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IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)

CASE NO: 16404/23

In the matter between

JOCHEN ECKHOFF NO 1ST APPLICANT

LEGADIMAN E ARTHUR MAISELA NO 2ND APPLICANT

K2012076290 SOUTH AFRICA (PTY) LTD 3RD APPLICANT

AND

PAUL JOHANNES VAN DEN HEEVER 1ST RESPONDENT

SONNET STEMMET 2ND RESPONDENT

OUDE CHARDONNAY RETAIL (PTY) LTD 3RD RESPONDENT

REGISTRAR OF DEEDS, CAPE TOWN 4TH RESPONDENT

ABSA BANK LTD 5TH RESPONDENT

Date of Hearing: 19 November 2024
Date of Judgment: 11 February 2025 (to be delivered via email to the respective
counsel)
_________________________________________________________________ _____

JUDGMENT


THULARE J

[1] The first and second applicants are the joint liquidators of The Vines Construction
(Pty) Ltd, previously Oude Chardonnay Rusoord (Pty) Ltd (the company). The third
applic ant is a creditor of the company with a claim against it of at least R2 million. The
first respondent was the sole director and controlling mind of the company prior to its
liquidation, as well as the sole idirector and controlling mind of a related compa ny, Oude
Chardonnay Retail (Pty) Ltd (Retail) prior to its liquidation. The applicants alleged that
the second respondent was a personal friend of the first respondent who through
collusion with the first respondent, was able to purchase the company’s sole asset for
half its value, to the obvious prejudice of all its creditors, whereupon the first respondent
caused all the proceeds from the sale to be paid to Retail to settle Retail’s revolving
credit liability, before changing both the company and Retail’s names and then winding
them up as empty shells. The third applicant was left out of pocket to the tune of R2
million with no recourse against either the Company or Retail and its only hope of ever
recovering what was due to it was in the relief it sought against first and second
respondents. The essential purpose of the application was to obtain orders setting aside
the company’s disposition of its immovable property to the second respondent, or to
recover the value of the property from her, in terms of th e provisions of section 31 of the
Insolvency Act, 1936 (Act No. 24 of 1936) and an order declaring the first respondent
liable for all the Company’s debts in terms of section 424 of the Companies Act, 1973
(Act No. 61 of 1973) with costs of suit on attorne y and client scale.

[2] The first respondent opposed the relief both on the merits and that the claim
formulated against him in terms of section 424 had prescribed as contemplated in
section 10 read with paragraph 11(d) of the Prescription Act, 1969 (Act No. 68 of 1969).
The second respondent opposed the relief on the merits contending that the applicants
have failed to make out a case that she colluded with the first respondent in respect of
the sale but also on the basis that the claim against her had pr escribed. The third and
fourth respondent did not oppose the applications. The first and second respondents
argue that the applicants chose to proceed in motion in a matter ordinarily run in action
proceedings , to wit the section 424 relief, and in a matte r exclusively dealt with in action
proceedings, to wit the section 31 relief, despite having been warned thereof and having
been invited to consider their position.

[3] The company conducted business as a property holding and developing concern
prior to its name being changed shortly before its voluntary member’s winding up on 27
November 2019. The third applicant and the company concluded a written deed of sale
in terms of which the third applicant sold an immovable property described as sections 1
and 2 in the Vines sectional title scheme to the company for R6 million. The first
addendum to the deed of sale changed the description of the property to erf 4[...] Paarl
and R4 840 000 -00 of the purchase price was made payable on registration of transfer
with t he balance of R2 million to be paid to third applicant on 30 April 2018. In the
second addendum to the deed of sale it was agreed that the R2 million balance of the
purchase price would be paid to the third applicant on or before 30 June 2 -18 and that
the company would cause a mortgage bond to be registered over that portion of erf 4[...]
Paarl on which the old hou se was situated , that was the former section 1 and 2 The
Vines, in favour of the applicant as security for the R2 million balance of the purchase
price. The property was registered in the company’s name on 30 January 2018 but the
company failed to pay the third applicant the R2 million balance of the purchase price or
to cause the mortgage bond contemplated in the second addendum to be registered in
the third applicant’s favour as security. The third applicant instituted proceedings
against the company to compel it to register the bond. In its answering papers the
tendered payme nt of R300 988 -10. The company did not pay this amount as it intended
to set it off in relation to a cost order made against third applicant. The company’s
position was that the amount was to be kept in trust and undertook that the funds would
be paid over in the event that the third applicant succeeded in its appeal or be set off
against possible future alloc aturs once the third applicant’ s appeals had been
exha usted and had been dismissed. The third applicant was successful on appeal and
third applicant’s position was that the defence to the payment of R300 988 -10 was
eliminated. The company failed to pay the amount in response to third applicant’s
section 345 demand as a result of which, according to the third applicant, the company
was and was deemed una ble to pay its debts.

