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[2021] ZASCA 127
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Pride Milling Company (Pty) Ltd v Bekker NO and Another (393/2020) [2021] ZASCA 127; [2021] 4 All SA 696 (SCA); 2022 (2) SA 410 (SCA) (30 September 2021)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no:
393/2020
In the matter between:
PRIDE
MILLING COMPANY (PTY)
LTD
APPELLANT
and
MARTHINUS
JACOBUS BEKKER N O
FIRST
RESPONDENT
EDWARD GNANAPARGARSUM
SEBASTIAN N
O SECOND
RESPONDENT
Neutral
citation:
Pride Milling Company (Pty) Ltd v
Bekker NO and Another
(Case no
393/2020
)
[2021] ZASCA 127
(30 September 2021)
Coram:
PETSE
AP and
PONNAN, WALLIS, MOKGOHLOA and CARELSE JJA
Heard:
20
August 2021
Delivered:
This
judgment was handed down electronically by circulation to the
parties' legal representatives by email, publication on the Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 09:45h on 30 September 2021.
Summary:
Company
law – s 341(2) of the Companies Act 61 of 1973 –
disposition by a company of its property after commencement
of
winding-up – such disposition void ab initio – court
nevertheless retaining discretion to declare disposition valid
–
discretion to be exercised judicially in light of all of the facts of
the case – company effecting one payment to
a creditor prior to
grant of provisional order of winding-up – court refusing to
validate – three payments made after
grant of provisional order
– payments constituting void dispositions in terms of s 341(2)
read with s 348 of the Companies
Act – court has no discretion
to validate such payments.
ORDER
On
appeal from:
Gauteng
Division of the
High Court,
Pretoria
(
Strijdom A
J,
sitting as court of first instance):
The appeal is dismissed
with costs, including the costs of two counsel.
JUDGMENT
Petse
AP
(Ponnan, Wallis, Mokgohloa and Carelse
JJA
concurring
)
:
[1] This
appeal concerns the question whether, and the circumstances in which
it would be appropriate for a court
to validate a disposition made by
a company that is being wound up. And more particularly whether a
court may validate dispositions
made after a provisional winding-up
order has been granted but prior to the grant of a final order. This
question arises against
the following backdrop.
[2] A
detailed exposition of the factual narrative is not strictly
necessary. For present purposes it is sufficient
to state the
following. On 29 June 2017 Irfan Sohail Trading (Pty) Ltd (Irfan), a
private company carrying on business as a general
trading store at
Ga-Masha Village in Limpopo, was placed under provisional winding-up
at the instance of Eendag Meule Bothaville
(Pty) Ltd (Eendag Meule).
[3] The
application for the liquidation of Irfan – presented to the
court on 5 May 2017 – was
founded on the contention that
Irfan was indebted to Eendag Meule in the sum of R144 165 in
respect of goods sold and delivered
for which Irfan had failed to pay
because it was unable to pay its debts as contemplated in s 345(1) of
the Companies Act 61 of
1973 (the Companies Act). Irfan was placed
under final liquidation on 14 September 2017. During the period 7
June 2017 and 8 August
2017 Irfan made four payments to Pride Milling
Company (Pty) Ltd (Pride Milling), the appellant in this appeal, in
settlement of
amounts owing in respect of goods sold and delivered by
Pride Milling to Irfan. The following were the payments made to Pride
Milling:
(i) R70 000 on 7 June 2017; (ii) R75 000 on 7 July
2017; (iii) R130 000 on 7 August 2017; and (iv) R20 000
on 8 August 2017. (In total the payments amounted to R295 000.)
[4] As
a sequel to Irfan's final liquidation, a dispute arose between Pride
Milling, on the one hand, and Messrs
Marthinus Jacobus Bekker and
Edward Gnanapargarsum Sebastian NNO (the respondents in this appeal,
who were appointed initially
as provisional joint liquidators and
finally as joint liquidators), on the other hand. For convenience, I
shall refer to Messrs
Bekker and Sebastian as joint liquidators. The
joint liquidators questioned the propriety of the four payments made
to Pride Milling,
contending that they constituted void dispositions
and were thus hit by the prohibition in s 341(2) of the Companies
Act. Consequently,
the joint liquidators asserted that these payments
were liable to be set aside because they were made after the
effective date
[1]
of the
winding-up application.
