proper

investigation to which Reddy and others close to him are central.
[54]
The application for a s417 enquiry , ordinarily, will be made to the
Court or the Master, by the liquidator who is best suited
to know why
the effective administration of the wining-up necessitates that being
an examination or enquiry, although such an application
may also be
made by any person having an interest in the company in liquidation.
The applicant was entitled to make an application
to Court for s417
enquiry. In the same breath, the applicant as a major creditor was
entitled to demand that the liquidators hold
an enquiry as directed
by the creditors' resolution. The applicant stated first and second
creditors' meetings were held on 15
May 2019 and 31 July 2019
respectively. The creditors in the said meetings authorized the joint
liquidators to hold enquiries in
terms of the Companies Act 61 of
1973. However, the applicant did not explain why the joint
liquidators did not hold the required
enquiries. A liquidator has a
duty to submit not later than three months after date of appointment
to a general meeting of creditors
and contributors of the company,
and has to set out,
inter alia,
the capital carried by the
company, its estimated assets and liabilities, the causes of the
failure of the company(if it failed)
and the progress and prospects
of the winding up, and to indicate whether or not further examination
is in his opinion desirable
in regard to any matter relating to the
promotion, formation, or failure of the company or its business.
The interrogatories
may occur at any general meeting of creditors
convened by liquidators. The Master or officer presiding at the
meeting may subpoena
any person to appear at such meeting for the
purpose of being interrogated. It is a person who is known or is on
reasonable grounds
believed to be or have been in possession of any
property owned or formally owned by the company; or is known or is on
reasonable
grounds believed to be indebted to the company; or is one
who in the opinion of the Master or such officer may be able to give
material information regarding the company or its officers, whether
before or after the commencement of the winding-up. The Master
or the
presiding officer also may subpoena any person to produce at the
meeting any book or document, or an extract from it, which
is known,
or is on reasonable grounds believed to in such persons possession or
custody or under his control; or one which contains
material
information concerning the company's property or affairs. It is
required that the Master or officer presiding at such
a meeting
issues a subpoena in terms of s414(2) of the Act for a person who is
neither a director nor officer of a company in liquidation
to appear
at an enquiry, he must apply his mind to what may lawfully and
relevantly be required of such a person by way of oral
evidence and
delivery of books, records and other documentation. The Master has a
duty to keep an independent mind on the matter
and to establish the
legitimate purposes required for an enquiry of this nature before
issuing a subpoena, and in the absence of
such an approach in the
granting and issuing of a subpoena constitutes an abuse of the
procedure.
[55]
The person seeking establishment of s417 enquiry is not required to
make out a
prima
facie
case that there has been an
actionable conduct. There is no onus as a such on the applicant. It
suffices to show a fair ground
for suspicion and that the person
proposed to be examined can probably give information about what is
suspected. It is the Master
or the presiding officer who determines
the need and the relevance of the information or documents required,
not the party seeking
to prevent disclosure.
[56]
The applicant in the application stated that Choonilall interacted
with the Master to obtain his consent to hold interrogation
in terms
of s417 read with s418 of the Act. The Master's staff advised
Choonilall that since the creditors adopted a resolution
to hold an
enquiry, the Master's consent was not necessary Choonilall then made
the necessary arrangements with the magistrate
and the enquiry
commenced. In the course of the enquiry, Reddy's lawyer objected on
the basis that the Master had not given consent
for the enquiry. In
my view, the applicant who was at all times using the same lawyers
with Choonilall, misled the court(Seegobin
J) in the following
respects: 1. The applicant failed to disclose to the court that
despite the creditors resolution and for no
known reason, the
liquidators had not convened an enquiry. 2. The applicant failed to
disclose to the court that there was no creditors'
resolution
authorizing the applicant to apply for a court enquiry. 3. The
applicant failed to disclose to the court that it was
not all three
liquidators who were supporting a s417 enquiry. 4. The applicant
failed to disclose to the court that the Master
had raised queries
with Choonilall before he could consider giving consent for s417
enquiry and Choonilall had not addressed the
Master's queries.
5.
The applicant failed to disclose to the court that before the Master
it conveyed that it would carry the costs of the s417 enquiry
whereas
before court it was praying for the costs to come from the winding up
of Lallisa.
[57]
The s417 Court enquiry has been described as a necessary draconian
measure. It is broad and wide in its terms and objectives.
It is
applied for without any notice to the persons to be subjected to the
enquiry. It compels persons subpoenaed to comply and
co-operate
failing which they be sanctioned. They have no right to disclosure
and no right to the access of the record of the enquiry.
The evidence
given by the persons subpoenaed is admissible against them in
subsequent civil proceedings. The Court usually authorizes
the
holding of the enquiry but it does not itself conduct the enquiry.
The liquidators' enquiry is driven by and controlled by
the
liquidators; the same applies to the Master's enquiry. The
liquidators and the Master are involved in the liquidation process

