About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2007
>>
[2007] ZASCA 122
|
|
Legh v Nungu Trading 353 (Pty) Ltd and Another (3/07) [2007] ZASCA 122; [2007] SCA 122 (RSA) ; 2008 (2) SA 1 (SCA) ; (27 September 2007)
REPUBLIC
OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case Number :
3 / 07
In the matter
between
JOHN ALISTAIR LEGH
.......................
APPELLANT
and
NUNGU TRADING 353
(PTY) LTD
.......................
FIRST RESPONDENT
RIETFONTEIN GENERAL
GALVANISERS (PTY) LTD (in liquidation)
.......................
SECOND RESPONDENT
Coram
:
HOWIE P, HEHER, PONNAN, MLAMBO JJA et MALAN AJA
Date
of hearing
: 12 SEPTEMBER 2007
Date
of delivery
: 27 SETEMBER 2007
SUMMARY
Winding
up - s 20(1)(
c
)
of the
Insolvency Act 24 of 1936
not rendered applicable to a Company
in winding up by s 339 of the Companies Act 61 of 1973.
Neutral
citation: This judgment may be referred to as :
Legh
v
Nungu Trading 353
[2007]
SCA 122 (RSA)
___________________________________________________________________
J U D G M E N T
___________________________________________________________________
PONNAN JA
[1] During 1998, the appellant, John Alistair Legh, and one Gregory
Francis Porteous (‘Porteous’) purchased the shareholding
and loan accounts in the second respondent, Rietfontein General
Galvanisers (‘the Company’), in consequence of which
each
acquired ownership of 50 per cent of the Company’s shares. In
addition the loan account of the Company was divided and
each became
a creditor of the Company to the tune of R219 964. According to the
appellant, during 2003, Porteous disposed of his
entire share capital
and loan account in the Company to him. This is disputed by Porteous.
That dispute is the subject of pending
litigation between them.
[2] The Company is the registered owner of Portion 40 (Portion of
Portion 24) of the farm Rietfontein 63 IR Township, Registration
Division IR, the Province of Gauteng, measuring 6,0214 hectares and
held under Deed of Transfer T13546/1958 (‘the property’).
It has no other assets and conducts no other business. Since 1998 no
financial reports had been prepared in respect of the Company
and it
had not conducted any type of activity whatsoever in relation to the
property. For the period 2004 to 2006 there appeared
to be no
transactions on the Company’s bank account save for five
deposits effected by the appellant to meet bank charges and
in order
to keep the bank account active and open.
[3] Over the years the property came to be neglected and had fallen
into a state of disrepair, so much so that it had come, according
to
the Ekurhuleni Metropolitan Municipality (‘the Municipality’),
to constitute a serious health hazard. Numerous written
demands by
the Municipality to the Company to remedy the situation were ignored.
Moreover, charges on the property had not been paid
to the
Municipality since 1998. That resulted in an action being instituted
by the Municipality in 1999 for payment in the sum of
R134 473.22.
Although the action was initially defended by the Company it
subsequently was barred from pleading and judgment by default
was
taken against it during November 2003 for the amount claimed.
[4] On 14 May 2004, the Municipality applied on notice to the Company
for an order declaring the property executable. There was no
opposition by the Company. On 24 May 2005, the Sheriff, having
attached the property with a view to its sale in satisfaction of the
judgment, served a notice on the Company at its registered office
that the property would be sold in execution. The sale was duly
advertised thereafter in the local press. The appellant was informed
on 7 June 2005 of the sale in execution but took no steps to
prevent
the sale from proceeding. Nor for that matter did he even attend the
sale in execution which occurred on 22 June 2005.
[5] At the sale in execution the property was sold on behalf of the
Municipality by the Deputy-Sheriff to the first respondent, Nungu
Trading 353 (Pty) Limited (‘Nungu’), for the purchase
price of R100. A condition of the sale was:
‘
The
purchaser shall pay to the Local Authority or any other body or
person entitled thereto, all such rates or taxes, and any other
amounts, including arrear amounts, owing to the Local Authority, for
any services rendered in respect of the property and shall pay
to the
plaintiff’s attorneys, the aforesaid amounts together with the
costs of transfer, transfer duty, interest and all other
amounts
necessary to obtain transfer of the property, upon demand.’