[5] As
a result of this dispute, the joint liquidators instituted legal
proceedings on notice of motion, citing
Pride Milling as the
respondent, in which they sought an order directing it to repay the
amount of R295 000 together with
interest, and ancillary relief.
As already alluded to above, reliance was placed on s 341(2), which
reads as follows:
'Dispositions and share
transfers after winding-up void
(1)
. . .
(2) Every
disposition of its property (including rights of action) by any
company being wound-up and unable
to pay its debts made after the
commencement of the winding-up, shall be void unless the Court
otherwise orders.'
[6] It
is helpful at this juncture to also make reference to s 348 of
the Companies Act. It is headed 'Commencement
of winding-up by Court'
and reads as follows:
'A winding-up of a
company by the Court shall be deemed to commence at the time of the
presentation to the Court of the application
for the winding-up.'
[7] It
bears mentioning that Pride Milling not only resisted the application
brought by the joint liquidators but
also brought a
counter-application seeking an order that the impugned payments be
validated in accordance with the rider to s 341(2)
and costs
occasioned by its counter-application.
[8] The
matter came before Strijdom AJ in the Gauteng Division of the High
Court, Pretoria (high court). The high
court granted the relief
sought in the main application with costs but dismissed the
counter-application with costs. In coming
to this conclusion, the
high court held:
'On a conspectus of the
evidence before me and having considered the guidelines, I am not
persuaded that the general body of creditors
is not disadvantaged by
the dispositions. Little weight should be attached to the hardship
which will be suffered by the respondent
as the focus ought to be on
the body of creditors.
When regard is had to the
interest of creditors, in the exercise of striking a balance between
their interests and those of the
respondent, the scales of fairness
tilt in favour of refusing validations.'
The high court also
refused the application by Pride Milling for leave to appeal.
However, leave was subsequently granted by this
Court.
[9] The
fate of this appeal hinges on the proper interpretation of s 341(2)
of the Companies Act, read with
s 348. The principles relating to
statutory interpretation are well-established. Almost a decade ago
they were restated in
Natal Joint
Municipal Pension Fund v Endumeni Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA). There, Wallis JA, at para 18,
said:
'[T]he
present state of the law can be expressed as follows. Interpretation
is the process of attributing meaning to the words used
in a
document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given to
the language used in the light of the ordinary
rules of grammar and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed and the material
known to those
responsible for its production. . . . The process is objective not
subjective. A sensible meaning is to be preferred
to one that leads
to insensible or unbusinesslike results or undermines the apparent
purpose of the document. . . . The "inevitable
point of
departure is the language of the provision itself", read in
context and having regard to the purpose of the provision
and the
background to the preparation and production of the document.'
(Citations omitted.)
That
the text, context and purpose of the legislation must be considered
together when interpreting a statutory provision, has been
affirmed
in various decisions of the Constitutional Court.
[2]
[10] The
material facts set out by the joint liquidators in their papers were
not placed in issue by Pride Milling.
The case presented by the joint
liquidators was that the payments in issue were made after the
effective date and therefore hit
by s 341(2). This assertion was
not disputed by Pride Milling. Instead, Pride Milling asserted that
the disputed payments
should be validated in accordance with the
rider to s 341(2).
[11] In
support of its case, Pride Milling alleged that the payments: (a)
were made in the ordinary course of business
and in good faith; (b)
were not to the 'detriment of the general body of Irfan's creditors;
(c) had 'the effect of increasing the
asset value of Irfan to the
benefit of the body of the creditors'; (d) were received at a time
when Pride Milling was not aware
that Irfan was in financial
distress; and (e) were made when it had no knowledge of the fact that
Irfan was being wound-up. So
much for the factual background to the
dispute.
[12] Before
the high court it was common cause between the parties that although
the provisional winding-up order
against Irfan was granted on
29 June 2017, the effective date of Irfan's winding-up was
in actual fact 5 May 2017, which
is the date on which Eendag Meule's
application for Irfan's liquidation was presented to the court. Thus,
Pride Milling unequivocally
accepted that all of the disputed
payments were made at a time when Irfan was being wound-up as
contemplated in s 341(2) of the
Companies Act. And the fact that at
the time Irfan was deemed to be unable to pay its debts was not
seriously disputed.
