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[1989] ZASCA 163
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Morris NO v Airomatic (Pty) Ltd. t/a Barlows Airconditioning Company (327/88) [1989] ZASCA 163 (29 November 1989)
Case No 327/88
/wlb
SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION
In the appeal between:
DAVID ALEXANDER MORRIS N.O. Appellant
and
AIROMATIC (PROPRIETARY)
LIMITED t/a
BARLOWS AIRCONDITIONING COMPANY Respondent
CORAM: / HOEXTER, SMALBERGER, MILNE, STEYN et EKSTEEN JJA
Date of
Hearing
: 19 September 1989
Date of Judgment
: 29 November 1989
JUDGMENT
MILNE JA/
-1-
MILNE JA:
A company called REMFA (PROPRIETARY) LIMITED [the company] was
put into provisional liguidation with effect from 18 April 1985. While
the
company was still under provisional liquidation, a Scheme of Arrangement and
Offer of Compromise [the scheme] was submitted to
the provisional liquidator.
Pursuant to an order of coúrt, separate meetings of creditors were held.
The requisite majority
was obtained and the scheme was sanctioned by the court
in terms of s 311 of the Companies Act No 61 of 1973 on 20 August 1985,
and
the company was discharged from provisional liquidation.
(The order was duly registered in terms of s 311(6) on 28
August 1985.) The scheme made provision for the appointment
of the
appeliant as Receiver to administer it. The
appellant, having been duly
appointed, issued summons
against the respondent in the court
a quo
claiming an order
that "the return" of certain goods by the company to
the
-2-
respondent be "set aside" on the ground that the transactions, in terms of
which the goods were returned by the company to the respondent,
were voidable in
terms of the provisions of
s 29
of the
Insolvency Act, No 24 of 1936
. The
appellant claimed delivery of the goods, alternatively their value, which was
alleged to be the sum of R27 384.
The respondent excepted to the appellant's ciaim on the ground that the
particulars of claim failed to disclose a cause of action.
On the morning on
which the
exceptioh was heard, counsel for the appellant (not being
counsel who had drawn the particulars of claim) applied for
an amendment. It was agreed that if the court
a quo
came to
the conclusion that the amended claim disclosed a good cause
of action,
the amendment should be allowed and the exception
dismissed. If the court
came to the conclusion that the
amended pleadings did not disclose a cause of action, it
-3-
should allow the exception and make an appropriate order for the continuation
of the proceedings. The exception was upheld and the
appellant, with leave of
the court
a quo
, appeals against the upholding of the exception.
It was common cause that, for the purpose of deciding the exception, the
correctness of the following allegations had to be assumed:
1. The respondent sold and delivered certain goods to the
company.
2. During the period 15 March 1985 to 1 April 1985
the
company returned certain of the goods to the value of R27 384 to the
respondent.
3. Immediately after the return of these goods, the liabilities of the company
exceeded the value of its
assets.
4.
The
return of the goods by the company to
the
-4-
respondent constituted a disposition by the company of its property which would
have had the effect of preferring the respondent
above one or more of the other
creditors of the company, had the company not been discharged from provisional
liquidation.
5. At the date of provisional winding-up of the company, the respondent was a
creditor of the company in the sum of R10 220,70 (being
the balance of the
purchase price of the goods after deducting the cost of the returned
goods).
6.
After
the scheme was sanctioned, the respondent
proved
a concurrent claim for the sum of R10 220,70 in accordance with the provisions
of the scheme.
7. The ground upon which the company was provisionally
wound up was that it
was unable to pay all its debts
within the meaning of s340 of the Companies
Act.
The court
a quo
considered that the
exception
-5-
raised two points:
"The first is the competence of the parties to a compromise to invest the
receiver with the power to apply to the court to set aside
a transaction under
s
29
of the
Insolvency Act, and
the court's competence to make this order at his
instance. The second involves an examination of the terms of this compromise to
see whether it in fact authorises the receiver to take proceedings in terms of
s
29."
These points are indeed raised by the exception but, as
will
become apparent, they are not, with respect, the only
matters which
arise for decision in this case.
JONES J (with whom JANSEN AJ concurred) came to the conclusion that the terms
of the scheme did not, in fact, authorise the receiver
to take proceedings under
s 29
, holding that the terms of the scheme were not distinguishable from those
under consideration in
South African Fabrics Ltd v Millman N.O. &
Another
1972(4) SA 592 (A) and
Lansdown N.O. v Baldwins Ltd
1973(3)
SA 908 (W).
I am inclined to doubt whether the court
a guo
was
-6-
right in coming to this conclusion. It was, with respect,
wrong in holding that the effect of the
SA Fabrics
case was:
"... to limit the powers given to the receiver in a compromise to those powers
which are necessary for him to carry out his fuhction
to receive, consider and
investigate the creditors' claims."
It is guite correct that in
that case the court held that
the terms of the offer of compromise which were
there being
considered did so limit the power of the receiver, but
it
decided that as a matter of construction of the particular
offer of
compromise under consideration and not as a matter
of law. The relevant
provisions of the offer of compromise
in that case, after dealing with proof of claims by
creditors and the
right of the receiver to reject any
claims, provided in a separate
sub-paragraph that
"the receiver shall, subject to the aforegoing, have the same powers
mutatis
mutandis
as he would have had as judicial manager (read liquidator) of the
company on the winding-up ...".