[4] In early December 2019 third applicant learned that the company had undergone a
name change shortly before being placed in voluntary member’s winding up. The first
respondent failed to list or include the company’s admitted liab ility towards the third
applicant in his sworn CM100 statement of affairs submitted in terms of section 363 of
the Companies Act. In 2022, during the enquiry into the company’s affairs, the applicant
became aware that the first and second respondents were personal friends. The 3rd
applicant also came to know that the first respondent caused the entire proceeds of the
sale of the company’s property, which was its only asset, to be paid to Retail, where it
was spent on settling Retail’s revolving credit debt, despite having tendered to pay the
3rd applicant R300 988 -10 under oath, and in breach of his undertaking to retain the R3
988-10 in trust, without having made any provision whatsoever to settle the company’s
contingent liability of R2 million towards the 3rd applicant. The 3rd applicant’s case was
that this amounted to conducting the company’s business recklessly or fraudulently and
to the prejudice of the company’s creditors, or disregarded their interests, within the
meaning of section 424 of the Compan ies Act. The applicants were precluded from
becoming aware of the existence of the debt until 2022 . On 22 January 2020 the
liquidators were provided with the company’s records and documents in the company’s
attorneys possession and these included the deed of sale of the property. On 23
January 2020 the first meeting of creditors was held. On 8 February the liquidators were
appointed as the company’s final liquidators. On 6 March 2020 the second meeting of
creditors was held. On 17 March 2020 the liquidators filed the first liquidation and
distribution account in which the property was nowhere listed as an asset of the
company.

[5] The respondents argue that the applicants knew material information by 22
September 2020, three years before the issuing of the application on 22 September
2023. These were that the company was unable to pay its debts, was insolvent and had
been liquidated; the mortgage bond in favour of the third applicant had not been
registered over the property; the property was sold to Ms Stem met on 5 February 2019
and transferred to her and registered in Cape Town Deeds Office on 17 April 2019; that
the property had been sold at a value of R1 000 000 -00, well below that for which the
third applicant had it valued, which was R2 000 000 -00; desp ite the sale of the property,
no portion of the debt due to the third applicant, including that portion of the debt that
the applicants said was common cause was owed to the applicant, to wit the R300 988 -
00, was paid to the third applicant; the company h ad disbursed the funds received from
the purchase price of the sale of the property to person or entities other than the third
applicant; that neither the debt the third applicant claimed from the company, nor any
portion thereof had been provided for in t he company’s statement of affairs and that the
property was not listed as an asset of the company in the statement of affairs supporting
voluntary liquidation.

Should the relief sought as envisaged in section 31 of the Insolvency Act be exclusively
through action proceedings and not on motion

[6] Section 31 of the Insolvency Act , 1936 , read as follows:

“31 Collusive dealings before sequestration
--
(1) After the sequestration of a debtor's estate the court may set aside any
transaction entered into by the debtor before the sequestration, whereby he, in
collusion with another person, disposed of property belonging to him in a manner
which had the effect of prejudicing his creditors or of preferring one of his
creditors above another.