[13] In
Engen Petroleum Ltd v Goudis Carriers
(Pty) Ltd (In Liquidation)
[2015] 1 All
SA 324
(GJ);
2015 (6) SA 21
(GJ) the court held that the 'primary
purpose of s 341(2) is to address the anomaly that occurs as a result
of the retrospective
invalidation of dispositions by a company which
were initially lawful and valid'. This statement is not entirely
correct. What
s 341(2) does as its predominant purpose is to decree
that all dispositions made by a company being wound-up are void. This
provision
must of course be read with s 348, which provides that the
winding-up of a company by a court shall be deemed to have commenced
at the time of the presentation of the application for winding-up to
the court. The effect is that the payments are potentially
invalid at
the moment they are made, because the grant of a winding-up order
will render s 341(2) operative. This is different
from saying that
they are rendered invalid retrospectively, or that they were
initially lawful and valid. That suggests that the
invalidation of
all such payments is presumptively harsh or undesirable, which is not
the case.
[14] Dealing
with s 115 of the 1926 Companies Act that was couched in identical
terms as s 348, Snyman J pointed
out in
Lief
NO v Western Credit (Africa) (Pty) Ltd
1966 (3) SA 344
(W) that the mischief that the section was designed
to obviate was: '. . . a possible attempt by a dishonest company, or
directors,
or creditors or others, to snatch some unfair advantage
during the period between the presentation of the petition for a
winding-up
order and the granting of that order by a Court'
[3]
by, for example, dissipating the assets of the company or, as it
happened in this case, preferring one creditor above another to
the
prejudice of the
concursus
creditorum
.
[15] The
effect of a winding-up order, said De Villiers CJ in
Walker
v Syfret NO
1911 AD 141
at 160, 'is to
establish a
concursus creditorum
,
and nothing can thereafter be allowed to be done by any of the
creditors to alter the rights of the other creditors'. In the same
case Innes JA succinctly stated the legal position as follows (at
166):
'The sequestration order
crystallises the insolvent's position; the hand of the law is laid
upon the estate, and at once the rights
of the general body of
creditors have to be taken into consideration. No transaction can
thereafter be entered into with regard
to estate matters by a single
creditor to the prejudice of the general body. The claim of each
creditor must be dealt with as it
existed at the issue of the order.'
[16] In
Incledon (Welkom) (Pty) Ltd v Qwaqwa
Development Corporation
[1990] ZASCA 85
;
1990 (4) SA 798
(A) Goldstone AJA stated:
'As
between the estate and the creditors and as between the creditors
inter
se
their relationship becomes fixed and their rights and obligations
become vested and complete.'
[4]
[17] Turning
to the crux of the appeal, it is convenient to deal first with the
three dispositions made during
the period between the grant of the
provisional order on 29 June 2017, and the final order of liquidation
on 14 September 2017.
The joint liquidators contended that in
relation to these payments the court had no power to validate them.
In my view they were
correct in that contention.
[18] In
dealing with the effect of dispositions made subsequent to the grant
of a provisional winding-up order
the learned authors M S Blackman et
al in their Commentary on the Companies Act, after analysing the
judgment in
International
Shipping Co (Pty) Ltd v Affinity (Pty) Ltd and Another
1983 (1) SA 79 (C),
[5]
and other
decisions of this Court, sum up the position thus:
[6]
'It would seem that the
position is as follows. A company is being wound-up on the grant of a
provisional order of liquidation.
Once that stage is reached, the
court (although it can ratify a disposition made before the
winding-up order) no longer has the
power in terms of s 341(2) to
authorise a company to make a disposition of its property. Section 2
of the Insolvency Act is irrelevant
. . . Consequently, where
compliance with a court order constitutes a 'disposition', it is void
in terms of s 341(2). . . After
a winding-up order (whether
provisional or final) has been made, the court cannot grant an order
for specific performance; for,
on the making of the winding-up order,
a
concursus creditorum
is established and the creditor loses
his right to specific performance (the provisions of s 359 are
therefore not relevant).