and are in the better position to determine what is necessary, and
they are required to act impartially, independently and with
an open
mind and in a fair even handed manner. The said safeguards are
important to ameliorate the draconian nature of as417 enquiry.
In
this matter, the applicant has proffered no explanation why the
liquidator's enquiry not held, and why the Master's enquiry
was not
held. The correspondence with the Master shows that the Master raised
queries, which have not been shown to have been illogical
or
unreasonable. The Master answered communication directed to him
promptly. The applicant stated that it placed the liquidators
on
terms to obtain the consent of the Master for a s417 enquiry, but
they failed to comply. However, his correspondence shows that
he gave
the liquidators and the Master one day which indicates that it wanted
to proceed with a court enquiry without the liquidators
and the
Master having taken a decision on the necessity thereof. The
applicant stated in the ex parte application that that it
had tried
all avenues with joint liquidators and the Master's office to convene
a proper enquiry to no vail. This is clearly not
borne out by any
pointed averments nor with the correspondence relating to the
communication with the Master's office.
[58]
There is no doubt that there has been a delay in the winding up of
Lallisa. However, the applicant cannot rely on the delay
because it
is working closely with Choonilall, the lead liquidator. The
Intervening Parties cannot be blamed for the delay as long
as their
objections are founded in law. The court in deciding whether to order
a court s417 enquiry exercises a judicial discretion,
taking into
consideration,
inter
alia,
the following: The
liquidator has to reconstruct the state of knowledge of the company
in order to make informed decisions; there
must be proof of a
reasonable requirement for information that could not be obtained
anywhere else by reasonable means; the case
for an court enquiry is
strong against officers or former directors of the company who owe
the company a fiduciary duty than against
third parties; the court is
likely to treat an application for a court s417 enquiry by an office
holder .e.g., liquidator with
more sympathy that of a third party;
and the wide discretion the court has in terms of s417 is balanced by
weighing of interests
of the parties and that the court will not
allow abuse of the process. It is important not to place too many
checks and balances
as that may counter the effectiveness of the
remedy.
[59]
The ex-parte order granted on 28 November 2019 reads as
follows:
'
1.  It is ordered that an interrogation in terms of Section 417
read with Section 418 of the Companies Act 61 of 1973 be
held in
respect of the respondent.
2.
The applicant is authorized and granted leave to hold the
interrogation in terms of Section 417 read with 418 of the Companies

Act 61 of 1973 in respect of the respondent commencing on 8 January
2020.
3.
The Chief Magistrate of Durban or his appointee, be and is hereby
appointed as Commissioner in the aforesaid interrogation.
4.
The interrogation is hereby referred to the Chief Magistrate of
Durban or his appointee who shall convene and conduct the same.
5.
The costs and expenses incidental to the interrogation shall be paid
out of the assets of respondent.
6.
The costs of this Application shall be borne by the Respondent.
7.
The Registrar is directed to ensure that this file and order remain
confidential.'
The
Intervening Parties contend that the
ex-parte
order is as
broad. It gives to the creditor power to hold the interrogation and
the
carte blanche
to subpoena whoever it decides to subpoena,
which the applicant did in the aborted enquiry. The applicant refuses
to disclose the
names of persons it intends to subpoena to the
enquiry. This, they contend, is open to abuse by the applicant and it
shall lead
to the escalation of costs resulting in reducing the
assets of Lallisa and result in substantial contribution required
from the
creditors. They state that the Master in his queries wanted
clarity whether the applicant would bear the costs of s417 enquiry;

the applicant is avoiding to deal with those queries.
[60]
The purpose of the enquiry under s417 and 418 is to assist
liquidators in discharging their duties in an efficient and effective

manner. Their duties are,
inter alia,
to recover and reduce in
to possession all assets of the company, examine the affairs and
transactions of the company before its
winding-up order, to ascertain
whether any of the directors and officers or past directors and
officers of the company have contravened
any provisions of the Act or
have committed or appeared to have committed any other offence. The
liquidation process since it relates
to the taking over assets and
property of a failed company requires to be carried out without a
delay, speed is of the essence.
The holding of s417 and 418
need not be delayed so that information obtained may be used to
recover assets of the company.
The delay may defeat the purpose
of the enquiry. The interpretation of the provisions relating to the
holding of an enquiry must
take into account the purpose of the
enquiry.
[61]
The applicant has not explained why the liquidators did not conduct
the enquiry in accordance with the creditors' resolution.
It also has
also not explained why the queries raised by the Master for the
Master to give consent for a Master's enquiry were
not attended to.
The result is that there are no basis for a contention that the
liquidators and/or the Master needs assistance
to efficiently and
effectively carry out the liquidation process. The ex-parte order
grants authorization and leave to hold the
interrogation in terms of
Section 417 read with 418 of the Companies Act 61 of 1973 to the
applicant. But the provisions of the
Act (ss417 and 418) provides for
only the Master's or the Court's enquiry. The entire order relates to
the applicant holding an
enquiry in terms of ss417 read with 418. The
ex-parte order is an order not provided for. It is an unlawful order.
The applicant"
counsel acknowledging the difficulty, sought to
have the ex-parte order amended in his oral argument in reply. It
would be a substantial
amendment belatedly requested from the bar not
in terms of the Rules of court. The applicant's counsel when asked
whether in seeking
such an amendment was the applicant tendering the
costs occasioned by such a belated amendment, stated that he had no
instructions
to tender costs. In my view, it has not been shown that
such an amendment could be granted without any proper application and
without
addressing the prejudice to the other party.
[62]
The applicant has not succeeded to show any need for a Court s417
enquiry. It can still pursue the convening of the liquidators
or
Master's enquiry. In addition, the order granted on 28 November 2019
is irregular. As a result, the counter application is granted.
[63]
It is ordered as follows:
1.
The counter application is granted.
2.
The order granted on 28 November 2019 is reconsidered and it
is set aside.
3.
The costs of interlocutory applications are ordered to be
costs in the counter application.
4.
The applicant (Re-volt KZN Projects CC) is ordered to pay
costs of the counter application, including costs of senior counsel,
where
so employed.
Mngadi
J
APPEARANCES
Case
Number

:
11969/18P
For
the Applicant

:           Mr
Nepaul
Instructed
by

:
Anand Napaul Attorneys
DURBAN
For
the Intervening Parties
:
GD
Harpur SC
Instructed
by

:
De
Villiers, Evans & Petit Attorneys
PIETERMARITZBURG
Date
matter argued

:           6 May
2022
Judgement
delivered on
:
11 May
2022

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