Brief Summary

Insolvency Law — Provisional liquidation — Application to reinstate overdraft facility — Applicant sought urgent relief to reinstate an overdraft facility with Standard Bank after a provisional liquidation order was discharged — The first and second respondents had filed a notice of appeal against the discharge order, claiming it suspended the order — Court held that the filing of the notice of appeal did not suspend the discharge of the provisional liquidation order, allowing the applicant to access the overdraft facility.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an urgent application brought in the Limpopo Division of the High Court, Polokwane. The applicant, Mafate Business Entreprise, sought relief against the first and second respondents, Manawe Roster Malepe and the Roka Malepe Traditional Council, and joined the third respondent, Standard Bank of South African Limited, because of the practical effect the underlying insolvency litigation had on the applicant’s banking facilities.

The matter arose from liquidation proceedings instituted ex parte by the first and second respondents. A provisional liquidation order was granted on 8 March 2022. The applicant then anticipated the return date, and on 17 March 2022 Makoti AJ discharged the provisional liquidation order and granted a punitive costs order against the first and second respondents (attorney-and-client scale). The first and second respondents thereafter filed a notice of application for leave to appeal against the order of 17 March 2022 and requested reasons.

Following the filing of the leave-to-appeal application, Standard Bank placed a hold on the applicant’s account and, on the applicant’s version, the overdraft facility became unusable, with the bank indicating that it was acting on the basis that the provisional liquidation order remained operative due to the appeal processes and the alleged existence of a concursus creditorum. The applicant first brought an urgent application directed at suspending the order of 8 March 2022, which was dismissed on 25 March 2022. A week later the applicant launched the present urgent proceedings, reframing the relief to focus on whether the order of 17 March 2022 was suspended and seeking consequential relief requiring the bank to lift the hold and reinstate access to the overdraft facility.

The general subject-matter of the dispute concerned the effect of an application for leave to appeal on an order discharging a provisional liquidation order, and the downstream operational consequences for the applicant’s banking arrangements while appeal processes were pending.

2. Material Facts

It was common cause that the first and second respondents obtained a provisional liquidation order against the applicant on 8 March 2022 on an ex parte basis. It was also common cause that the applicant anticipated the return date and that, on 17 March 2022, Makoti AJ discharged the provisional liquidation order and ordered the first and second respondents to pay costs on the attorney-and-client scale.

It was further common cause that on 18 March 2022 the first and second respondents filed and served a notice of application for leave to appeal against the order of 17 March 2022, and that they also delivered a request for reasons. The first and second respondents’ attorneys communicated to the applicant’s attorneys that the orders of 17 March 2022 were, in their view, automatically suspended by the filing of the application for leave to appeal.

On the applicant’s version (which the judgment treated as the operative factual account for purposes of the urgent relief), the applicant had a substantial overdraft facility of approximately R6 million with Standard Bank. After the provisional liquidation order, and by approximately 14–15 March 2022, the applicant discovered that the bank account had been placed on hold and the applicant could not transact. After the order discharging the provisional liquidation was granted on 17 March 2022, the applicant still could not transact.

The bank confirmed in an email dated 22 March 2022 that, because an appeal process was pending and because it considered that a concursus creditorum existed, it had a “legal duty” to keep holds on the accounts. The bank also relied on clauses in the facility documentation which permitted it, in circumstances of liquidation or material deterioration in financial position (including an application for liquidation), to review terms and potentially suspend or withdraw facilities.

A fact of significance for the court’s determination was the bank’s stance in the present proceedings. The bank did not oppose the application and indicated that it would abide the court’s decision. The court sought confirmation, out of caution, that the hold was imposed only because of the bank’s understanding that the provisional liquidation order had revived or remained operative by reason of the leave-to-appeal process, and not for independent credit or policy reasons. The bank’s representative confirmed that this was so.

Procedurally, it was also material that the applicant had previously brought an urgent application which was dismissed on 25 March 2022, and that the first and second respondents relied on that dismissal to contend that the present application was not urgent and was barred by res judicata. The court treated the relief in the present application as materially different, including because the bank was now joined and because the specific relief sought differed from that pursued previously.

3. Legal Issues

The central legal questions were concerned with the legal effect of noting an application for leave to appeal against an order which discharged a provisional liquidation order, and whether such a step revived (or kept alive) the earlier provisional liquidation order such that the applicant could properly be treated as remaining under provisional liquidation.

Closely linked to that were questions about the applicability of section 18(1) of the Superior Courts Act 10 of 2013, which provides, subject to exceptions, for the suspension of the operation and execution of a decision that is the subject of an application for leave to appeal. The court had to determine whether section 18(1) operated in this context and, more particularly, whether it could be invoked (as framed in the applicant’s relief) to establish that the order of 17 March 2022 was not suspended.

A further set of issues was procedural and jurisdictional in character: whether the matter was urgent, whether the previous application’s dismissal rendered the present proceedings res judicata, and whether the relief sought against the bank (to lift the hold and reinstate access to the overdraft facility) was competent, particularly in light of the contractual nature of banker-customer relations and the principle articulated in the bank-customer termination context.

The dispute was primarily one of law, namely the consequences flowing from statutory provisions and precedent governing the status of a discharged provisional liquidation order pending appeal steps, although it also involved the application of law to facts regarding why the bank imposed the hold and whether it had in truth terminated the facility.

4. Court’s Reasoning

On urgency, the court accepted that the application warranted enrolment as urgent because the applicant was unable to transact on its account in the ordinary course of business. The court also considered it significant that the applicant was being treated by the bank as provisionally liquidated notwithstanding that an order had been granted which effectively dismissed the liquidation proceedings. The judgment highlighted that ex parte provisional liquidation orders can have serious immediate consequences, as illustrated by the bank hold imposed in this case.