. . . The court has no
power to permit a company being wound up to make dispositions of its
assets. After a winding-up order has
been granted the court may
validate disposition made before the provisional winding-up order was
granted, but it cannot validate
dispositions made after that order.'
[19] As
noted earlier, once a court grants a provisional order a
concursus
creditorum
is established. The effect
of this is that the claim of each creditor falls to be dealt with as
it existed at the time when the
provisional order was granted. (See,
in this regard,
Walker
above at 160 and 166.) Accordingly, to order otherwise would not only
render nugatory the operative part of s 341(2), in terms
of which
dispositions made by a company being wound-up are void, but would
also have the effect of undermining the essence of the
concursus
creditorum
and indeed the substratum of
insolvency law.
[20] In
the context of the facts of this case, validating the payments would
mean that Pride Milling would be left
to enjoy the benefit of its
claim being settled in full, whilst the other creditors would have to
be content with whatever residue
might still be available. In
Excellent
Petroleum (Pty) Ltd (In Liquidation) v Brent Oil (Pty) Ltd
2012 (5) SA 407
(GNP) Prinsloo J held, with reference to
Walker
,
that whilst s 341(2) makes no express distinction, for purposes of
validation of void dispositions, between payments made before
the
grant of the provisional order and those made thereafter, principle
nevertheless dictated that dispositions made after the
grant of a
provisional order ought not to be allowed to stand.
[7]
[21] Counsel
for Pride Milling sought to persuade us that
Excellent
Petroleum
is wrong and urged us to
overrule it. The foundation for this contention was that when a court
grants a provisional winding-up
order it still retains the power on
the return date of such order to discharge the provisional order. In
that event, so counsel
argued, the provisional order would be
rendered ineffectual ie as if it had never been granted in the first
place. The
status quo ante
would thus be restored. This argument is plainly unsustainable for it
contains the seeds of its own destruction. Fundamentally,
its flaw is
that it seeks to compare the position when there is a winding-up with
the position when there is not. These are no
more alike than the
proverbial apples and pears.
[22] I
now turn to deal with the single disposition made on 7 June 2017 ie
before the provisional order was granted.
Counsel were agreed that in
determining the question whether to direct otherwise, the high court
exercised a discretion in the
true sense. In
Media Workers
Association of South Africa and Others v Press Corporation of South
Africa Ltd (Perskor)
[1992] ZASCA 149
;
1992 (4) SA 791
(A), E M Grosskopf JA
described a discretion in the true sense as follows:
'The
essence of a discretion in this narrower sense is that, if the
repository of the power follows any one of the available courses,
he
would be acting within his powers, and his exercise of power could
not be set aside merely because a Court would have preferred
him to
have followed a different course among those available to him.'
[8]
[23] A
discretion in the true sense proceeds from the premise that a court
exercising such a discretion may properly
come to different decisions
having regard to a wide range of equally permissible options
available to it. Thus, a court exercising
a wide discretion should
not fetter its own discretion, and, in the words of Hefer JA,
'particularly not by adopting an approach
which brooks of no
departure except in special circumstances, it must decide each case
upon a consideration of all the relevant
features, without adopting a
predisposition either in favour of or against granting security'.
[9]
An appellate court may interfere with the exercise of a discretion in
the true sense by a court of first instance only if it can
be
demonstrated that the latter court exercised its discretion
capriciously or on a wrong principle, or has not brought an unbiased
judgment to bear on the question under consideration, or has not
acted for substantial reasons.
[10]
[24] In
Herrigel NO v Bon Roads Construction Co (Pty) Ltd and Another
1980
(4) SA 669
(SWA) the court was confronted with an action instituted
by a liquidator who sought to recover payments made by a company
being
wound up a day after the grant of the provisional
winding-up order. The court enumerated several factors that a court
called
upon to exercise its discretion to order otherwise under s
341(2) of the Companies Act should bear in mind. The factors are
useful
guides, but only in relation to payments made before a
provisional order is made. Beyond that, there is no discretion to be
exercised.
These factors were usefully summarised by Pincus AJ in
Lane NO v Olivier Transport
1997 (1) SA 383
(C) at 386D-387B.
The learned Acting Judge listed the following:
'(a) The discretion
should be controlled only by the general principles which apply to
every kind of judicial discretion.
