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[2016] ZAGPPHC 1251
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Diener NO v Minister of Justice and Others (30123/2015) [2016] ZAGPPHC 1251 (2 March 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
CASE
NO: 30123/2015
In
the matter between:
LUDWIG
WILHELM DIENER
NO
Applicant
and
THE
MINISTER OF
JUSTICE
First
Respondent
THE
MASTER OF THE HIGH
COURT
Second
Respondent
CLOETE
MURRAY
NO
Third
Respondent
WINIFRED
FRANCES HARMS
NO
Fourth
Respondent
CHRISTIAAN
FREDERICK DE WET
NO
Fifth
Respondent
JUDGMENT
DEWRANCE
AJ
[1]
The applicant seeks an order reviewing and setting aside the
decision of the Master of the High Court of this Division ("the
Master'') in terms whereof the Master determined certain questions
("the impugned decisions") effectively against the
applicant. The Master did this in terms of section 382 of the
Companies Act 61 of 1973 ("the Old Companies Act"), after
a
dispute arose between the third, fourth and fifth defendants.
[2]
The impugned decisions relate to treatment of the applicant's
remuneration, as business rescue practitioner ("BRP") and
certain expenses incurred during the business rescue proceedings.
[3]
The applicant seeks the following relief:
[3.1] that the decision by the second
respondent ("the Master") to accept the first and final
liquidation, distribution
and contribution account be reviewed and
set aside;
[3.2] that this court provides
direction regarding the manner in which the first and final
liquidation, distribution and contribution
account should provide
for:
3.2.1.
the costs of a business rescue practitioner engaged in lawful
business rescue proceedings;
3.2.2.
the costs of service providers who provided services to a lawfully
appointed business rescue practitioner in finalising business
rescue
proceedings;
3.2.3.
the costs of service providers who provided services to the close
corporation after the commencement of the business rescue
proceedings;
[3.3] in the alternative to paragraph
3.2 above, the first and final liquidation, distribution and
contribution account for JD Bester
Labour Brokers CC (in liquidation)
be amended to make provision for the remuneration and expenses of the
applicant in the business
rescue proceedings of JD Bester Labour
Brokers CC, which include the expenses of Cawood Attorneys for
services rendered to the
applicant and JD Bester Labour Brokers CC in
the business rescue proceedings, to be payable in order of preference
after the costs
of liquidation and before the claims of any secured
or unsecured creditors.
BACKGROUND
[4]
The applicant is the erstwhile BRP of JD Bester Labour Brokers
CC (in liquidation)
("the close corporation”).
[5]
The close corporation commenced business rescue proceedings
when a resolution to that effect was adopted by the members of the
close
corporation and filed with the Companies and Intellectual
Property Commission
("the CIPC')
on 13 June 2012. The
CIPC appointed the applicant as the close corporation's BRP on 20
June 2012. The business rescue proceedings
ended on 27 August 2012
when this court terminated it and placed the close corporation under
liquidation.
[6]
Prior to the applicant's appointment but after the business
rescue proceedings commenced, the existing management of the close
corporation
instructed Cawood Attorneys ("the attorneys")
to urgently approach this court to obtain an order staying the sale
in
execution of an immovable property belonging to the close
corporation
("the urgent application').
The sale in
execution was held at the instance of FirstRand Bank Limited in whose
favour
a
mortgage bond was registered. The sale in execution
was scheduled to be held on 15 June 2014. This court granted the
order on 14
June 2012 but did not make any pronouncements as to the
issue of costs.
[7]
Approximately two months after the business rescue proceedings
commenced, the BRP, during August 2012, determined that the close
corporation could not be rescued and approached the new attorneys to
launch an application in terms of section 141(2)(a) of the
Companies
Act, 2008 ("the New
Companies Act"
;) to terminate the
business rescue proceedings and to place the close corporation under
liquidation ("liquidation application").
On 27 August 2012,
this court ordered that the business rescue proceedings be terminated
and that costs of the application be costs
in the liquidation of the
close corporation.
[8]
Pursuant to the liquidation order being granted, the Master
appointed the third, fourth and fifth respondents as the joint
liquidators
of the close corporation.
[9]
The applicant provided his account for his fees and the bill
of costs of the attorneys to the joint liquidators for payment. Both
his fees and those of the attorneys remain outstanding.