[6] In a letter dated 17 August 2006 to a director of Nungu, the
Sheriff stated:
‘
On
the date of sale in execution all parties present were made aware of
the additional payment to the purchase price of approximately
R3,5
million in outstanding rates and taxes due to Ekurhuleni Metropolitan
Municipality. It was stressed that this amount was payable
over and
above the purchase price and that this amount would most probably not
be securable by a bond.’
[7] On 23 March 2006, Nungu was informed by the Municipality that the
amount owing to it was R3 424 346.18. By agreement with the
Municipality, Nungu paid to it the sum of R320 203.51 in order to
obtain a clearance certificate. Additional arrangements had,
according
to Nungu, been made with the Municipality in respect of
payment of the outstanding balance. The clearance certificate was
duly issued
on 16 May 2006 and thereafter steps were taken to effect
registration and transfer of the property into the name of Nungu.
[8] On 4 August 2006, Porteous and two others brought an urgent
application for the winding up of the company. On 14 August 2006
a
written agreement was concluded between Porteous and Nungu. Pursuant
to that agreement the application was withdrawn. By that stage
the
transfer documents had been lodged with the Registrar of Deeds and it
was anticipated that registration and transfer was imminent.
The next
day the appellant launched an urgent application for the winding up
of the Company and the Company was placed in provisional
winding up
by an order of the Johannesburg High Court.
[9] On 26 August 2006, Nungu applied to intervene in the winding up
application. It sought the discharge of the provisional winding
up
order. In the alternative Nungu contended that it was entitled, in
terms of s 20(1)(
c
) of the Insolvency Act 24 of 1936 (‘the
Act’), to registration and transfer of the property into its
name notwithstanding
the provisional winding up order being made
final. Blieden J agreed with Nungu’s alternative contention and
on 13 October 2006,
the learned Judge granted the following order:
‘
(a)
the rule
nisi
provisionally winding up the
Company is confirmed.
(b) It is declared that the intervening
party, Nungu is entitled to take transfer of the property in terms of
the agreement between
it and the Sheriff of Germiston alternatively
the Municipality.
(c) The applicant is to pay the costs of
the intervening party, such costs are to include the costs of two
counsel.’
With leave of the learned Judge the appellant appeals against part
(b) of the order as also the resultant cost order, whilst Nungu
conditionally cross appeals, seeking, in the event of the appeal
succeeding, that the winding up order be discharged.
[10] Section 20(1)(
c
) reads:
‘
The
effect of the sequestration of the estate of an insolvent shall be –
…
(c) as soon as any sheriff or messenger,
whose duty it is to execute any judgment given against an insolvent,
becomes aware of the
sequestration of the insolvent’s estate,
to stay that execution, unless the court otherwise directs’.
Section 339 of the Companies Act 61 of 1973 provides that in the
winding up of a company unable to pay its debts, the provisions
of
the law relating to insolvency shall, insofar as they are applicable,
be applied
mutatis mutandis
in respect of any matter not
specially provided for by the Companies Act. The question that this
appeal therefore raises is whether
s 20(1)(
c
) is rendered
applicable to a company in winding up by virtue of s 339 of the
Companies Act.
[11] First though, a look at the other provisions of s 20 of the Act,
for s 20(1)(
c
) cannot be viewed in isolation. A useful
starting point, it would seem, is s 20(1)(
a
). Its effect is to
divest the insolvent of his estate and to vest it in the Master and
then, upon his appointment, in the trustee.
Section 20(2)(
a
)
provides, that for the purposes of s 20(1), the estate of the
insolvent shall include ‘all property of the insolvent at the
date of the sequestration including property or the proceeds thereof
which are in the hands of the sheriff or a messenger under a
writ of
attachment’. The estate of a company in liquidation, on the
other hand, remains vested in the company. In terms of
s 361(1) of
the Companies Act all of the property of a company being wound up is
deemed to be in the custody and under the control
of the Master until
a provisional liquidator has been appointed and has assumed office.