(See
Re Steane's (Bournemouth)
Ltd
[1950] 1 All ER 21
(Ch) at 25.)
(b) Each
case must be dealt with on its own facts and particular
circumstances.
(c) Special regard
must be had to the question of good faith and the honest intention of
the persons concerned.
(d) The Court must
be free to act according to what it considers would be just and fair
in each case. See
Herrigel's
case supra at 678 and see
Re
Clifton Place Garage Ltd
[1970] Ch 477
(CA) at 490 and 492
([1970]
1 All ER 353
at 356 and 357-8).
(e) The Court, in
assessing the matter, must attempt to strike some balance between
what is fair
vis-à-vis
the applicant as well as what is
fair vis-à-vis the creditors of the company in liquidation.
(f) The
Court should gauge whether the disposition was made in the ordinary
course of the company's affairs or whether
the disposition was an
improper alienation. See
Re Wiltshire Iron Co; Ex parte Pearson
(1868) LR 3 Ch App 443
at 447.
(g) The Court
should investigate whether the disposition was made to keep the
company afloat or augment its assets. See
Herrigel's
case
supra at 679-80.
(h) The Court
should investigate whether the disposition was made to secure an
advantage to a particular creditor in the
winding-up which otherwise
he would not have enjoyed or with the intention of giving a
particular creditor a preference and which
latter factor may be
decisive. See
Wiltshire's
case
supra
at 447.
(i) The
Court should enquire whether the recipient of the disposition was
unaware of the filing of the application
for winding-up or of the
fact that the company was in financial difficulties. See
Re Tellsa
Furniture (Pty) Ltd
(1984-85) 9 ACLR 869
(NSW).
(j) Little
weight should be attached to the hardship which will be suffered by
the applicant if the payment is not
validated, the purpose of the
subsection being to minimise hardship to the body of creditors
generally. See
Herrigel's
case
supra
at 680.
(k) The payment
should not be looked upon as an isolated transaction if in fact it
formed part of a series of transactions.
See
Herrigel's
case
supra
at 680.
. .
.'
[25] It
is necessary to emphasise that it is near impossible to catalogue
exhaustively the factors to be borne
in mind by a court exercising
its discretion under s 341(2). Suffice it to state that a court
confronted with this question is
enjoined to keep at the forefront of
its mind that the legislature has ordained that all dispositions by a
company of its property
whilst it is being wound up are void. But at
the same time a court must be alive to the fact that in an
appropriate case it may
order otherwise. And, I daresay, that when
sanctioning a departure from the statutorily ordained default
position, ie voidness
of the disposition, a court must guard against
a result that would undermine the underlying purpose of the
provision.
[26] To
conclude on the nature of the discretion under consideration in this
case, it is necessary to make reference
to two leading textbooks on
the Companies Act. In P M Meskin et al
Henochsberg
on the Companies Act
61
of 1973
vol 1 5ed (1994), the learned
author discusses the topic at 676-681. Insofar as the discretion of
the court to order otherwise
is concerned, the learned author says
the following:
'The
Court's discretion is controlled only by the general principles which
apply to every kind of judicial discretion: the Court
must decide
what would be just and fair in the circumstances of the case, bearing
in mind the purpose of the subsection. . . .
A disposition valid when
effected and only retrospectively invalidated by virtue of the
operation of the provisions of section
348 . . . ordinarily will be
validated by the Court if it amounts to no more than the result of
the
bona
fide
carrying on of the company's operations in the ordinary course . . .
but the court ordinarily will refuse to validate a disposition
where
it was made e g with the object of securing an advantage to a
particular creditor in the winding-up which otherwise he would
not
have enjoyed or with the intention of giving a particular creditor a
preference.'