It was crucial to the decision
that, under the offer of
-7-
compromise there under consideration, the company became
revested with its
assets and the management of its own
affairs and that the receiver's function
related solely to a
determined fund of R390 000 and
"... the essence of the receiver's function is to admit or reject proffered
claims and ultimately to distribute the R390 000 pursuant
to clause 2 of the
compromise
(
per
OGILVIE THOMPSON CJ at p 600E). The
learned Chief
Justice then continued at 600E-G
"Quite apart from the question of whether it is competent contractually to
invest an individual with certain of the powers conferred
by statute upon a
liquidator (see
South African Board of Executors & Trust Co (in
Liquidation) v Gluckman
1967(1) SA 534 (AD) at p541 ), it would for
instance, in my view, be contrary to the whole concept of the compromise to
construe
the opening words of clause 3(b) thereof as investing the receiver with
the right, under secs. 29 and 30 of the
Insolvency Act, 24 of 1936
- rendered
applicable by secs. 181
et seq
of the Companies Act -to set aside one of
Gurlee's already completed transactions as a voidable or undue
preference."
Similarly in the
Lansdown
case, the offer of
compromise
-8-
provided thah the company became revested with its assets and the management
of its own affairs. There also, the plaintiff was to
distribute the amount of
R22 500 which was to be paid in by the offeror, and the clause in the offer of
compromise which gave the
receiver "all the same powers
mutatis mutandis
as he would have had as liquidator of the company on a winding-up" was preceded
by the words "subject to the aforegoing". It is clear
that the basis upon which
TRENGOVE J 'arrived at the conclusion which he did, was his
finding that the
authority conferred upon the receiver
investing him with the powers of a liquidator on a winding-
up was,qualified by the words "subject to the aforegoing"
and "
mutatis mutandis
". See p 912F-G. The effect of
this
qualification was that although the receiver was given the
powers of
a liquidator on a winding-up
"... he was given those powers simply to the extent
that they were necessary to enable him to carry out his functions in relation to
the receipt, consideration and
-9-
investigation of creditors' claims unpaid as at the date of provisional
liquidation."
I turn now to examine the terms of
the scheme. It
is divided into four parts: the first part is described as
the offer and
there are three schedules. The first schedule
defines the terms used in the
other parts of the scheme.
The second schedule deals with proof of claims and
the third
schedule deals with powers of the receiver. Clause 1 of
the
offer provides that
"In this Offer, unless inconsistent with the context, the words and expressions
set forth in the First Schedule shall have the meanings
assigned
therein."
Both the second and third schedules commence with the
words
"This Schedule shall be deemed to form part of the OFFER to which it is
annexed".
Clause 2.1 of the offer provides that upon acceptance
and
sanction thereof the offeror is to pay to the receiver the
capital sum.
The capital sum is defined in the first
-10-
schedule as the sum of R122 500 plus the face value of loan
levies and pre-paid taxation at the "fixed date" which is
defined as 5
June 1985. Clause 2.2 of the offer provides
that the capital sum, together
with the amount realised with
regard to the "excluded assets" is to be
applied by the
receiver in the order of preference there set out.
"Excluded assets" are defined in the first schedule as
"Certain assets being cash on hand collected by the LIQUIDATOR prior to the
close of business on the 4th day of June 1985, any claims
which might arise
against any party in terms of
Sections 26
,
29
,
30
,
31
and
32
of the
Insolvency
Act and
as is dealt with in Clause 15 in the Third Schedule hereto, certain bad
book debts as per list already agreed to between the OFFEROR
and the
LIQUIDATOR".
(It is common cause that this definition of
"excluded
assets" must be read as if the word "and" appeared between
the
word "hereto" and the word "certain"). The first
schedule defines "assets"
as
"All and every asset of the COMPANY except for excluded assets hereinafter
provided, possessed by the COMPANY
-11-
at the FIXED DATE consisting in the main of fixtures, fittings, plant and
machinery, and book debts (accounts receivable) plus cash
on hand collected by
the LIQUIDATOR after the FIXED DATE, stock-in-trade and raw
materials."
The first schedule also defines the word "claims"
as
"Any and all legally valid claims against the COMPANY of whatsoever nature
..."
(and then follows a wordy recital of what is to be
included
in such claims). Clause 4.5 of the offer provided that
"..simultaneously with Sanction of the OFFER and on
the date of Sanction, the Provisional Liquidation or Winding-Up Order (as the
case may be) be withdrawn and the COMPANY discharged
from such Order and is
revested
with all its assets."
In view of the definition of "assets" the
"excluded assets" were not included in the assets which revested in the
company.
Clause 16 of the offer provided that subject to
-12-
the other terms of the offer, the provisions contained in
the second
schedule were to govern the procedure relating to
proof of claims. Clause 17 of the offer provided that
"Subject to the other terms of this Agreement, the provisions contained in the
Third Schedule shall govern the duties and powers
of the
RECEIVER."
The third schedule, after the provisions
already
mentioned deeming it to be part of the offer, recites the
powers of the
receiver commencing with the following words
"In addition to any powers conferred upon the RECEIVER in terms of this OFFER or
otherwise, and without in any way restricting the
generality of these or any of
the hereinafter mentioned powers, the RECEIVER shall have such powers as are
permitted or allowed by
Law including, inter alia:-"
Theh follow
sixteen clauses setting out the powers of the
receiver. In clause 6 the receiver is given power
"To adjudicate upon the claims of creditors including the right to demand
delivery or (of?) any securities held by any creditor and
the right to agree
upon or dispute any claim and/or the preference or security
of
-13-
any claim."
This seems unnecessary in view of the fact that the
second
schedule provided, also in clause 6, that the receiver had
the
power to reject claims "... either wholly or in part or
as to any security or
preference or as to the valuation of
any security ...". The appellant
contends that clauses 15
and/or 16 of the third schedule, particularly when
read with
the definition of "excluded assets", conferred the power
upon
the receiver to take the action which he did take in
suing the respondent.