The property of the company of whatever kind,
although it is in his
or her custody and under his or her control, does not vest in its
liquidator unless the court so orders in
terms of s 361(3). Sections
20(1)(
a
) and 20(2)(
a
) of the Act insofar as they vest
the insolvent’s property in the trustee therefore plainly have
no application to a company
in winding up. Both sections are
therefore not rendered applicable by s 339 of the Companies Act to a
company in winding up. (See
Michael Blackman ‘Attachments put
in force before the commencement of winding-up’
(1980) 97
SALJ
379
at 381.)
[12] Section 20(1)(
b
), which, save for certain specified
exceptions, causes all civil proceedings instituted by or against an
insolvent to be stayed,
until the appointment of a trustee, likewise
finds no application to a company in winding up, for it has
corresponding counterparts
in ss 358 and 359 of the Companies Act.
Nor for that matter is s 20(1)(
d
), which empowers the
insolvent, if in prison for debt, to apply to a court for his
release, applicable to a company in winding up,
for it by its very
nature is unique to an individual insolvent.
[13] If, as I have just shown, none of the other provisions of s 20
of the Act are of application to a company in winding up, the
legislature could hardly have intended, it seems to me, that only the
one provision, that contained in s 20(1)(
c
) would be rendered
applicable. But there is a further reason. One, which on the
authority of this court, is decisive of the issue.
[14] Section 361(1) of the Companies Act provides:
‘
In
any winding-up by the Court all the property of the company concerned
shall be deemed to be in the custody and under the control
of the
Master until a provisional liquidator has been appointed and has
assumed office.’
Of its predecessor, s 124(3)(
b
) of the Companies Act 46 of
1926, Botha JA stated in
Secretary for Customs and Excise v
Millman, N.O.
1975 (3) SA 544
(A) at 552 G:
‘
In view of this special provision in the
Companies Act, the property of a company is not, upon its winding up,
by reason of sec. 182
[now s 339] of the Companies Act, vested in the
Master and the liquidator in terms of
s 20
of the
Insolvency Act 24
of 1936
as was supposed in the majority judgments in
Cornelissen,
N.O. v Universal Caravan Sales
(Pty.)
Ltd
1971 (3) SA 158
(AD) at pp177, 183.’
[15] In
Cornelissen,
the majority held:
‘
In
terms of
sec 20
of the
Insolvency Act (which
is,
mutatis
mutandis
,
applicable in the case of liquidation of a company), the goods
therefore formed part of the company’s estate and as such
vested,
upon liquidation, in the appellant in his capacity as
liquidator of the company. I agree with Kotzé A.J.A., that,
having regard
to the terms of
sec 20
, read with later provisions in
the
Insolvency Act relating
to the distribution of the proceeds of
the assets, the whole estate, which would include the goods in
question, would fall to be
dealt with by the liquidator strictly in
accordance with the scheme of distribution described in the Act.’
(per Miller AJA
at 177H – 178A); and
‘
By virtue of sub-sec. (1)(
a
)
of
sec. 20
of the
Insolvency Act, 24 of 1936
, as amended –
applied
mutatis
mutandis
to
the winding-up of a company unable to pay its debts by sec. 182 of
the Companies Act, 46 of 1926, as amended – a company
becomes
divested of its estate on winding-up.’
(per Kotze AJA at 183 D)
[16] Moreover, s 342(1) of the Companies Act provides that ‘in
every winding up of a company the assets shall be applied in
payment
of the costs, charges and expenses incurred in the winding up and . .
. the claims of creditors . . .’ (see also s
391). That purpose
and indeed the purpose of s 361(1) could hardly be achieved once the
sole asset of the company has been transferred
out of the company and
into the name of a third party. Similarly, various powers conferred
upon the liquidator by s 386 are rendered
nugatory by the grant of
the declaratory relief envisaged in paragraph (b) of Blieden J’s
order. It follows, on the facts here
present, that the grant of
orders on the one hand finally winding up the company, and on the
other authorising its sole asset to
be transferred into the name of a
third party, are mutually contradictory and create what can only be
described as a legal anomaly.