[10]
The liquidators demanded that the attorney's bill of costs for the
liquidation application be taxed against them, in their
capacities as
provisional liquidators. The account was taxed on a party and
party
scale.
[11]
A dispute arose amongst the liquidators as to the treatment of BRPs
and liquidators' fees. The third respondent approached
the Master in
order to resolve the dispute in terms of section 382 of the Old
Companies Act. Three
issues were referred to the Master.
[12]
Section 382 of the Old
Companies Act provides
that:
"Plurality of Liquidators,
Liability and Disagreement
-
(1)
When two or more liquidators have been appointed they shall
act jointly in performing their functions as liquidators and shall be
jointly and severally liable for every act performed by them jointly.
(2)
Whenever two or more liquidators disagree on any matter
relating to the company of which they are liquidators, one or more of
them
may refer the matter to the Master who may thereupon determine
the question in issue or give directions as to the procedure to be
followed for the determination thereof"
(emphasis
added)
THE
IMPUGNED DECISION
[13]
The third respondent ("Murray') prepared a first and final
liquidation and distribution account ("L&D")
reflecting
"a
true and correct account of [the liquidator's]
administration"
of the close corporation. The account
contains,
inter alia,
an encumbered asset account, free
residue account and a contribution account.
[14]
The encumbered asset account reflects that, after the sale of the
immovable property (which was the subject of security held
by First
National Bank), certain costs were deducted from the purchase price.
These were the Master's fee, bond of security premium,
the
liquidator's fees, income tax on post liquidation income, the
auctioneer's commission and VAT. The balance of the purchase
price
was awarded to First National Bank.
[15]
The free residue account reflects that there was no free residue at
all and that there was a contribution payable. The free
residue
account reflects that the attorney's claim for the liquidation
application should be paid from this account. It does not
reflect the
claim for the urgent application.
[16]
The contribution account reflects,
inter alia,
two claims of
the attorneys and that a contribution is payable by them. The
remuneration of the applicant is not reflected at all.
I will return
to this aspect later as the whole dispute turns on the framing of the
L&D.
[17]
The Master addressed three issues, namely:
[17.1] should the taxed bill of costs
of the attorneys be included in the liquidation, distribution and
contribution account ("L&D")
as an administration
charge in the encumbered asset account or is it a charge against the
free residue? ("the first issue");
[17.2] should the contribution be
levied against concurrent creditors and, if so, is it only against
them or are secured creditors
also liable for contribution? ("the
second issue"); an
[17.3] the costs of the applicant
attending to the business rescue of the corporation before
liquidation is not reflected as a charge
in the L&D. No claim was
proved for these costs. Was it necessary? ("the third issue").
[18]
As will be seen hereunder, the Master determined the
aforementioned issues in favour of the third respondent.
[19]
For the purposes of this judgment, it is not necessary to deal
with the second issue as the relief the applicant claims is not
directed
at whether contributions are payable are not but rather what
the effect is of the applicant's fees and those of the attorneys
during
liquidation.
FIRST
ISSUE
[20]
The third respondent argued that the costs of the two
attorneys is a charge upon the free residue account. For this
proposition,
the third respondent relied on
section 97(2)(c)
of the
Insolvency Act, 1936
, which provides as follows:
"97.
Costs of
sequestration
(1)
Thereafter any balance
of
the free residue shall
be applied in defraying the costs
of
the sequestration
of
the estate in question with the exception
of
the costs
mentioned in subsection (1)
of
section 80
-
9
.
(2)
The costs
of
sequestration shall rank according
to
the following order of priority
-
(a)
…
(b)
…
(c)
the following costs which shall rank par/ passu and abate in equal
proportions if necessary, that
is to
say:
the taxed
costs of
sequestration (as defined in subsection
(3))
. the fee mentioned in
section 16(5)
, the remuneration
of
the curator bonis and
of
the trustee and all other
costs of administration and liquidation including such
costs
incurred by the trustee in giving security for his proper
administration
of
the estate
as
the Master considers
reasonable, insofar
as
they are not payable by
a
particular creditor in terms
of
section 89(1)
, any expenses
incuffed by the Master or by a presiding officer in terms
of
section 53(2)
and the salary
or
wages of any person who was
engaged by the curator bonis
or
the trustee in connection with
the administration
of
the insolvent estate.