These clauses read as follows:
"15. Notwithstanding anything to the contrary herein contained, the RECEIVER
shall have the same powers mutatis mutandis as he would
have had as final
LIQUIDATOR of the COMPANY upon its compulsory winding-up on the grounds of
inability to pay debts, not merely to
adjudicate upon and admit or reject in
whole or in part any preference or security claimed but also specifically to
investigate and
take any action in respect of any of the claims of all classes
of creditors proved and if necessary, prior to make (
sic
) any
distribution but in terms of the OFFER, to investigate and take any action for
the purpose of
-14-
pronouncing upon the legal validity of any claims which he might deem to be
necessary in terms of the provisions of Sections 26, 29,
30, 31 and 32
respectively of the
INSOLVENCY ACT including
and without affecting or in any way
limiting the generality of the aforegoing, to set aside and take steps to set
aside preferences
and securities and claims of creditors to the COMPANY in whole
or in part as at the date of Provisional Liquidation of the COMPANY
and to
conduct examinations and enquiries in terms of the relevant provisions of the
ACT, as if the COMPANY was at any such stage
in Final Compulsory Liquidation.
16. Anything to the contrary herein contained notwithstanding, the RECEIVER
shall be obliged to
realise all the EXCLUDED ASSETS insofar as the
same are capable of realisation and for this
purpose shall
have the same powers mutatis
mutandis as he would have had as Final
Liquidator
of the COMPANY upon its compulsory winding-up and
without in
any way limiting the generality of the
aforegoing, to remit any monies or
other rights to
the Republic of South Africa from anywhere in the
world;
to call upon persons indebted to the
COMPANY to pay their debts within a
period and at
a place mentioned and if any person fails to do
so, to
recover payment f rom that person (if need
be, by legal proceedings in any
country in the
world) if in the opinion of the RECEIVER there is
a
reasonable prospect of recovery of such debts."
-15-
It is clear that there are vital differences between the scheme and the
offers of compromise under consideration in the
SA Fabrics
case and the
Lansdown
case,
supra cit
. In the first place, the company is not
revested with all its assets because the "excluded assets" are excluded. (The
right of a
liquidator to set aside impeachable transactions is not an asset of
the company, but that is by the way.) Secondly, what has to be
distributed in
this case is not only the capital sum, namely R122 500, but also "— the
amount realised with regard to the
excluded assets ...". Furthermore, in
sharp contrast to the
words "subject to the aforegoing" which appeared in
both the
SA Fabrics
case and the
Lansdown
case, clauses 15 and 16
in the instant case commence with words which enlarge rather than qualify what
follows: in the case of clause
15 with the words "Notwithstanding anything to
the contrary herein contained," and in the case of clause 16 "Anything to
the
-16-
contrary herein contained notwithstanding,". I cannot therefore, with
respect, agree with the reasons of the court
a quo
for finding that the
terms of the scheme did not clothe the receiver with the powers necessary to
enable him to bring the action
which he did.
That is unfortunately, however, not an end of the
matter because there are, to say the least of it, serious
difficulties in
ascertaining the correct construction to be
put upon clauses 15 and 16. Had clause 16 stood alone, the interpretation
of
the scheme would have been simpler. The
obligation
contained in that clause to realise all the excluded assets
"insofar as they are capable of realisation" necessarily
implies a duty to do so and the definition of "excluded
assets" where it
refers to "... any claims which might arise
-17-
against any party in terms of
sections 26
,
29
,
30
,
31
and
32
of the
Insolvency Act..." seems
to envisage the very kind of action that the appellant
instituted. The difficulty is, however, that the words which follow immediately
after the reférence to these sections in the definition of "excluded
assets" refer specifically to clause 15 of the third
schedule and not clause 16,
and there is no claim for rectification. (It is common cause that the words "and
as is dealt with in
Clause 15 in the Third Schedule hereto" relate to "any
claims which might arise against any party in
terms of
Sections 26
etc." and
not to the words "certain bad
book debt's as per list already agreed etc") The words once
used by SELKE J to describe a pleading namely, "an
unparagraphed riot of
allegation" come to mind when one
scrutinises this clause. The respondent
contends that, in
effect, the whole of this clause is concerned with powers
of
the receiver in dealing with claims
against
the company.
This
contention is supported by the definition of "claims"
-18-
in the first schedule which, as already mentioned, defines them as "claims
against the COMPANY of whatsoever nature". Furthermore,
the words "... the same
powers
mutatis mutandis
as he would have had as Final Liquidator of the
COMPANY upon its compulsory winding-up on the grounds of inability to pay its
debts
..." clearly relate to the specific powers which then follow. The first of
these powers is to adjudicate
upon and admit or reject, in whole or in part,
any
preference or any security claimed. This clearly refers to
a claim against the company. The second power is to
investigate and take any action in respect of any of the
claims of all classes of creditors proved (which in terms
refers to claims of creditors against the company). The
third power which
follows, as it were in the same breath, is
to "... investigate and take any
action for the purpose of
pronouncing upon the legal validity of any claims
which he
might deem to be necessary in terms of the provisions of
-19-
Sections 26
,
29
,
30
,
31
and
32
respectively of the
Insolvency Act
...". I
thought, at first, that one would have to read the words "... for the purpose of
pronouncing upon ..." as if they read "for
the purpose of obtaining a
pronouncement upon ..." but I am no longer certain that this is correct. It
would be guite possible for
the receiver, without going to court, to pronounce
upon the validity of a disposition of property not made for value which was
uncompleted
'by the insolvent in terms of
s 26(2)
of the
Insolvency Act. In
fact, in the
SA Fabrics
case
supra
it
was held by this court at p 600
in fin
to 601D that such a
power had indeed been conferred upon the receiver by the
terms of the offer of compromise there under consideration.