(2) Any person who was a party to such collusive disposition shall be liable to
make good any loss thereby caused to the insolvent estate in question and shall
pay for the benefit of the estate, by way of penalty, such sum as the court may
adjudge, not exceeding the amount by which he would have benefited by such
dealing if it had not been set aside; and if he is a creditor he shall also forfeit his
claim against the estate.

(3) Such compensation and penalty may be recovered in any action to set aside
the transaction in question.”

In Nat Industries (Pty) Ltd (In Liquidation) and Others v Grindrod Bank Ltd
(D10128/2022) [2023] ZAKZDHC 77; 2024 (2) SA 506 (KZD) (25 October 2023) at para
26 and 27 it was said:

“[26] Sections 30 and 31 of the Insolvency Act create a remedy, given to
liquidators, to recover assets that have been removed from an estate before
insolvency. In “prescribed circumstances ”, liquidators have the right to have a
person declared to be a debto r of the insolvent estate and to have
a disposition set aside. This is the legal right that is claimed. The summary of the
legal right and what is required to be proven and implied alleged in order to beget
the right, set out in Venter v Volkas [1973 (3) SA 175 (T) at 179 -180] is apposite:

‘Sec. 30(1) …provides for the recovery of the disposed property but only in
those cases where the disposition was made with the intention of so preferring a
creditor above other credito rs or stated differently with the intention of disturbing
what would be the proper distribution of the assets in the event of the
sequestration of the debtor's estate . Such an intention would generally speaking
not be present in the mind of the debtor who does not contemplate the
sequestration of his estate as a likely event when he makes the disposition ….
Being a question of intention, it involves a subjective assessment of the debtor's
action in having made the disposition. In the absence of direct eviden ce of an
intention to prefer one creditor above another, it must generally speaking be
proved that the debtor contemplated sequestration before an inference can be
drawn that he made the disposition with the intention to prefer the creditor, to
whom the di sposition was made, above another …a debtor may also have had
other objects in mind when he made the
disposition but in that event it is incumbent upon the person upon whom
the onus lies to establish that to prefer the creditor in question was
the paramount , dominant or substantial object . A preference involves a free
selection. Where therefore a debtor pays a creditor “out of his turn” under great
pressure or to avoid a prosecution or for some other reason that negatives the
inference that main object was t o prefer the creditor, intention to prefer will not be
proved.’ (My underlining)

[27] Four facts must be alleged and proven in order to beget the setting aside
of a disposition in terms of section 30(1). First, the insolvent must make a
disposition of its property, not property it has stolen. Second , the disposition must
be made at the time when the liabilities of the insolvent exceeded its assets, but
prior to the insolvent’s liquidation. Third , the disposition must be made with the
intention of preferring one creditor above another. Finally , liquidation must post
date the disposition made. ”

[7] Courts of law will not be deceived by the form of a transaction an d will rend aside the
veil in which the transaction is wrapped and examine its true nature and substance
[Kilburn v Estate Kilburn , 1931 AD 501 at p. 507]. Collusion is a conniving together
between two persons to practise a fraud on the creditors [ Finn's T rustees v Prior , 1919
E.D.L. 133 at p. 137; Gert de Jager (Edms.) Bpk . v Jones, N.O. en McHardy,
N.O., 1964 (3) SA 325 (AD) ; Coetzer v Coetzer 1975 (3) SA 931 (E) at 936]. In Finn’s
the court said :

‘In other words, was it the intention of the insolvent and the defendant in this
case, the one to give and the other to obtain an undue preference for the
defendant to the prejudice of the other creditors; that is to say, in common
parlance, to do the othe r creditors out of their rights.'

In Pretorius, N.O v Stock Owners' Co -operative Co. Ltd. , 1959 (4) SA 462 (AA) it was
said:

'An intention to prefer exists when the debtor intends 'to disturb w hat would be
the proper distribution of assets' in insolvency. Thurburn v. E Steward, supra
(1871 L.R.P.C. 478). That must be the main object; see Swanepoel v The
National Bank of South Africa, supra at p. 39 (1923 OPD 35). Thus where a
debtor pays a cred itor 'out of his turn' under great pressure, or to avoid a
prosecution, or for some other reason that negatives the inference that the main
object was to prefer the creditor, intention to prefer will not be proved.'