[11]
[27] In
their discussion of the same topic, the learned authors M S Blackman
et al
Commentary on the Companies Act
Original Service (2002) vol 3, state the position as follows:
'The
court's discretion to validate a disposition is absolute and is
controlled only by the general principles which apply to every
kind
of judicial discretion. It is free to act according to the judge's
opinion of what is just and fair in each case. In assessing
what is
just and fair the court must of necessity strike some balance upon
looking at what is fair
vis-a-vis
the applicant as well as what is fair vis-a-vis the creditors. Each
case is dealt with on its own facts and particular circumstances,
special regard being had to the question of the good faith and honest
intention of the persons concerned. All the cases in this
area
indicate useful guidelines, but they are no more than that, for the
courts have had to consider the use of the validating
power in a very
wide variety of circumstances and will no doubt in future have to
consider further and different combinations of
the possibilities
inherent in commercial situations involving insolvent companies. The
different factual combinations are, as a
matter of possibility, so
varied that any attempt to state binding rules would be highly likely
to find the courts concerned with
factual situations for which the
rules were inappropriate.'
[12]
[28] Professor
M S Blackman elaborated on this in his work published in
Lawsa
and explained that:
'The central issue is
whether the payments were made so as to allow the company to carry on
business for the ultimate benefit of
the creditors. The element of
benefit to the company will usually be satisfied if the transaction
relates to the need to continue
business and earn income or save loss
during the pendency of the application.
This
will usually involve a counter-performance from the recipient after
the date of the commencement of the liquidation. Thus,
usually, if
the payment is made honestly and in the ordinary course of business
for the benefit of the company for goods or services
supplied to the
company after the commencement of the liquidation, a validation order
will generally be made on the grounds that
the delivery of goods or
performance of the services increased the assets of the company. . .
Even if no benefit actually accrued
in the sense that the company's
undertaking or assets were built up by the attacked transaction, the
payments may still be validated
if they were made in good faith for
the benefit of the company. In the case where some form of commercial
assessment is required,
this will not involve an examination of
minute detail such as the necessity or otherwise to make particular
telephone calls; nor
will it involve any element of reasoning by
hindsight in an endeavour to determine whether the transactions
provided actual benefit
to the creditors. But at the very least the
court should consider whether:
(a)
the company was carrying on business;
(b)
the continuation of the business might be considered to be in the
best interests of the creditors; and
(c)
the provision of the services by the appellant (in this case the
recipient of the payments) appeared, at the time of the transactions,
to be necessary or desirable for the continuation of business
operations. Knowledge at the time of the transaction by anyone of
the
parties that an application for the winding-up has been presented and
that a winding-up order may be made is not fatal to the
success of an
application for validation of a transaction otherwise rendered void
by the section.'
[13]
[29] Reverting
to the facts of this case, the record reveals that for some time
Irfan had consistently purchased
its maize products from Eendag Meule
(the petitioning creditor in the winding-up application). In April
2017 it inexplicably ceased
doing so and instead turned to Pride
Milling. This was at a time when it was indebted to Eendag Meule for
some R144 000 in respect
of maize products sold and delivered to it
for which it had failed to pay. Curiously, when it commenced dealing
with Pride Milling,
Irfan ensured that the former was paid regularly
for the goods that it had supplied. And within a period of two
months, Pride Milling
was paid the total sum of R295 000 as set out
in para 3 above.
[30] The
provisions of s 341(2) could not be clearer. They, in unequivocal
terms, decree that every disposition
of its property by a company
being wound-up is void. Thus, the default position ordained by this
section is that all such dispositions
have no force and effect in the
eyes of the law ie the disposition is regarded as if it had never
occurred. The mischief that s
341(2) seeks to obviate is plain
enough. It is to prevent a company being wound-up from dissipating
its assets and thereby frustrating
the claims of its creditors.
[31] As
to the rider to s 341(2), its manifest purpose is to give a court an
unfettered discretion to decide whether
or not to direct otherwise
and thus depart from the default position decreed by the legislature.
As already discussed, this discretion
is only exercisable in relation
to payments made between the date of lodging of the application for
winding-up and the grant of
a provisional order. In exercising this
discretion, a court will, amongst other relevant factors, naturally
have regard to the
underlying purpose of the provision in the context
of winding-up a company unable to pay its debts, the interests of the
creditors
[14]
and those of the
beneficiary of the disposition.
[32] It
bears mentioning that the consequences of visiting dispositions of
the kind dealt with in s 341(2) with
voidness, will not always be
harsh. This is so especially when the potential countervailing
harshness of allowing the disposition,
which would invariably denude
the company of its assets in proportion to the value of the
disposition to the prejudice of its creditors,
is borne in mind. In
this instance it was always open to Pride Milling to join the other
creditors and prove a claim against Irfan
with the joint liquidators.