[17] It follows that s 20 (1) (
c
) finds no application to a
company in winding up and in the result the appeal must succeed. I
turn now to the cross appeal.
[18] In my view, the appellant established that he is a creditor of
the company. Furthermore, it is undisputed that the Company was
unable to pay its debts. Generally speaking an unpaid creditor has a
right
ex debito justitiae
to a winding up order against a
company unable to pay its debts. It is so that the court is vested
with a discretion by the very terms
of s 344 of the Companies Act.
Blieden J was alive to that and exercised his discretion in favour of
the grant of a final winding
up order. In that, he cannot be faulted.
In the result the cross appeal must fail.
[19] In the result:
(a) The appeal is upheld with costs, including the costs of two
counsel.
(b) The first respondent’s conditional cross appeal is
dismissed with costs, including the costs of two counsel.
(c) The order of the court
a quo
is set aside and there is
substituted therefore the following order:
(i) The rule
nisi
provisionally winding up the respondent is
confirmed and a final order of liquidation issues;
(ii) The intervening party’s application is dismissed with
costs, including the costs of two counsel.
____________________
V M
PONNAN
JUDGE OF APPEAL
CONCUR:
HOWIE P
MLAMBO JA
MALAN AJA
HEHER JA:
[20] I have read the judgment of Ponnan JA and agree with the orders
he proposes. I prefer to leave open the question of whether
s
20(1)(
c
) of the
Insolvency Act falls
to be treated on the same
footing as the other subsections of
s 20(1)
in the application of s
339 of the Companies Act (‘the Act’). The last-mentioned
section only applies the provisions
of the law relating to insolvency
in respect of any matter not
specially
1
provided for by the Act. The provisions in question in this case are
those which bring about a stay of execution after an attachment
of
assets belonging to the insolvent estate. I do not think that the
sections of the Act referred to by my colleague speak necessarily
or
by implication on that matter: cf
Mahomed v Kazi’s Agencies
(Pty) Ltd and Others
1949 (1) SA 1162
(N) at 1166
in fine
.
Section 359(1)(a) of the Act may well do so, but for the reasons
which follow, I do not think it is necessary to decide whether
it
does.
[21] Section 359(1)(
a
) suspends all civil proceedings (ie both
those already commenced before a winding-up and those which would,
but for the suspension,
be commenced after the making of an order for
winding up) until the appointment of a liquidator, whereafter they
may be commenced
or continued only after compliance with the
provisions of s 359(2). In this case the claim against the company
for transfer of the
property sold in execution had arisen before the
commencement of the winding-up. After the provisional order the
property remained
that of the company and fell into the concursus.
[22] To obtain an order for transfer of the immovable property into
its name Nungu had perforce to bring a counter-application against
the company, as it purported to do by serving that application at the
registered office of the company. At the time a provisional
winding-up order was in operation but Nungu did not attempt to comply
with s 359(2) of the Act.
[23] It does not matter in this regard whether one treats the claim
for transfer as part of the proceedings of execution (as Jennett
J
did in
Ex parte Flynn
:
in
re United Investment and
Development Corporation Ltd
(
in liquidation
)
1953 (3) SA
443
(E) at 445G-H) or as an independent proceeding. In either case
the counter-application purported to initiate civil proceedings for
relief against the company (
cf Collett v Priest
1931 AD 290
at
299;
King Pie Holdings (Pty) Ltd v King Pie (Pinetown) (Pty) Ltd
1998 (4) SA 1240
(D) at 1248H) in the face of the statutory bar
while the company was powerless to resist. The court
a quo
accordingly had no valid application before it which enabled it
to make the order for transfer (whether under s 20(1)(
c
) or
otherwise).
____________________
J A HEHER
JUDGE OF APPEAL
1
My
emphasis.