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[2003] ZASCA 8
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Sackstein NO v Proudfoot SA (Pty) Ltd (119/02) [2003] ZASCA 8; [2003] 2 All SA 59 (SCA); 2003 (4) SA 348 (SCA) (7 March 2003)
REPUBLIC OF SOUTH AFRICA
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
Case Number : 119 / 02
In the matter between
L N SACKSTEIN NO [in his capacity as
liquidator of Tsumeb Corporation Limited
(in liquidation)]
Appellant
and
PROUDFOOT SA (PTY) LIMITED
Respondent
Composition of the Court
: OLIVIER, BRAND,
CONRADIE JJA;
HEHER
and LEWIS AJJA
Date of hearing
: 22 NOVEMBER 2002
Date of delivery
: 7 MARCH 2003
SUMMARY
Liquidation of external company - powers of South
African liquidator to impeach dispositions having their origin in a
foreign country.
________________________________________________________________
J U D G M E N T
________________________________________________________________
OLIVIER
JA
[1]
The present appeal deals with the powers of
the liquidator of an external company registered in South Africa to
impeach transactions
having their origin in a foreign country.
[2]
Tsumeb Corporation Limited ('Tsumeb') was
incorporated as a company in the Republic of Namibia. It is
registered as an external
company in the RSA under the same name in
accordance with the provisions of s 323 of the South African
Companies Act 61 of 1973 ('the
Companies Act') and with a registered
office in Johannesburg. For the sake of clarity I will refer to the
external company registered
in Johannesburg as 'Tsumeb SA'. It was,
therefore, at all relevant times a body corporate in the RSA liable
to be wound up as such
under the provisions of the Companies Act and
otherwise subject to the provisions of that Act.
[3]
Proudfoot SA (Pty) Ltd ('the Defendant') is a
company duly incorporated and registered according to the laws of the
RSA, which carried
on business as industrial consultants specialising
in productivity and quality management and with principal place of
business in
Johannesburg.
[4]
During or about October 1997 Tsumeb concluded
a contract with the Defendant in Namibia in terms of which the
Defendant undertook
to render certain services to the former in
Namibia. In return for rendering those services the Defendant was
to be paid a total
amount of R10 million in fixed weekly instalments.
It is common cause that by 29 July 1998 Tsumeb had made payments
totalling R5
708 957,00 to the Defendant.
[5]
According to a statement of facts agreed upon
by the parties, it is also common cause that:
1 Tsumeb was placed under provisional liquidation by an
order of the High Court of Namibia on 29 April 1998 and a final
winding up
order was granted by that court on 12 March 1999 (the
'Namibian liquidation order'). The provisional liquidators were
appointed
on 29 April 1998 and the liquidators on 26 May 1999.
2 On 29 July 1998 Tsumeb SA was also placed in
provisional liquidation by an order of the High Court of South Africa
(Witwatersrand
Local Division). A final winding up order was
granted on 16 March 1999 (the 'South African liquidation order').
3 The liquidators appointed in Namibia pursuant to the
Namibian liquidation did not seek an order in South Africa for their
recognition
as liquidators to wind up the affairs of Tsumeb SA in
South Africa.
4 Mr Leslie Neil Sackstein was appointed as provisional
liquidator of Tsumeb SA on 11 August 1998 in terms of the South
African provisional
liquidation order and as liquidator on 27 May
1999 in terms of the final order.
5 On 3 November 1999 the Defendant proved a claim at a
meeting of creditors of Tsumeb in Namibia in terms of the relevant
Namibian
legislation. The claim so proved was for the balance said
to be owing to the Defendant by Tsumeb under the contract between
those
parties
ie
taking into account the payments already made
by Tsumeb to the Defendant. These payments are the subject of the
present proceedings
in South Africa.
6 The Namibian High Court on 10 March 2000 sanctioned a
scheme of arrangement offered by Ongopolo Mining and Processing
Limited ('the
scheme of arrangement') in terms of section 311 of the
Companies Act, Namibia, and discharged the Namibian liquidation order
on that
date. The order was duly registered with the Registrar of
Companies in terms of the Namibian Companies Act. The liquidators
appointed
in Namibia were discharged from office on 10 March 2000 and
their statutory powers terminated on that date.
[6]
Subsequent to the discharge of the
liquidation order of Tsumeb in Namibia on 10 March 2000, Mr
Sackstein, as liquidator of Tsumeb
SA, instituted action in the
Witwatersrand Local Division of the High Court against the Defendant
for recovery of the amount mentioned
above. He averred that each of
the payments made by Tsumeb to the Defendant was made at a time when
the liabilities of Tsumeb exceeded
the value of its assets, and that
the effect of all of those payments was to prefer the Defendant above
the other creditors of Tsumeb.