(3)
..."
(emphasis added)
[21]
Accordingly, the third respondent argued that, by virtue of
the provisions of
section 97(2)(c)
of the
Insolvency Act, the
attorneys' fees can never be a charge in the encumbered asset
account.
[22]
The third respondent further argued that
section 97
"clearly
stipulates that the costs of liquidation will be paid by the free
residue available after payment of funeral and death
bed expenses,
as
contemplated by
section 96
of the
Insolvency Act&rdquo
;.
[23]
The remaining joint liquidators argued that, because this
court ordered that the costs of the winding up of the close
corporation
be costs in the administration of the estate, the
necessary implication is that it refers to the
"whole winding
up".
Since there are not sufficient funds in the free
residue to pay the taxed bill of costs,
section 97
of the
Insolvency
Act is
not applicable.
THIRD
ISSUE
[24]
The draft L&D provided to the Master by the third
respondent did not reflect any charges being payable to the business
rescue
practitioner. The third respondent contended that the business
rescue practitioner did not submit or prove a claim for his charges
in the estate. He further contends that the costs of the business
rescue practitioner do not fall within the definition of
section 97
(the costs of administration) and must therefore be a claim in the
estate. He further argues that the costs of the business rescue
practitioner were not catered for in the liquidation application.
[25]
The third respondent, in essence, argued that
"to expect of
the business rescue practitioner to be entitled to payment of his
account, without proving a claim, would in
effect mean that the
creditor gets paid in respect of an 'unproven claim' which is against
the entire structure of the
Insolvency Act&rdquo
;.
[26]
The remaining joint liquidators argued that, in terms of
section
135(4)
of the new
Companies Act, the
business rescue practitioner is
entitled to demand payment of his costs
"as
a
first
charge after the costs of liquidation were paid'.
MASTER'S
RULING
[27]
On 12 December 2013, the Master ruled on the dispute. As indicated
earlier, the ruling was in favour of the third respondent.
[28]
In respect of the first issue, the Master was of the view that
section 97
of the
Insolvency Act was
applicable and that in terms of
this section the costs of liquidation will be paid from the free
residue available after payment
of funeral and death bed expenses.
The
"source of funds for payment of taxed costs is nothing
other than the free residue and toot
section 89(1)
makes it apparent
what charges may be deducted against securities".
[29]
In respect of the third issue, the Master noted that no claim was
proven against the estate for these costs. The Master reasoned
that
sections 143(4)
and
135
(4) of the new
Companies Act dealt
specifically with the issue of costs of the business rescue
practitioner. The Master further argued that all these subsections
provide for preference in favour of the business rescue practitioner
before the claims of all other secured or unsecured creditors
and
that not one of these sections provides that the costs of the
business rescue practitioner shall be deemed as costs of
administration
in the insolvent estate. The Master further argued
that
section 97
of the
Insolvency Act provides
which costs may be
deducted as costs of the administration and that, therefore, the
costs of the business rescue practitioner should
have been proven.
EVENTS
AFTER THE MASTER'S RULING
[30]
In a letter dated 15 July 2014, the attorneys addressed a letter to
the Master on behalf of the BRP and themselves wherein
they objected
to the L&D account. I do not intend discussing the contents of
the objection.
[31]
The Master dismissed the BRP and attorneys' objection. The Master
noted that he
"ruled on this matter on 12 December 2013 and
all interested parties were duly notified'.
The Master further
indicated that his ruling, made more than 12 months' earlier, stands
because it had not been set aside by way
of review.
[32]
The Master further indicated that he had no other option but to
proceed
to
confirm the L&D since the liquidators had
successfully complied with the pre-confirmation requirements.
REVIEW
APPLICATION
[33]
The applicant launched this application on 23 June 2015 reviewing and
setting aside the decision of the Master to
"accept”
the L&D.
[34]
The applicant contends that the expenses associated with the bringing
of the urgent application are premised on an attorney
and client
relationship between the attorneys and the close corporation. He
further contends that
"these services and expenses represent
expenses in business rescue as defined in
Section 143
of the new
Companies Act or
at the very least,
...
represent unsecured
post commencement finance as defined in
section 135
of the new
Companies Act."