Sections 29
,
30
and
31
, however, deal with the powers of the
court
to set aside
impeachable transactions of the kind
there specified and
s 32
deals with proceedings
instituted for that purpose. In the
Lansdown
case
supra
the offer of compromise gave the
-20-
receiver the specific power "... to investigate and take any action which you
may deem to be necessary in terms of the provisions
of
sections 29
,
30
,
31
and
32
of the
Insolvency Act
...". Nevertheless, the court held that the receiver
was entitled to avail himself of these powers only insofar as was necessary
to
enable him to fulfil his function as receiver in respect of creditors' claims
submitted to him. The fourth power which is included
in clause 15 of the instant
case is a power "... to set aside and take steps to set aside preferences and
securities and claims of
creditors
to the COMPANY in whole or in part as at the date of
Provisional Liquidation of the COMPANY " Here again I
was inclined, at first, to think that the phrase "and claims
of creditors
to the COMPANY" must be read as "claims of
creditors of (or against) the
company" but I am no longer
certain. The words "claims of creditors to the
COMPANY"
may, in the context, mean "claims of creditors presented to
-21-
the company".. The difficulty about this construction is that it involves a
tautology since the first power referred to above, includes
a power to reject
any preference in respect of a claim against the company. This is not a
particularly potent argument, however,
when one realises that there are already
two other clauses which also give the receiver power to reject the preference
claimed by
a creditor in claims against the company. The first is in clause 6 of
the second schedule and the second is in clause
6 of the third schedule.
Furthermore, if one gives to
clause 15 the meaning which the appellant seeks to give it,
what was the purpose of the first part of clause 16 of the third schedule? I
am inclined to think, however, that the definition of
"excluded assets" and in
particular the words "as is dealt with in Clause 15 in the Third Schedule
hereto" indicate that it was intended
to clothe the receiver with power to bring
proceedings of the nature which he has
-22-
brought.
It is, however, unnecessary to decide this point as I have come to the
conclusion that there are other grounds upon which the appeal
must fail. The
first relates to the particular terms of the scheme, and the second
relates
to the question of whether the terms of an offer of compromise, sanctioned in
terms of s 311 of the Companies Act, can validly
apply the provisions of
s 29
of
the
Insolvency Act, read
with s 340 of the Companies Act, (or terms
háving the same effect as those provisions), to persons who would have
been subject
to such provisions had the company been in the process of being
wound up, despite the fact that it is not being wound up.
The latter question is crisply raised in certain
obiter dicta
of the
court
a quo
. The learned judge, who
-23-
gave the judgment of the court
a guo
, while fully appreciating that it
was not necessary for him to do so, expressed his views as follows:
"The excipient's argument on this point is based upon two propositions which
are, I think, unquestionably
correct. The first is that where the
Insolvency Act -rendered
applicable by
sections 339 and 340 of the Companies Act - gives a liquidator a special right
of action under section 32, to be exercised
by him in
nomine officii
, he
cannot transfer that right to another by way of cession (
South African Board
of Executors and Trust Company Limited v Gluckman
1967(1) SA 534 (AD)
541F-542A). The second is that it is not possible in law for the parties to a
compromise to invest the receiver
with exactly the same powers which a
liquidator is given when a company is being wound up, without any limitations or
gualifications
whatever. This reálly arises out of the first proposition.
It is a logical extension of the principle in
Gluckman
's case, and
Gluckman
's case is freguently cited as authority for it. See, for
example, the
South African Fabrics
case
supra
at p 600F and the
Lansdown N.O.
case
supra
at p 913F. Mr
Solomon
submits that
the principle in
Gluckman
's case precludes the transfer of a liquidator's
right of action under section 29, not only by way of cession but by way of any
other
type of contract as well. It follows that that right cannot be conferred
by contract upon a person who is not
á
-24-
liquidator. This also arises from the wording of sections 29 and 340 which
sets the preconditions which must be established before
the Court has the power
to impeach already completed transactions. These preconditions restrict the
Court's power to set aside such
transactions to cases where the company which
made them is in fact being wound up. The conclusion is that the parties to a
compromise
cannot invest the receiver with the right to apply to the Court to
set aside a transaction under section 29 because it is futile
to empower him to
ask the Court to do something which it cannot do (
Gunn and Another N.N.O. v
Victory Upholsterers (Proprietary) Limited
1976(1) SA 127 (D) at p 135D).
This argument is logical and convincing. I am quite satisfied that it disposes
of the matter entirely
on the unamended pleadings. But does the same conclusion
necessarily follow where an allegation is made that the defendant who benef
ited
by the transaction to be impeached is also a party to the compromise and a
creditor whose claim is directly related to the transaction
to be impeached? It
is one thing to say that because a liquidator may not transfer rights of action
specially conferred upon him
by the
Insolvency Act for
the benefit of creditors,
creditors may not achieve the same result in terms of a compromise and the
Courts will not enforce their
attempts to do so. It is quite another thing to
say that under no circumstances may creditors agree amongst themselves to pay in
the value of assets they have already received in a pre-compromise transaction
where the disposition of those assets to them would
have been voidable under
section 29
if liquidation and not a compromise had followed.. In these
circumstances the
-25-
Court is not being asked to enforce a right of action at the instance of a
receiver which is specially conferred by statute on a liquidator
and which may
only be exercised by him. The source of the receiver's
authority and the creditors' rights and obligations is contractual, and the
Court is merely being asked to exercise its ordinary power
to enforce a contract
in the event of a breach. Is there any reason why it should not do so? This
would depend upon the terms of
the compromise itself. If it provides for an
arrangement between the creditors with identical consequences, as between
themselves,
as those produced by
section 29
on winding up I am unable to find
anything in the wording of the
Insolvency Act or
the Companies Act, or in the
reasoning underlying the
Gluckman
decision, which prevents them from
doing so. I do not accept that a receiver who seeks to impeach an already
completed transaction
in these circumstances
is really administering the
affairs of the company. The company is no longer involved. The receiver is doing
nomore than using the
machinery of the compromise to enforce rights and
obligations created by the compromise. It may be that in invoking the provisions
of section 29
mutatis mutandis
, he increases the amount
of the fund to
be received and administered, but this - is permissible if the compromise
provided for it. It is not as if the receiver
and the general body of creditors
are seeking to do something under the guise of a compromise which they cannot
do, as for example
giving the receiver the power to set aside a transaction
between the company and somebody who is not a party to the compromise, which
is
the factual situation to which the remarks in the
Gunn
case
supra
-26-
at p 135D refer. They are also not seeking to do something which is illegal, or
immoral, or impossible, or contrary to the express
provisions of a statute. On
the contrary, I think the parties should be encouraged to organise their
compromise in such a way as
to prevent as far as this is possible any one
creditor from enjoying a preference over the others by reason of pre-compromise
transactions.