It deliberately elected not to avail itself of this opportunity but
instead sought to retain the fruits
of the impugned dispositions.
[33] Here
Pride Milling asserted that the dispositions sought to be recouped
from it by the joint liquidators were
made in good faith in the
ordinary course of business at a time when it was not aware that
Irfan was being wound-up. A similar
argument was advanced in
Gainsford NO and Others v Tanzer
Transport (Pty) Ltd, In Re; Gainsford NO and Others v Tanzer
Transport (Pty) Limited and Others
[2014]
ZASCA 32
;
2014 (3) SA 468
(SCA);
[2014] 3 All SA 21
(SCA) and given
short shrift by this Court. Noting that s 341(2) 'of the Act is clear
in its terms' this Court held that:
'The
court will only order otherwise in terms of this section in limited
circumstances. To have the defence proffered by Tanzer
upheld in
general terms would have the effect of avoiding the objects of the
Act in that it would undoubtedly prefer one creditor
above
another.'
[15]
[34]
The court continued:
'It is
no defence to assert as Tanzer does that the dispositions were made
by the company’s staff in ignorance of the fact
that the
company had been placed under winding-up. Staff at a lower level
carry out instructions and in any event that does not
deal with the
question of whether the dispositions were made at a time after the
commencement of the winding-up. As has already
been mentioned, the
instances in which a court will validate a disposition are limited.
Even where a disposition was alleged to
constitute "a mere
administrative rectification", the fact that the effect thereof
was to remove a claim from the concursus
and settle it in full in
favour of the creditor concerned, to the prejudice of the general
body of creditors, is impermissible.
This is in accordance with the
principle that "the free assets of the insolvent at the
commencement of the liquidation shall
be distributed rateably amongst
the insolvent’s creditors as at that date".'
[16]
(Citations omitted.)
[35] It
bears mentioning that the words 'any company being wound-up' in
s 341(2) of the Companies Act are
not without significance.
Notably, they are expressed in the continuous tense. Consequently,
their import must be that after the
commencement of and for as long
as the winding-up process is in progress an affected company may not
validly dispose of its property.
[36] I
pause here to mention that given the effect of s 341(2), a party
approaching a court and seeking that the
court order otherwise would
logically need to establish its entitlement to the relief sought.
Thus, in that sense such a party
bears the onus to persuade the court
with clear evidence as to why a court should depart from the
statutorily ordained default
position and 'otherwise order'. This,
Pride Milling failed to do.
[37] For
all the foregoing reasons there is no tenable reason to interfere on
appeal with the manner in which the
high court exercised its
discretion in relation to the disposition made on 7 June 2017 before
the grant of the provisional winding-up
order.
[38] It
remains to consider the question of costs. Counsel for the joint
liquidators requested us to allow costs
of two counsel in the event
of the appeal being unsuccessful. Counsel submitted that costs of two
counsel were warranted not only
because of the relative complexity of
the matter but also due to the importance of the issues at stake
which, although not novel,
were not entirely free of difficulty. It
must be said that lead counsel for the joint liquidators appeared
alone in the high court.
Counsel for Pride Milling took issue with
this request in his reply. He argued that one counsel could have
adequately dealt with
the matter just as lead counsel had done in the
high court.
[39] It
is trite that a court enjoys a wide discretion in considering the
question whether costs of more than one
counsel in any particular
matter should be allowed. And such discretion must be exercised
judicially on a consideration of all
the relevant factors. The
question always is, as Colman J posited in
Koekemoer
v Parity Insurance Co Ltd and Another
1964 (4) SA 138
(T), '. . . whether, in all the circumstances, the
expenses incurred in the employment of more than one counsel were
"necessary
or proper for the attainment of justice or for
defending the rights of the parties", and were not incurred
through "over-caution,
negligence or mistake"'.