[35
]
A further reason for contending that these costs (i.e. the costs for
the urgent application) must be regarded
"as expenses in the
business rescue proceedings of the close corporation"
is
that the attorney's account only became due and payable after his
appointment as the BRP and after the close corporation had
been
placed under supervision as defined in Chapter 6 of the New
Companies
Act.
[36
]
With regard
to
the liquidation application the applicant takes
issue with the liquidators' demand to have the bill of costs taxed as
he contends
that the attorney's fees represent an account based on an
attorney client relationship that existed between him, in his
capacity
as BRP, and the attorney. Therefore, the account cannot be
subjected to taxation against the joint liquidators on party and
party
scale. It can only be the subject, so he argues, of taxation
against him in his capacity as the duly appointed BRP on an attorney
and client scale.
[37]
The applicant further contends that the date of liquidation of the
close corporation is 13 June 2012, the date on which the
business
rescue proceedings commenced, and therefore the services rendered by
the attorneys to the close corporation and him are
services rendered
post commencement of the liquidation proceedings of the close
corporation.
[38]
The applicant argues that the account for services rendered during
the business rescue proceedings should be recorded as part
of the
expenses incurred by him and must be considered and paid in
accordance with the provisions of
section 135
,
143
, read with section
150 of the New
Companies Act, prior
to any claims by other creditors,
secured or otherwise. He further argues that these accounts
"represent 'claims' of a super preferent nature and should be
dealt with as such in any liquidation and distribution account”.
HAS
THE APPLICANT JOINED ALL THE INTERESTED PARTIES
[39]
As indicated earlier, the close corporation owns one
encumbered asset over which FirstRand Bank holds a mortgage bond.
[40]
The relief the applicant seeks is his claim for his
remuneration and the expenses incurred in the employment of the
attorneys be
paid before any dividend is awarded to First National
Bank.
[41]
Therefore, in my view, First National Bank has a direct and
substantial interest in the outcome of this application and ought to
be joined as a respondent in these proceedings.
[42]
In the normal course, I would have ordered that the matter be
postponed
sine die
in order for the applicant to join First
National Bank. However, because of the view I take, the issue of
joinder is of no consequence.
LEGISLATIVE
CONTEXT
[43]
The close corporation was incorporated in terms of the Close
Corporations Act, Act 69 of 1994. Both the old
Companies Act (Act
61
of 1973) and the new
Companies Act (Act
71 of 2008) are applicable to
close corporations (see section 66(1) of the Close Corporations Act;
Schedule 5 of the new
Companies Act). Section
66(1) provides that:
"66. Application of Companies
Act, 1973-
(1)
The laws mentioned or contemplated in item
9
of
Schedule 5 of the Companies Act, read with the changes required by
the context, apply to the liquidation of a corporation in
respect of
any matter not specifically provided for in this Part or in any other
provision of this Act."
[44]
Section 66(1A) makes the provisions relating to business
rescue proceedings in the new Companies Act applicable to close
corporations-.
It provides that
"66. (1A) The provisions of
Chapter 6 of the Companies Act, read with the changes required by the
context, apply to
a
corporation, but any reference in that
Chapter to
-
(a)
a company must be regarded
as
a reference to a
corporation; or
(b)
a shareholder of a company, or the holder of securities
issued by a company, must be read as a reference to a member of a
corporation.
[45]
Section 66(2) of the
Close Corporations Act renders the provisions of the
Insolvency Act,
Act
24 of 1936 ("the
Insolvency Act"
;) applicable to close
corporations and provides as follows:
[1]
"66 (2) For the purposes of
subsection (1)
-
(a)
any reference in
a
relevant provision of the
Companies Act, and in any provision of the Insolvency Act, 1936 (Act
No. 24 of 1936), made applicable
by any such provision
-
(i)
to a
company, shall be construed
as a
reference to a
corporation;
(ii)
…;
(iii)
…
(iv)
…
(v)
…
(vi)
…
(vii)
…
(viii)
…
(ix)
to the Companies Act or the regulations made thereunder, or
to
any provision thereof, shall be construed as including a reference
to this Act or the regulations made thereunder, or to any
corresponding
provision thereof, as the case may be;
(x)
to an insolvent estate, shall be construed as
a
reference
to
a
corporation;
(xi)
to
a
provisional liquidator of
a
company, or to
a
liquidator of
a
company or
a
trustee of an
insolvent
estate,
shall be construed
as a
reference to
a
provisional liquidator and to
a
liquidator of
a
corporation, respectively;
(xii)
…
(xiii)
…
(xiv)
…
(xv)
…
(b) …
(c) …”
[46]
Section 143 of the New Companies Act regulates the remuneration of
BRP's and expenses incurred during business rescue proceedings.