This kind of arrangement has already been recognised in the
analogous case of a pre-compromise disposition without value. The effect
of the
South African Fabrics
case
supra
at p 601A-603B is that creditors
may validly invest their receiver with substantially the same power as a
liquidator would have under
section 26(2)
of the
Insolvency Act, which
prevents
claims arising out of a disposition not made for value from competing with the
claims of creditors in the insolvent estate.
Subject to the terms of the
compromise I can see no reason why the receiver should not also have the power
to apply to Court to enforce
his decision in respect of dispositions without
value; or, to set aside a mortgage bond, pledge or cession of book debts as an
undue
or voidable preference; or to recover assets or their value for the same
reason. This is because all of the creditors, including
the creditor against
whom the relief is sought, have agreed to submit to the claim. The difficulty
raised in
Gluckman
's case
supra
at p 541H relating to stultifying
the rights of other creditors or multiplicity of suits does not
arise."
The learned judge was clearly correct in saying that
the
effect of
s 29
of the
Insolvency Act and
s 340 of the
Companies Act is
to restrict the Court's power to set aside
such transaction to cases where the company is, in fact,
being wound up.
-27-
Section 340 of the Companies Act provides as
follows:
"(1) Every disposition by a company of its property which, if made by an
individual, could, for any reason, be set aside in the event
of his insolvency,
may, if made by a company, be set aside in the event of the company being wound
up and unable to pay all its debts,
and the provisions of the law relating to
insolvency shall
mutatis mutandis
be applied to any such disposition. (2)
For the purpose of this section the event which shall be deemed to correspond
with the sequestration
order in the case of an individual shall be -
(a) In the case of a winding-up by the Court, the
presentation of the
application, unless that
winding-up has superseded a voluntary
winding-up,
when it shall be the registration
in terms of section 200 of the special resolution to wind up the
company;
(b) . ..;
(c) ..."
The dispositions referred to in this
section are those which are dealt with in
sections 26
,
29
,
30
and
31
of the
Insolvency Act. S
26 deals with a disposition not made for value,
s 29
with a
disposition which has had the effect of
-28-
preferring one of the insolvent's creditors above another,
s 30
deals with a disposition made by the insolvent with the
intention of preferring one of his creditors above another,
and
s 31
with
collusive dealings between the insolvent and
any other party which have had
the effect of prejudicing the
creditors of the insolvent or preferring one of
his
creditors above another.
S 32
of the
Insolvency Act
provides
that:
"(1) Proceedings to set aside any disposition of
property
under section
twenty-six
,
twenty-nine
,
thirty
or
thirty-one
, or for the recovery of
compensation or a penalty under
section
thirty-
one, may be taken by the trustee. If the
trustee
fails to take any such proceedings they may be
taken by any
creditor in the name of the trustee
upon his indemnifying the trustee against
all
costs thereof."
Sub-section (3) of
s 32
provides that
"When the Court sets aside any disposition of property under any of the said
sections, it shall declare the trustee entitled to recover
any property
alienated under the said disposition or in default of such property the value
thereof at the date of the
-29-
disposition or at the date on which the disposition is set aside, whichever is
the hiqher."
I interpose here to draw attention to the provisions
of s
31(2) which make it clear that any person who was a party to
a collusive
disposition in terms of
s 31(1)
is liable to
make good any loss caused
thereby to the insolvent estate
and also to pay a penalty. It is clear that
such a person
need not necessarily have been a creditor of the
insolvent
at any material time. This becomes significant when one
considers whether such provisions can validly be applied by
means of a compromise in terms of
s 311
of the Companies
Act.
It is clear that sequestration of the insolvent is a prerequisite to the
exercise by the court of its powers under sections 26, 29,
30 and 31.
S 2
of the
Insolvency Act defines
"sequestration order" as "any order of court whereby an
estate is sequestrated and includes a provisional order,
-30-
when it has not been set aside." Similarly s 340 of the Companies Act refers
to dispositions by companies "in the event of the company
being wound up ..."
and s 1 defines a "winding-up order" as "... any order of court whereby a
company is wound up and includes any
order of court whereby a company is placed
under provisional winding-up for so long as such order is in force."