[8] In this matter, the issues raised by the 3rd applicant goes to the heart of the
transaction as it challenges whether that was a true sale done in good faith. To
establish a collusion both parties must have knowingly participated in the reckless or
fraudulent conduct. In Simon NO and Others v Mitsui and Co Ltd and Others 1997 (2)
SA 475 (W) at 525C -526F it was said :

“I make the following preliminary remarks. It has to be alleged that the business
was in one or more respects carried on with gross negligence or fraudulent
intent. Ordina rily, if a company incurs debts at a time when, to the knowledge of
those managing it, there is no reasonable prospect of the creditors being paid or
of the creditors in whose favour they are incurred being paid, there is an intention
to defraud ( Henochsbe rg (op cit at 914)). `Ordinarily' underlies the statement in
Gore -Browne on Companies 44th ed at 35.014 --15:

'In all cases, however, fraud in the sense of dishonesty must be shown (the
English provision which corresponds with s 424 does not extend to th e
reckless carrying on of business as a basis of liability); it is not enough in itself to
prove that the company or its officers preferred one creditor over others any
more than it is enough in itself to show that the company continued to incur debts
at a time when the directors were aware that it was insolvent. It has been said
that the words "defraud" and "fraudulent purpose" in s 212 connote ". . . real
dishonesty, according to current notions of fair trading among commercial men
at the present day, re al moral blame" ( Re Patrick Lyon Ltd (1993) 1 Ch 786 at
790 per Maugham J) and that "if a company continues to carry on business and
to incur debts at a time when there is to the knowledge of the directors no
reasonable prospect of the creditors receiving payment of those debts, it is in
general, a proper inference that the company is carrying on business with intent
to defraud" ( Re William C Leitch Bros (1932) 2 Ch 71 at G 77 per Maugham J
(emphasis added). An inference such as this must, however, be properly capable
of being drawn from the facts alleged; if those facts are equally consistent with an
honest intention, no inference of dishonesty may legitimately be drawn. If, for
example, it is alleged that a controlling company has promised support for its
subsidiary which has been withdrawn, this allegation cannot be used as the basis
of an inference of fraud unless it can be shown that the promise was false when
made or constituted a continuing representation falsified by a subsequent change
of mind u ncommunicated to the company or its suppliers. ( Re August Barnett &
Sons Ltd (1986) BCLC 170 at 175.) In establishing the factual basis on which the
requisite element of dishonesty or fraud may be found, it is not necessary
(though it is sufficient) that t hose responsible know or believe that the debts
will never be paid; the Court is entitled to find dishonesty and fraudulent purpose
if a person obtains or helps to obtain credit or further credit when he knows that
there is no good reason to think that fun ds will become available to pay the debt
when it becomes due or shortly afterwards. ( R v Grantham [1984] QB 675.)'