He alleged that by virtue of the
provisions of ss 29 (1) and 30 of the South African Insolvency Act,
24 of 1936 ('the
Insolvency Act') as
read with s 340 of the Companies
Act, the Defendant is obliged to repay the aforesaid amount to him in
his capacity as liquidator.
[7]
To this claim the Defendant pleaded that the
payments made by Tsumeb to the Defendant were dispositions by 'Tsumeb
Namibia' of
its
assets. The Plea continued:
'4.2 Tsumeb Namibia's assets exceeded the value of its liabilities
and Tsumeb Namibia was able to pay its debts at the time of
institution
of the action, Tsumeb Namibia having been discharged from
liquidation on 10 March 2000 by Order of the Namibian High Court.
4.3
Alternatively
, the Defendant denies that Tsumeb's
liabilities exceeded the value of its assets and that Tsumeb was
unable to pay its debts at the
time of institution of the action or
at any other material time.
4.4 In the premises Sackstein as Liquidator of Tsumeb is precluded
from relying on the provisions of
Sections 29
(1) and
30
of the
Insolvency Act 24 of 1936
read with Section 340 of the Companies Act.
4.5
Further alternatively
, the Defendant pleads that in the
event of it being found that payment of amounts totalling R5 708
957,00 were made at a time when
the liabilities of Tsumeb Namibia
alternatively
Tsumeb exceeded the value of its assets and that
Tsumeb Namibia
alternatively
Tsumeb was unable to pay its
debts, and that the effect of the payment of R2 637 927,00 was to
prefer the Defendant above the other
creditors of Tsumeb Namibia
alternatively
Tsumeb (all of which is denied) -
4.5.1 the payments made by Tsumeb Namibia were dispositions of its
assets;
4.5.2 Sackstein as the Liquidator of Tsumeb has no jurisdiction or
power to seek to set aside dispositions by Tsumeb Namibia of its
assets; ...'.
[8]
The parties agreed that if the Plaintiff's
contentions were upheld paragraphs 4.4 and 4.5.2 of the Plea should
be struck out and
the Defendant should be ordered to pay the costs
consequent upon the preparation and argument of the stated case, such
costs to include
those consequent upon the employment of two counsel.
If the Defendant's contentions were upheld the claim set out in
paragraphs
3 to 8 of the particulars of claim should be struck out
and the Plaintiff ordered to pay the costs consequent upon the
preparation
and argument of the stated case, such costs to include
those consequent upon the employment of two counsel.
[9]
At the beginning of the argument before
Blieden J in the court
a quo
, the parties further agreed that
the payments made by Tsumeb to the Defendant were by way of credit
transfers from Tsumeb's banking
account in Namibia to the Defendant's
account in South Africa.
[10]
The issue is whether or not Sackstein, on
the given facts, had the power to institute and prosecute the claim
based on the impeachment
provisions of
ss 29
and
30
of the
Insolvency
Act as
read with s 340 of the Companies Act.
[11]
The court
a quo
decided against
Sackstein, in essence holding that the dispositions occurred in
Namibia and, accordingly, that the South African
liquidator had no
powers in respect thereto.
[12]
There are three preliminary matters that are
relevant to the outcome of this appeal that should be noted.
[13]
The first is that it is common cause, but
essential to emphasise, that the company Tsumeb Corporation Limited,
registered as such
in Namibia, subsequently obtained registration as
an external company under the same name in the RSA in terms of s 322
of the Companies
Act, and not under s 335 of that Act. In such a
case, s 323 provides that
' ... the external company shall be a body corporate in the Republic
subject to the applicable provisions of the Act.'
An external company may be wound up by the Court like a
domestic company, because s 337 of the Companies Act defines a
company as
including an external company.
From this it follows that an external company
registered as such in the RSA may be liquidated as if it were an
independent entity
even if the foreign company to which it is
'related' is not liquidated or dissolved, and
vice versa:
if
Tsumeb was liquidated or dissolved in Namibia, Tsumeb SA could carry
on its business here and could not be wound up unless the
grounds for
winding up specified in s 344 were proved to be present.
[14]
Secondly, as clearly appears from the
judgment of this Court in
Ward v Smit and Others : In re Gurr v
Zambia Airways Corporation Ltd
1998 (3) SA 175
(SCA) at 183 H -
I
,
there may be two simultaneous and concurrent liquidation processes in
respect of the company, one in its original country of incorporation
(in this instance Namibia) and another in the country in which it is
registered as an external company (here South Africa). In
such a
case each liquidator may deal independently with the assets and
liabilities of the company in respect of which he or she is
liquidator (
Ward v Smit, supra
at 184 A - B).