The court
a quo
, however, suggests that this problem may be overcome
if "... creditors agree amongst
themselves to pay in the value they have already received in
a pre-compromise transaction where the disposition of those
assets to them would have been voidable under s 29 if
liquidation and not
a compromise had followed". In these
circumstances, so it is suggested, "the
source of the
receiver's authority and the creditors' rights
and
obligations is contractual, and the Court is merely being
-31-
asked to exercise its ordinary power to enforce a contract in the event of a
breach." (For ease of reference, I shall call this the
reasoning on the second
part of the case). There are, with respect, a number of difficulties in the way
of this reasoning. The first
is that the scheme does not contain provisions to
this effect. (That is what the court
a quo
held, but for reasons which I
have already held, are not valid). Assuming (as I am inclined to think is the
case) that the scheme
does purport to confer the same powers on the receiver as
the final liquidator would have had if
the company had been wound up, that
would not include the
power to set aside a disposition of the kind referred to in
s 29. The Court, and only the Court, has that power. Nor
does the scheme
purport to confer on the receiver the power
which the Court would have had to
set aside such a
disposition had the company been wound up. Nor does the
scheme purport to confer upon the Court the power to set
-32-
aside a disposition which would have constituted a preference in terms of s
29 had the company been in the process of being wound
up despite the fact that
it was not being wound up. Nevertheless, the appellant, in his particulars of
claim, alleged that the return
of the goods by the company to the respondent had
the effect of preferring the respondent above one or more of the other creditors
of the company and "in the premises, and in terms of the provisions of s 29 of
the said
Insolvency Act, the
transactions in terms of which the returned goods
were
returned to the defendant were voidable." An order was
accordingly claimed directing that the return of the goods
(presumably this should be a reference to the transactions
under which they were returned) be set aside.
The appellant's counsel sought to overcome this difficulty by submitting that
the court should imply a term
-32A-
in the scheme to the effect that the court would have power to set aside such
transactions in terms of
sections 29
and
32
read with
s 340
despite the fact
that the company was not being wound up. No such term was pleaded. Quite apart
from any other difficulties, however,
this assumes that (a) one is dealing with
a contract and nothing else and (b) it is a contract to which the respondent was
a party.
These assumptions are also implicit in the reasoning of the Court
a quo
on the second part of the case. For reasons which
will become apparent neither of such assumptions is correct.
There is a substantial body of authority to the
effect that a duly sanctioned offer of compromise is to be
-33-
regarded as having the status of a contract at least for
certain purposes.
See
Cohen N.O. v Nel & Another
1975(3) SA
963 (W) at 968F,
Ex Parte Ensor N.O.: In Re Cape Natal Litho
(Pty) Ltd
1978(3) SA 908 (D) at 911A-D and
Ex Parte Kaplan
&
Others N N.O.: In Re Robin Consolidated Industries
Limited
1987(3) SA 413 (W) at 419C. Nevertheless it may, and not
infrequently does, lack what is normally regarded as an
essential
characteristic of a contract, namely, the
consensus of all the parties said
to be bound by it. As
FRANKLIN J said in
Cohen
's case
supra
at
p 968-9:
"... the South African authorities to which I have referred establish that it [a
sanctioned compromise] is a contract which is binding
on ail the creditors, the
members, the company, the receiver and the offeror,. which derives its binding
effect
not from the actual consent of all the creditors
, but by operation
of law once the provisions of
sec. 103
have been complied with." (my
underlining)
Furthermore the court does not, ordinarily speaking,
have
power in the absence of consent of all the parties to modify
-34-
the terms of a valid contract. It has been held, however, that the court has
power, albeit a limited one, to modify the terms of the
compromise for the
purpose of rendering it effective or more effective. See
Investments (Pty)
Ltd v Crown Furniture Manufacturers (Pty) Ltd
1963(2) SA 271 (W) at 273C-G,
Ex Parte Bobat: In Re Kathorian Trading Co (Pty) Ltd
1965(2) SA 291 (D)
at 295C,
Penkin & Another v Roeland
Shoes (Pty) Ltd &
Others
1972(1) SA 513 (C) at 517E and Ex
Parte Trakman N.O.: In Re
Dumbe Motel (Pty) Ltd
1978(1) SA 1082 (N) at 1087A. Furthermore, since such
compromises are
invariably conditional upon their being duly sanctioned by
the court, it could not be said that there was a binding
contract between the offeror and the majority (even if the
reguisite
majorities voted in favour of the offer of
compromise) if the court refused
to sanction it. In any
event, it seems to me artificial to speak of creditors
who
have voted against the acceptance of an offer of compromise
-35-
as having contracted in terms thereof and equally artificial
to speak thus
of persons who have not attended the meetings
of creditors for one reason or
another. As a matter of
fact, although the record is silent on this point, we
were
informed (by ágreement of counsel) that the respondent was
not
represented at any of the meetings of creditors to which
the scheme was
submitted for approval. I accordingly
disagree with the remarks of the
learned judge
a quo
that
"It is not as if the receiver and the general body of creditors are seeking to
do something under the guise of the compromise which
they cannot do, as for
example giving the receiver the power to set aside a transaction between the
company and somebody who is not
a party to the compromise
...",
nor can it validly be said that there is no objection to
the
receiver applying to court
"... to enforce his decision in respect of dispositions
without value ... because all of the creditors including the creditor against
whom the relief is sought, have agreed to submit to
the claim."
S
311(2)
provides that, if the requisite majority of all the
-36-
creditors agrees to the compromise or arrangement, it shall,
if sanctioned
by the court, be binding on all the creditors.
It does not say that they
shall be deemed to have agreed
thereto. As COETZEE DJP put it in
Ex Parte
Kaplan N N.O.
supra cit
at 419C:
"Because the purpose of the section is to create machinery to bind a
dissenting recalcitrant minority to the agree-ment between the
company and the
majority, 'agreement' would have been inapposite to describe the result."
There is, therefore, no basis upon which the term sought to be
implied can be implied. Fór all the aforegoing reasons it
follows
that the allegations in the appellant's particulars of
claim are inadequate to sustain the cause of action.