[17]
The learned Judge went on to mention, amongst others, the following
as being some of the relevant considerations: (a) the volume
of
evidence (oral or written) dealt with by counsel or which she or he
or they could reasonably have expected to be called upon
to deal
with; (b) the complexity of the facts or the law relevant to the
case; (c) any difficulties or obscurities in the relevant
legal
principles or in their application to the facts of the case; (d) the
importance of the matter in issue, in so far as that
importance may
have added to the burden of responsibility undertaken by counsel.
This is by no means an exhaustive list. Ultimately,
how a court
should exercise its discretion is essentially a matter of fairness to
both sides.
[40] Although
the issues raised in this appeal are neither obscure nor novel, they
are nevertheless not entirely
free from a measure of complexity. In
these circumstances it cannot be said that the costs occasioned by
the employment of two
counsel were incurred through over-caution or
the employment of two counsel was merely luxurious. It was therefore
a wise and reasonable
precaution on the part of the joint
liquidators, acting as they did to advance the collective interests
of the general body of
creditors of the company in liquidation, to
employ two counsel. This is, in my view, a sufficient reason for
allowing the costs
of two counsel in this case.
[41] In
the result the following order is made:
The appeal is dismissed
with costs, including the costs of two counsel.
X
M PETSE
ACTING
PRESIDENT
SUPREME
COURT OF APPEAL
APPEARANCES
For
the appellant: A
R van der Merwe
Instructed
by: JP
van
Schalkwyk Attorneys, Alberton
Symington
& De Kok Attorneys, Bloemfontein
For
the respondents: J Vorster
(with him U van Niekerk)
Instructed
by: Delport
van den Berg Inc., Pretoria
Honey
Attorneys, Bloemfontein
[1]
This is manifestly a reference to s 348 of the Companies Act. More
about this later.
[2]
See
for example:
Bato
Star Fishing (Pty) Ltd v Minister of Environmental Affairs and
Tourism
[2004] ZACC 15
;
2004 (4) SA 490
(CC);
2004 (7) BCLR 687
(CC) para 90
(the judgment of Ngcobo J) quoted with approval in
Du
Toit v Minister for Safety and Security
[2009] ZACC 22
;
2010 (1) SACR 1
(CC);
2009 (12) BCLR 1171
(CC) para
38;
Bertie
Van Zyl
(Pty)
Ltd v Minister for Safety and Security
[2009] ZACC 11
;
2010 (2) SA 181
(CC);
2009 (10) BCLR 978
(CC) para
21;
KwaZulu-Natal
Joint Liaison Committee v MEC for Education, KwaZulu-Natal
[2013] ZACC 10
;
2013 (4) SA 262
(CC);
2013 (6) BCLR 615
(CC) para
129;
Kubyana
v Standard Bank of South Africa Ltd
[2014] ZACC 1
;
2014 (3) SA 56
(CC);
2014 (4) BCLR 400
(CC) paras
77-8.
[3]
At 347B-C.
[4]
At 803. This abiding principle has been consistently applied by this
Court in several cases. See, for example,
Administrator,
Natal v Magill, Grant & Nell (Pty) Ltd (In Liquidation)
1969 (1) SA 660
(A) at 671;
Cohen
NO and Others v Verwoerdburg Town Council
1983 (1) SA 334
(A) at 345-347.
[5]
At 87C-D.
[6]
M S Blackman et al
Commentary
on the Companies Act
Original
Service (2002) vol 3 at 14-55.
[7]
Paragraphs 64 to 70.
[8]
At 800E-H.
[9]
Shepstone
& Wylie and Others v Geyser NO
1998 (3) SA 1036
(SCA) at 1045I-J.
[10]
See, for example,
Benson
v S A Mutual Life Assurance Society
1986 (1) SA 776
(A) at 781I-782B and the authorities therein cited;
Hotz
and Others v University of Cape Town
[2017] ZACC 10
;
2017 (7) BCLR 815
(CC);
2018 (1) SA 369
(CC) para
28.
[11]
At 680.
[12]
At 14-56.
[13]
4(3)
Lawsa
2ed para 125.
[14]
See P M Meskin et al
Henochsberg
on the Companies Act 61 of 1973
vol 1 5ed (1994) at 680-681.
[15]
Paragraph 27.
[16]
Paragraph 28.
[17]
At 144F-145. See also:
Rielly
v Seligson and Clare Ltd
1977
(1) SA 626
(A) at 641E-H.