Consequently, in the present case, the withdrawal of the
Namibian liquidation process could not
per se
affect the South
African process. If, in the Namibian process, certain compromises
were reached or claims waived (as is alleged
in the pleadings), the
Defendant would obviously be entitled to rely on such defences if the
dispute is to be continued. The question
now under consideration is
whether the claim by Mr Sackstein can pass the first hurdle,
viz
his powers to institute the claim.
[15]
Thirdly, it must be accepted that the
registration in the RSA of an external company does not result in
there being two separate legal
personae
, registered
respectively in two countries (see
Wiseman v Ace Table Soccer
(Pty) Ltd
1991 (4) SA 171
(W) at 173 E;
Ward v Smit and
Others : in re Gurr v Zambia Airways Corporation Ltd
,
supra
;
C F Forsyth,
Private International Law
, (1996) 3 ed, at 182 n
280). There is only one legal
persona
, registered in two
countries.
The consequence of this situation can obviously lead to
seemingly irreconcilable conflicts of authority and powers between
two simultaneous
and concurrent liquidators, and hence to difficult
legal and commercial problems. In cases of dual registration, a
principle of
demarcation in the event of a dispute between the
liquidators will have to be developed.
In the present case, the problem does not present itself
as a conflict between two liquidators. The question is merely
whether Mr
Sackstein has the power
under our law
to impeach
the dispositions now under discussion.
[16]
The crux of the Defendant's case is that the
South African liquidator, in relying on
sections 29
(1) and
30
of the
Insolvency Act, is
only empowered to set aside dispositions by the
company in liquidation of its
property
, but only if the
disposition related to property in the Republic of South Africa. If
the disposition occurred in respect of property
situate outside the
RSA, a South African liquidator is powerless to impeach it. In the
present case, so it was argued, the disposition
when it was effected
occurred in respect of property not in the RSA but situate in
Namibia. The Appellant's
riposte
is that he derives his
powers to impeach a disposition from
ss 29
(1) and
30
(1) of the
Insolvency Act and
s 391 of the Companies Act, and that the
limitation on his powers, sought to be found by the Defendant in the
definition of 'property'
in
s 2
of the
Insolvency Act, does
not, on a
proper interpretation of the relevant sections, exist.
[17]
Sec 29
(1) of the
Insolvency Act reads
as
follows:
'29 (1) Every disposition of his property made by a debtor not more
than six months before the sequestration of his estate or, if
he is
deceased and his estate is insolvent, before his death, which has had
the effect of preferring one of his creditors above another,
may be
set aside by the court if immediately after the making of such
disposition the liabilities of the debtor exceeded the value
of his
assets, unless the person in whose favour the disposition was made
proves that the disposition was made in the ordinary course
of
business and that it was not intended thereby to prefer one creditor
above another.'
Section 30
(1) reads:
'30 (1) If a debtor made a disposition of his property at a time when
his liabilities exceeded his assets, with the intention of
preferring
one of his creditors above another, and his estate is thereafter
sequestrated, the court may set aside the disposition.'
It is thus correct, as the Defendant argued, that the
attack on a disposition is always connected to a disposition of
property
.
[18]
Property
is defined in
s 2
of the
Insolvency Act as
follows:
' ..."property" means movable or immovable property
wherever situate within the Republic ...'
Taken literally, these provisions appear to support the
Defendant's argument that Mr Sackstein is not empowered to impeach
the transactions
by Tsumeb of its property in Namibia, even though
the Defendant may be subject to the jurisdiction of the court which
appointed Mr
Sackstein as liquidator.
[19]
On behalf of Mr Sackstein it was argued that
the words in
s 2
on which the Defendant relies, should not be given
its literal meaning. Reference was made to the view of Mars,
The
Law of Insolvency in South Africa
, [1988] 8
th
ed. by E
de la Rey, at 176,
viz
:
'The definition of property contained in the Act suggests at first
sight that only assets situated within the Republic of South Africa
pass on insolvency to the insolvent's trustee, but it seems that the
true intention of the legislature in defining property as it
did was
rather to extend the operation of a sequestration order beyond the
territorial limits of the particular division of the Supreme
Court
granting it, than to narrow it. Consequently, it seems that the
common law must still be applied in deciding the extent to
which the
insolvent's assets, which are situated in a foreign country, pass to
his trustee.'
[20]
I consider the explanation by Mars to be
correct. Such an interpretation of
s 2
of the
Insolvency Act would
accord with s 391 of the Companies Act, which reads as follows:
'A liquidator in any winding-up shall proceed forthwith to recover
and reduce into possession all the assets and property of the
company, movable and immovable, shall apply the same so far as they
extend in satisfaction of the costs of the winding-up and the
claims
of creditors, and shall distribute the balance among those who are
entitled to it'
[21]
In the result, the words 'wherever situate
within the Republic' in the definition of 'property' in
s 2
of the
Insolvency Act, can
be ignored as far as proceedings for setting
aside dispositions by virtue of the
Insolvency Act are
concerned.