There is, however, a further objection to this
notional incorporation of provisions equivalent to the
provisions of
sections 26
,
29
,
30
and
32
, and that is, that
creditors are bound by the
scheme in respect only of those
claims which constitute them creditors; not
in respect of
claims which have been satisfied before liquidation.
This objection was not raised in argument and
-37-
counsel were accordingly requested to submit supplementary heads of
argument upon the following questions:
A. Would it be correct to say that a compromise or an
arrangement duly
sanctioned by the Court in terms of s
311 of the Companies Act 61 of 1973, is
binding on
creditors in respect only of those claims by virtue of
which
they are or claim to be creditors at the time of
acceptance of the offer of
compromise (or, in this
particular case, possibly at "the fixed date" or
the
date of provisional liquidation), but not in respect of
claims which had been satisfied prior to the
provisional liquidation?
B. If the answer to A is in the affirmative, whether it
would be correct in
this case that the offer of
compromise is accordingly binding upon the
respondent
in respect only of its claim for R10 000? (This should
have
been, in fact, R10 220,70).
Counsel have now
submitted supplementary heads of
-38-
argument and we are indebted to them for their assistance. Perhaps not
surprisingly, it is submitted on behalf of the appellant, that
the answer to
both questions is in the negative and on behalf of the respondent that the
answer to both questions is in the affirmative.
On behalf of the appellant it is submitted that since, in terms of s 311(2)
the compromise after sanction is binding "on all creditors",
the compromise
means just that i.e. that it is binding on all persons who are creditors at
the time of liquidation. The words used in the section are
certainly of wide import but it is necessary to examine what they really mean
in the context in which they are used. Obviously, a
scheme when sanctioned, is
binding on creditors only if the requisite majority has been obtained in each
class of creditor sought
to be bound by it. As WESSELS JA said in
Barclays
National Bank Ltd v H J de Vos Boerdery
-39-
Onderneminqs (Edms) Bpk
1980(4) 475 (A) at 481F:
"... where (as in this case) two classes of creditors are concerned, namely
concurrent and secured creditors, and the requisitê
majority is obtained
in respect of one class of creditors only, the compromise, if sanctioned by the
Court, becomes binding on that
class only."
In
Kleena Industries (Pty) Ltd v Senator Insurance Co. Ltd
1982(2)
458 (W) SLOMOWITZ AJ went so far as to hold at p
463G that
"... where the Act refers to a sanctioned composition as being binding on all
creditors or on all members of a particular class of
them, the word 'all' must
be qualif ied to mean no more than all those whom the offeror intended, on a
proper construction of the
offer, should be
bound."
If this is correct then, whether or not
a
particular compromise is binding on creditors in respect
only of those
claims by virtue of which they are, or claim
to be creditors, will depend
upon the correct construction
to be put upon the terms of that compromise.
This much
-40-
appears to be conceded (at least as a notional possibility)
in the
appellant's supplementary heads. If this is a correct approach then, in my
judgment, the terms of the scheme clearly indicate
that the scheme was not
intended to refer to claims which had been discharged prior to the date of
liquidation. The scheme in this
case defines a creditor as "any person, firm,
company or other legal entity to whom the company is indebted in respect of any
claim."
The definition of "claim" appears to include all and any legally valid
claims against the company "the cause of which arose
on or prior to the fixed
date". The "fixed date" was 5 June
1985, and it may be that this had the effect of including
claims which arose between 18 April 1985 and that date. It
is clear, in any event, that the scheme was not intended to
refer to any date earlier than the provisional liquidation
since it defines itselfs as "The compromise and arrangement
proposed by the OFFEROR between the COMPANY and its
-41-creditors as at the FIXED DATE".
Quite apart from the way in which thisparticular scheme is construed,
however, it is clear, in my view, that the reference in s 311(2)
to creditors
can only be a reference to the claims of creditors and only to those claims by
virtue of which they are, or claim to
be creditors, at the date of provisional
liquidation (at the earliest).
The question as to who are "creditors" for the
purposes of s 311 of the Companies Act was raised but not decided in
Ex
Parte Kaplan N N.O. supra cit
at p 427-8. COETZEE DJP thought that "The word
in the section is probably limited to persons having pecuniary claims, whatever
the
nature of their source might be." See also his remarks at p 431F as to the
definition of "creditors". In
-42-
this regard the respondent's counsel makes a telling point
in his supplementary heads. He submits that
1)
prima facie
the word "creditors" means the same in
s 311(2)(a) as it does in s 311(1);
2) with regard to s 311(1)
(i) it does not make sense to talk of a compromise
between a company and a person or persons whose
claims have previously been satisfied;
(ii) it would not make any sense to give a former
creditor, whose claim had already been
satisfied,
locus standi
to make an application to Court
for the convening of a meeting of
creditors to consider a compromise between
a
company and its creditors; and
(iii) it would not make any sense to include in the
meeting of creditors those former creditors
whose claims have previously been satisfied;
-43-
3) with regard to ss 311(2)(a) it would make no sense to
take into account the votes of former creditors whose claims have previously
been satisfied, in deciding whether or not to sanction
a compromise between a
company and its creditors.
It can make no difference that the
respondent had a claim which existed at the date of provisional liquidation (or
some later date)
and that it also had, previously, a claim which was satisfied
before the date of liquidation.
There is no reason why it should be in a worse position in
respect of its previously satisfied claim than another
creditor who had a previously satisfied claim but is not
bound by the
compromise because he had no claim at the date
of liquidation. (I shall deal
later with the suggestion
that the respondent, by lodging a claim, was "approbating"
the scheme and
therefore could not "reprobate" it).