On res judicata, the court rejected the contention that the dismissal of the earlier urgent application on 25 March 2022 barred the present proceedings. Although the factual background overlapped, the court considered that the relief claimed in the present application was different, and it further regarded the joinder of the bank as a meaningful distinction because the earlier application did not include the bank as a party.

Regarding the competence of the order sought against the bank, the first and second respondents relied on the contractual nature of the bank-customer relationship and invoked authority concerning a bank’s ability to cancel facilities. The court accepted the general principle that the relationship is contractual and that a bank may, in appropriate circumstances, cancel an overdraft facility. However, on the papers, the court was not persuaded that Standard Bank had terminated the overdraft facility. Instead, the evidence indicated that the bank had placed a hold on the account while it awaited clarity on the legal position, and that it had done so on the assumption that the filing of the leave-to-appeal application had the effect of keeping the provisional liquidation order operative or reviving it.

The court considered that, on these facts, the authority relied upon did not assist the first and second respondents. The bank had not demanded immediate repayment or unequivocally exercised a contractual right of cancellation; it had rather acted prudently on an understanding of the legal effect of the appeal steps. The court also emphasised, as a matter of fact, that it had sought clarification from the bank’s representative to ensure the hold was not grounded on independent credit considerations but solely on the assumed legal status of the applicant as provisionally liquidated.

Turning to the core legal issue, the court addressed whether filing the leave-to-appeal application suspended the discharge order with the result that the applicant remained provisionally liquidated. The court referred to section 150 of the Insolvency Act 24 of 1936, which regulates appeals in sequestration contexts and limits the appeal regime in that field. It then relied on the Full Bench authority in Sirioupoulos v Tzerefos, which held that a provisional liquidation (or sequestration) order loses its sequestration-creating operation at the moment an order discharging it is granted, and that noting an appeal against the discharge does not revive the operation of the provisional order.

Applying that principle, the court held that the provisional order granted on 8 March 2022 had not been revived by the filing of the leave-to-appeal application. In consequence, the applicant was not subject to any operative liquidation order. The court characterised the effect of the discharge order as similar to an order dismissing an application, in the sense that it disposed of the provisional liquidation proceedings in the applicant’s favour unless and until altered by a competent appellate process.

Having reached that conclusion, the court held that section 18(1) of the Superior Courts Act 10 of 2013 was not applicable to the order granted on 17 March 2022 in the way the applicant had framed the request. The reasoning proceeded from the view that the key operative effect claimed by the respondents and assumed by the bank—namely the revival of the provisional liquidation order—did not follow in law, given the principle in Sirioupoulos.

As to costs, the court noted that the first and second respondents opposed the application on the bases that the relief against the bank was incompetent and that the matter was barred by res judicata. They were unsuccessful on both. The court accordingly considered the applicant entitled to its costs, but declined to award costs for two counsel or to make a punitive costs order in the present proceedings.

5. Outcome and Relief

The court granted an order directing Standard Bank of South African Limited to terminate and lift the hold and to reinstate the overdraft facility in respect of the applicant’s bank account, with effect from the date of service of the order.

The court ordered the first and second respondents to pay the costs of the application jointly and severally, the one paying the other to be absolved. The court did not grant costs on a punitive scale and did not allow costs for two counsel.

Cases Cited

Bredenkamp and Others v Standard Bank of South Africa 2010 (4) SA 468 (SCA).

Gottschalk v Gouch 1997 (4) SA 562 (C).

Sirioupoulos v Tzerefos 1979 (3) SA 1197 (O).

African Farms and Townships Ltd v Cape Town Municipality 1963 (2) SA 555 (A).

Legislation Cited

Superior Courts Act 10 of 2013, section 18(1).

Insolvency Act 24 of 1936, section 150.

Supreme Court Act 59 of 1959, section 20(4) and section 20(5) (referred to within the quotation of Insolvency Act section 150).

Rules of Court Cited

Uniform Rules of Court, Rule 49(11).

Held

The court held that the filing of an application for leave to appeal against an order discharging a provisional liquidation order does not revive the earlier provisional liquidation order. As a result, the applicant was not under provisional liquidation following the discharge order, notwithstanding the leave-to-appeal process.

The court further held, on the facts presented, that the bank’s hold on the applicant’s facilities was imposed solely because of an incorrect understanding that the provisional liquidation order remained operative or had revived. The relief directing the bank to lift the hold and reinstate the overdraft facility was therefore granted, with costs awarded against the first and second respondents.

LEGAL PRINCIPLES

A provisional liquidation order loses its operative effect once it is discharged, and the noting of an appeal (or application for leave to appeal) against the discharge does not revive the provisional order’s sequestration-creating effect, as applied from Sirioupoulos v Tzerefos 1979 (3) SA 1197 (O).

Section 18(1) of the Superior Courts Act 10 of 2013 provides for the general suspension of the operation and execution of decisions pending leave to appeal or appeal, but its application depends on the nature and effect of the decision under consideration; it did not assist where the asserted consequence was the “revival” of a discharged provisional liquidation order, which consequence does not follow in law on the authority applied by the court.

The contractual nature of the bank-customer relationship may entitle a bank to terminate credit facilities in appropriate circumstances, but whether a facility has in fact been terminated (as opposed to temporarily restricted) depends on the facts and the bank’s communicated stance; on the facts, the bank had not cancelled the facility but had imposed a hold based on the assumed legal position.

Mafate Business Enterprise v Malepe and Others (1990/2022) [2022] ZALMPPHC 21 (8 April 2022)