The mere making by the company of a disposition of its property which
constitutes the giving of a voidable or undue preference does not per s e amount
to carrying on the business recklessly or with intent to defraud, but the
circumstances may be such that the making of a disposition is a fraud on
other creditors ( Henochsberg (op cit at 915)). The failure to pay the sales tax or
PAYE, which is re ferred to in the particulars of claim would not be said to be
done fraudulently unless there was, for example, fraudulent evasion which is not
alleged (cf Re L Todd (Swanscombe) Ltd (1990) BCLC 454). `Party to' means no
more than `participation in', `takes part in' or `concurs in'; this could be
constituted by a supine attitude amounting to concurrence in the reckless or
fraudulent conduct ( Henochsberg (op cit at 917); Howard v Herrigel and Another
NNO 1991 (2) SA 660 (A) at 674H). A person who colludes with the company's
officers fraudulently to obtain credit or a creditor which accepts payment knowing
that the money has been procured fraudulently for the very purpose of paying it
could knowingly be a party to the carrying on of the business with intent to
defraud ( Henochsberg (op cit at 918 --19)). `Knowingly' means having actual
knowledge or having knowledge in the form of dolus eventualis , which in the
present context means that a party will be hel d to have knowledge if he or she
subjectively foresaw the reasonable or real possibility that conduct or a course of
conduct would result in a preference or prejudice as contemplated in s 424 and
reconciled himself or herself to the fact, that he or she ne vertheless pursued the
conduct or allowed it to be pursued when he or she could have prevented it. If a
person has a suspicion that something unlawful is happening and deliberately
shuts his or her eyes to what is going on, he or she is knowing (see Franke l
Pollak Vinderine Inc v Stanton (case No 95/14069, WLD, 29 March 1996),
especially at pp 29 and 33 --9). It is, of course, a condition of liability of a person
with knowledge that he or she was a party to the carrying on of the business. On
this basis a p erson is not `knowing' merely because his or her employee or agent
has knowledge ( Ensor NO v Syfret's Trust and Executor Co (Natal) Ltd 1976 (3)
SA 762 (D) at 766B --C; Fisheries Development Corpor ation of SA Ltd v
Jorgensen and Another; Fisheries Development Corporation of SA Ltd v AWJ
Investments (Pty) Ltd and Others 1980 (4) SA 156 (W) at 167D --G).

The issue of a juristic person's knowled ge arises in both criminal law and civil
law. The matter is dealt with in s 332(1) of the Criminal Procedure Act 51 of 1977
in terms of which any act performed, with or without a particular intent, by or on
instruction or with permission, express or implie d, given by a director or servant
of a corporate body (there is a similar provision for omissions to act) in the
exercise of his powers or in the performance of his duties as such director or
servant or in furthering or endeavouring to further the interest s of the corporate
body are deemed to have been performed (and, with the same intent, if any) by
the corporate body. The original forerunner of this provision was introduced by s
117 of the Companies Amendment Act 23 of 1939.

A corporation's knowledge is possessed by its managing organ. Knowledge of
the board of directors is knowledge of the company. When one moves away from
the managing organ to individuals, such as executive directors or employees, the
position is not so straightforward. Where a person authorises an act which gives
rise to a crime the degree of his or her criminal responsibility for that act depends
on his or her own state of mind or mens rea (R v Shikuri 1939 AD 225 at 231). In
describing the development of the English common law, De We t and
Swanepoel Strafreg 4th ed say that in the course of time

`word kriminele aanspreeklikheid van die regspersoon ook buite die gebied
van vicarious liability erken, en wel vir handelinge wat as handelinge van die
regspersoon self beskou kan word, tw handelinge wat beheer word of kan word
deur die opperste gesag van die regspersoon', pointing out that there are
reservations on this aspect in some quarters (at 56).

[9] In Venter v Volkskas Ltd 1973 (3) SA 175 (t) the headnote reads:

“Whether a disposition was made with the intention of preferring one creditor
above another within the meaning of section 30 (1) of Act 24 of 1936, as
amended, is in each case a question of fact which can be established either with
direct evidence or by inf erence from the circumstances in which the disposition
was made. Being a question of intention, it involves a subjective assessment of
the debtor's action in having made the disposition. In the absence or direct
evidence of an intention to prefer one credi tor above another, it must generally
speaking be proved that the debtor contemplated sequestration before an
inference can be drawn that he made the disposition with the intention to prefer
the creditor to whom the disposition was made, above another. It i s not sufficient
that the circumstances show that the debtor should have realised that the effect
of the disposition would be to disturb the proper distribution of his assets in the
event of the sequestration of his estate. They must show that he as a fact
intended it to have that effect. ”