[22]
In terms of s 391 of the Companies Act it is
the duty of the liquidator ' ... forthwith to recover and reduce into
possession' all
such assets and property. This means that the
liquidator must take all steps necessary to fulfil the prescribed
duty. In the
case of voidable transactions, he must take the steps
that are necessary for the impeachment of the transaction. This he
can do
in the Republic of South Africa, irrespective of where the
property is situate. If he succeeds in impeaching the transaction,
and
if the property is in fact situate outside the Republic, he has
by virtue of the common law (see
Re Estate Morris
1907 TS 657
at 666 in respect of movables and
Ex parte Stegmann
1902 TS 40
at 52 in respect of immovables) no extra-territorial powers of
recovering such property in a foreign country. The correct
procedure
is then to seek the recognition of the court order obtained
in South Africa, setting the transaction aside, in the applicable
foreign
country (see
Ex parte Stegmann
,
supra
, at 52).
[23]
There is authority for the view that
impeaching a transaction and the subsequent vindication of the
property concerned are two distinct
steps in the process of recovery
of the relevant assets.
In the matter of
In re Leslie Engineers Co Ltd (In
liquidation)
[1976] 1 Weekly Law Reports 292, Oliver J, in the
Chancery Division, had to deal with an application by a liquidator to
have declared
void two payments made by the company after the
commencement of the winding up of the company. Section 227 of the
English Companies
Act of 1948 at the time read as follows:
'In a winding up by the court, any disposition of the property of the
company, including things in action, and any transfer of shares,
or
alteration in the status of members of the company, made after the
commencement of the winding up, shall, unless the court otherwise
orders, be void.'
On behalf of the liquidator it was argued that if the
disposition is voided, the liquidator acquires the right to recover
the property.
Oliver J at 298 B - D found this argument too wide:
'Now, it must be remembered that the invalidation of a disposition of
the company's property and the recovery of the property disposed
of,
are two logically distinct matters. Section 227 says nothing about
recovery; it merely avoids dispositions ... What is the
appropriate
remedy in respect of the invalidated disposition is a matter not
regulated by the statue and that has to be determined
by the general
law ...'
[24]
In
Herrigel NO v Bon Roads Construction
Co (Pty) Ltd and Another
1980 (4) SA 669
(SWA) Lichtenberg J at
678 A - B pointed out that s 227 of the English Companies Act has
its counterpart in s 341 of the South
African Companies Act.
Similar to the English provision, s 341 (2) of our Companies Act
gives the court a discretion not to declare
a disposition made after
the commencement of winding up proceedings void. On the facts the
learned judge refused to exercise his
discretion not to invalidate
the 'void' disposition (at 680 G). The question then arose: can
the first defendant who had received
the benefit of the void payment
by the company in liquidation, be ordered to repay same to the
liquidator? It is in this connection
that the learned judge
following
Leslie Engineers
remarked, at 680 H, that s 341 (2)
of the Companies Act says nothing about the recovery of the void
disposition but merely avoids
the disposition itself. That is, as I
have pointed out, also the position under s 227 of the English
Companies Act.
[25]
The essence of the Appellant's case then is
that the
invalidation
part of the process is not governed by
the provisions relating to
recovery
of the property disposed
of. The
invalidation
part is purely an administrative
process, governed by the ordinary rules pertaining to the
jurisdiction of the court. In the present
matter the court
a quo
issued the winding up order, the liquidator was duly and lawfully
appointed, and the Defendant is domiciled within the area of
jurisdiction
of the court
a quo
. That court is endowed with
jurisdiction to entertain the impeachment process.
[26]
This conclusion must not be read to mean
that the South African liquidator of an external company is obliged
to institute impeachment
procedures in a South African court where
the property concerned is in a foreign country. The effect of this
judgment is that the
liquidator has a choice, either to proceed under
s 391 of the Companies Act or to follow the procedure whereby his
appointment as
liquidator is recognised by the courts of the foreign
country concerned, and to prosecute the impeachment and recovery
processes
in that country.
[27]
In the event the appeal succeeds with costs.
The judgment of the court
a quo
is set aside and paragraphs
4.4 and 4.5.2 of the Plea are struck out. The Defendant is ordered
to pay the costs of the action in
the court
a quo
and the
costs of the appeal including the costs consequent upon the
preparation of the stated case. In both the court
a quo
and
this Court the costs awarded include those consequent upon the
employment of two counsel.
P J J OLIVIER JA
CONCURRING:
BRAND JA
CONRADIE JA
HEHER AJA
LEWIS AJA