It
provides as follows:
"143. Remuneration of
practitioner
-
(1) The practitioner is entitled to
charge an amount to the company for the remuneration and expenses of
the practitioner in accordance
with the tariff prescribed in terms of
subsection (6).
(2)…
(3)…
(4)…
(5)
To the extent that the practitioner's remuneration and
expenses are not fully paid. the practitioner's claim for those
amounts will
rank in priority before the claims of all other secured
and unsecured creditors.
(6)
The minister may make regulations prescribing
a
tariff of fees
and expenses for the purposes of subsection (1)."
(emphasis
added)
[47]
The term
"remuneration"
of the BRP refers to the
amount he or she is entitled to be paid in accordance with the
prescribed tariff in terms of Regulation
128(1). In terms of
Regulation 128(3), the term
"expenses"
means the
actual costs of any disbursement or expenses incurred by the business
rescue practitioner to the extent reasonably necessary
to carry out
his functions, and to facilitate the conduct of the company's
business rescue proceedings.
[48]
Section 135(4) of the New Companies Act provides that, if business
rescue proceedings are superseded by a liquidation, the
preference
conferred in terms of section 135 will remain in force, except to the
extent of any claims arising out of the costs
of liquidation.
[49]
The preferences conferred in terms of section 135 are the following:
[49.1] first the practitioner's
remuneration, expenses and other costs (in accordance with section
143) and other claims arising
out of the costs of business rescue
proceedings will be paid;
[49.2] secondly, all claims for
post-commencement financing obligations that are related to
employment will be paid;
[49.3] thirdly, all post-commencement
finance (unrelated to employment) will be paid; and
[49.4] fourthly, all unsecured claims
against the company will be paid.
[2]
HAS
THE MASTER ERRED
[50]
I agree with the reasoning of the Master and cannot find any
fault therewith. However, I wish to add the following.
[51]
In practice, the L&D is divided into two sections - the
encumbered asset section and the free residue section. The former
deals
with the assets which are held as security, i.e. subject to
special mortgage, legal hypothec, pledge or right of retention. It
sets out the proceeds of each asset (or group of assets) and the
claims and other charges to which that asset (or group) is subject.
It is common practice to place under a separate heading, or draw up a
separate account, for each encumbered asset (or group of
assets) and
the items chargeable against it. For the purposes of this judgment,
it is not necessary to deal with the free residue
section because the
relief which the applicant seeks has no effect on it, but only the
encumbrance section.
[52]
In terms of section 89(1) of the Insolvency Act, 1934 ("the
Insolvency Act"), the proceeds of each encumbered asset must
be
applied to the payment of certain costs before payment of the claims
secured by the asset. These costs are:
[52.1] the costs of maintaining,
conserving, and realising the assets in question, for example, the
costs of a night-watchman,
auctioneer's commission, a sectional title
levy, and water, sewerage and other charges paid to a local authority
to obtain a clearance
certificate for registration of transfer;
[52.2] the trustee's
remuneration in respect of the asset;
[52.3] a proportionate share of
the costs incurred by the trustee in giving security;
[52.4] a proportionate share of
the Master's fees;
[52.5] if the asset is immovable
property, any tax which is, or will become, due on it:
· For a period not exceeding
two years immediately preceding the date of liquidation; and
· for the period from the date
of sequestration to the date of transfer of the property;
together with any interest or penalty
which may be due on the tax.
[53]
Where the proceeds of a secured
asset are insufficient to pay the initial cost mentioned
supra,
the deficiency must be paid
by the creditors whose claims are secured by the asset, each being
liable for a
pro rata
amount.
[3]
[54]
After payment of the costs, the balance of the proceeds of the
encumbered asset, including any interest earned on the price
obtained
for the asset,
[4]
must be applied to the payment of all claims secured by the asset, in
the proper order of preference.