-44-
It was submitted on behalf of the appellant that if the scheme were to be
construed so as to apply to creditors only in respect of
claims existing at the
date of liquidation "the receiver's powers to act in terms of
s 26
,
29
,
30
,
31
and
32
of the
Insolvency Act would
be illusory as he would not be able to
recover any disposition received by a creditor prior to the relevant date." That
would indeed
appear to be the case, but in the absence of an express undertaking
by the person sought to be bound to pay to the receiver what
he would have to
pay in terms of
s 29
of the
Insolvency Act had
the company been finally wound
up, I can see nothing anomalous or unfair in that result.
What is quite clear in this case is that there is no basis upon which it can
be said that the respondent is, or was at the time when
the provisional
liquidation order was granted, or at any material time thereafter, a
creditor
-45-
of the company in respect of the goods which were returned by the company to
the respondent. The particulars of claim as originally
lodged did not even
allege that the respondent was a creditor. The amendment makes that allegation
but alleges that it is a creditor
in respect of R10 220,70. That claim for R10
220,70 is the only claim of the respondent which is subject to the terms of the
compromise.
Tt was binding upon the respondent in the sense that, once the
scheme was sanctioned, its rights in respect of the
R10 220.70 were confined
to the rights which were conferred
upon it in the scheme. At no time relevant to these
proceedings was there any dispute between the company and
the respondent with regard to the goods returned or their
value. There was
no guestion of there being either a
compromise between the company and the
respondent in that
regard nor any arrangement between the company and
the
respondent in that regard. I agree with CANEY J where he
-46-
said in
Gangapersad v Pompeni Stores (Pty) Ltd
1956(4) SA 56
(D) at pp 60-61:
"For none of the former liabilities (those of the liquidator), it seems to me,
is an offer of compromise under the provisions of
sec. 103
appropriate; at any
rate it is not appropriate unless the compromise be made expressly to apply to
them. Creditors for this purpose
(when the compromise is offered in respect of a
company in liguidation) are those who were such,
and for so much as was owing
to them
, at the date of the liquidation order. Cf the remarks of GREENBERG J
in
Estate Behr v Klotz
1926 TPD 353
at p 358 ..." (my
underlining)
cf
also
Simon and Another v The Assistant
Master & Others
1964(3) SA 715 (T) at 719D-F.
It may be possible to include the claims
of
creditors who were such at the time of acceptance
of the
offer of compromise or the sanction thereof, but
it
certainly cannot refer to persons who had ceased to be
creditors by the
time the provisional order of liguidation
was made.
-47-
It was also submitted in the appellant's supplementary heads that even if the
first question raised by the Court were to be answered
in the affirmative, this
would not have the result that the scheme is binding on the respondent in
respect only of its claim for
R10 220,70 because, so it was submitted,
"(i) Respondent was a creditor for R37 604,70;
(ii) In respect of this precise transaction, it received goods to the value
of R27 384, leaving the said balance of R10 220,70;
(iii) The compromise is . binding on the respondent in respect of the entire
contract for goods soid and delivered. Regard cannot
be had only to the said sum
of R10 220,70 as this would ignore the cause of action on which the said claim
is based;
(iv) As the respondent is a creditor for the balance of the contract price,
the offer of ccmpromise is binding on it in respect of
the contract on which the
claim is based and not merely in respect of the balance of the contract
price;
(v) Further, the appellant's claim is based on the identical contract;
(vi) To limit the binding force of the ccmpromise to the balance of the
-48-
respondent's claim would entitle the respondent to rely on the contract but
would preclude the appellant from having regard
thereto."
The simple answer to this is
that if the scheme is
not binding in respect of claims which have been
satisfied
prior to the provisional liquidation, then, as a matter of
logic, it is not binding in respect of so much of a claim as
was satisfied
prior to liquidation. It is not a creditor in
respect of that portion of the
claim which it previously had
but only for that which is due at the date of
liquidation.
Furthermore, as submitted on behalf of the respondent,
bearing
in mind that the binding effect of the scheme is a result of
the provisions of the statute and not the result of a
contract, there is
no reason why the respondent should be in a
worse position with regard to its
former claim of R27 384 than
another person would be whose claim had also
been satisfied
prior to the provisional winding-up of the company, but who
-49-
did not happen to have an existing claim at the time of the provisional
winding-up or at the time of acceptance of the offer of compromise.
It was submitted that "... having elected to prove a claim ..." in terms of
the scheme (as alleged in the notice of amendment), the
respondent was bound by
the terms thereof. There is no substance in this point. There is no question of
the respondent approbating
or reprobating the scheme. The scheme did not make
the respondent a creditor:
it did not create the respondent's claim for R10 220,70;
the right to claim the R10 220,70 arose out of the original
contract of sale of the goods by the respondent to the
company. The
validity of that right was never in issue.
The respondent was not a party to
the scheme in the sense
that it agreed to the terms thereof. The respondent is, by
operation of
law, bound by such terms because the court
-50-
sanctioned it. It was, therefore, not permitted to sue the company for the
R10 220,70, nor was it entitled to exercise the rights
it would have had if the
company had been in liquidation. The scheme, far from creating the respondent's
claim for R10 220,70, actually
restricts it to whatever is payable in terms
thereof. There is, furthermore, no element of inconsistency in the respondent's
actions.
The scheme simply has no application to the transactions involving the
return of the goods by the company to the respondent.
In the words of DIDCOTT J in
Ex Parte Trakman N.O.
(
supra cit
)
at 1084D there has in this scheme, been an indiscriminate "borrowing
mutatis
mutandis
of a liquidator's general armoury" which has, indeed, led to
"...unforeseen problems and disputes ...".
For the above reasons I arrive at the same
-51-
result as the court
a quo
, and the appeal is accordingly dismissed
with costs.
A J MILNE
Judge of Appeal
HOEXTER JA ]
STEYN JA ] CONCUR
EKSTEEN JA ]