[5]
Interest due on a claim for a period not exceeding two years
immediately preceding the date of sequestration is secured as if it
were a part of the capital sum.
[6]
Interest from date of sequestration to date of payment is also
secured.
[7]
[55]
The grounds of review advanced by the appellant in this court are
whether the remuneration of the BRP and the expenses incurred
during
business rescue proceedings should be regarded as a super preferent
claim and be paid before any secured creditor, i.e.
FNB.
[56]
These issues were mainly dealt with by the Master, who determined
that:
[56.1] the costs of liquidation are
dealt with in section 97 of the Insolvency Act. This section clearly
provides that the costs
of liquidation must be paid from the free
residue available after payment of the funeral and death-bed expenses
in terms of section
96;
[56.2] because the appellant did not
prove a claim in the close corporation, he was not entitled to any
remuneration.
[57]
Section 135(4) provides that if business rescue proceedings are
superseded by a liquidation order, the preference conferred
in terms
of section 135 will remain in force,
except to the ex1ent of any
claims arising out of the costs of liquidation.
[58]
Henochsberg on the new
Companies Act, 2008
is of the view that this this preference is
retained if business rescue proceedings are superseded by a winding
up order,
but ranks behind
the costs of liquidation.
[8]
[59]
The costs of liquidation are regulated by section 97 of the
Insolvency Act. It provides as follows:
"97.
Costs of sequestration
(1)
Thereafter any balance of the free residue shall be
applied in defraying the
costs
of the sequestration of the
estate
in question with the exception of the costs mentioned
in subsection (1) of section eighty-nine.
(2)
The costs of the sequestration shall rank according to
the following order of priority
(a)
the
sheriffs charges incurred since the sequestration;
(b)
fees
payable to the Master in connection with the sequestration;
(c)
the
following costs which shall rank par/ passu and abate in equal
proportions if necessary, that is to say: the taxed costs of
sequestration (as defined in subsection (3)), the fee mentioned in
section 16(5), the remuneration of the curator bonis and of
the
trustee and all other costs of administration and liquidation
including such costs incurred by the trustee in giving security
for
his proper administration of the estate as the Master considers
reasonable, in so far as they are not payable by
a
particular
creditor in terms of section 89(1), any expenses incurred by the
Master or by
a
presiding officer in terms of section 153(2)
and the salary or wages of any person who was engaged by the curator
bonis or the trustee
in connection with the administration of the
insolvent estate.
(3)
In paragraph (c) of subsection (2) the expression
'taxed costs of sequestration'
means the costs
(as
taxed by the registrar of the court) incurred in
connection with the petition of the debtor for acceptance of the
surrender of
his
estate or of
a
creditor for the
sequestration of the debtor's estate, but
ii does
not include
the
costs
of opposition to such
a
petition, unless the
courl directs that they shall be included."
[60]
In my view,
section 135(4)
of the
Companies Act must
be read with
section 97 of the Insolvency Act. That being the case, the
remuneration of the BRP and the expenses incurred during
business
rescue proceedings, to the extent that it has not been paid during
business proceedings and during liquidation, can only
be paid after
the costs set out in section 97 have been paid.
[61]
This finding is dispositive of the entire application.
[62]
Accordingly, the application is dismissed. There shall be no order as
to costs.
___________________________
DEWRANCE,
AJ
ACTING
JUDGE OF THE HIGH COURT, PRETORIA
[1]
See s339 of the old
Companies Act
>[2]
Cassim et al, Contemporary Law, Juta p 797 - 798 holds the view that
the preference conferred by
section 135
would remain in force in the
event that the business rescue proceedings are superseded by a
liquidation order except to the extent
of claims arising out of
costs of liquidation. The effect is that preference, so it is
argued, is still given even in the event
of liquidation to unpaid,
post rescue salaries and employment-related payments, as well as
other post-commencement finance
[3]
See section 89(1) of the Insolvency Act
[4]
See Singer NO v The Master and Another
1996 (2) SA 133
(A)
[5]
See section 91(1) of the Insolvency Act
[6]
See section 89(3) of the Insolvency Act
[7]
See section 95(1) of the Insolvency Act
[8]
Paqe 478(22)