Where the case was based on collusion, it follows that it must also be alleged and
proved that the recipient of the disposition knew that the debtor contemplated
sequestration when the disposition was made and that the re cipient intended to be
preferred above another or others and that the recipient intended to disturb the proper
distribution of the debtor’s assets in the event of the sequestration of the debtor’s
estate. Motion proceedings are not geared to deal with fact ual disputes, and are
principally for the resolution of legal issues [Minister of Police v SA Metal and Machinery
(462/13) [2014] ZASCA 95 (1 July 2014). Disputed alleged collusions involve the
resolution of factual issues including what was known, the intention and the impact . In
this matter the factual disputes required evidence to prove and it would have been
appropriate for the applicants to institute action proceedings. In the circumstances,
motion proceedings were inappropriate. I am not inclined t o state this as a matter of
principle applicable to all section 31 matters. I am restrained by the court’s inherent
power to regulate its own processes in the interes t of justice in deserving cases,
informed by the merits and demerits of each case . I am un able to state it as a matter of
principle that when legal practitioners make a judgment call on the proceedings to be
instituted, they must approach such a decision on the basis that there should not be
motion proceedings in section 31 matters. The deci sion-maker must consider the
course of proceedings, mindful of what was in issue. Usually, because disputes of facts
are anticipated , section 31 proceedings are instituted through action and not motion. It
follows that it is unusual that they are on motion.

Section 424 of the Companies Act, claim.

[10] Section 424 of the Companies Act reads as follows:

“424 Liability of directors and others for fraudulent conduct of business

(1) When it appears, whether it be in a winding -up, judicial management or
otherwise, that any business of the company was or is being carried on
recklessly or with intent to defraud creditors of the company or creditors of any
other person or for any fraudulent purpose, the Court may, on the application of
the Master, the liquidator, the judicial manager, any creditor or memb er or
contributory of the company, declare that any person who was knowingly a party
to the carrying on of the business in the manner aforesaid, shall be personally
responsible, without any limitation of liability, for all or any of the debts or other
liabilities of the company as the Court may direct. ”

A final determination that the first respondent as the director acted recklessly can only
be made on a balance of probabilities . It was n ot sufficient for the applicant s to merely
make out a prima facie case [Joh-Air (Pty) Ltd v Rudman 1980 (2) SA 420 (T)]. It must
be established that the first respondent had acted recklessly or fraudulently in the
conduct of the business of the company. Where no more than suspicion of such
conduct may have been aroused but the threshold of a balance of probabilities was not
met, the claim must fail. To determine the threshold, the merits should be referred to. --
The conduct of the respondent needs to be examined into, and the most effective
procedure is by way of summons to determine the facts in which the court is asked to
make a final order [ Joh-Air at 426 D-F and the cases referred therein]. Where the facts
are not in dispute on the findings on and on the law may be determined by motion [Joh-
Air at 427 F-428B]. The disputes in the papers were obvious and known to the
applicants at the launch of the application proceedings. The applicants were aware , at
the time of the institution of the application, or at least when the matter reached a stage
where it was ready to be argued, that the conflict could not be resolved without hearing
evidence. The word "application" in s 424 (1) of the Companies Act 61 of G 1973 was
not intended to have the narrow meaning of proceedings by way of motion only, but was
intended to embrace proceedings by way of action as well [Food & Nutritional Products
(Pty) Ltd v Neumann 1986 (3) SA 464 (W) ].

[11] Only the third applicant would know why under the circumstances they decided not
to institute an action and preferred motion proceedings to seek to resolve dispute of
facts. The disputes set out in the papers were foreseeable and it would have been more
appropriate if the action proceedings were institut ed for trial. On the facts, m otion
proceedings , were incorrectly instituted. The d eclaration of personal liability must be
established for debts of the company against a person who knowingly carried on
business of company recklessly or fraudulently . The applicant for such decl aration was
required to prove, on balance of probabilities, that person who was sought to be held
liable had knowledge of the facts from which a conclusion could properly be drawn that
the business of the company was carried on recklessly or with intent to defraud
creditors of company or creditors of any person or for any fraudulent purpose [Howard
v Herrigel and Another NNO 1991 (2) SA 660 (A)]. It was an evidential test [ Philotex
(Pty) Ltd and Others v Snyman and Others ; Braitex Ltd and Others v Snyman and
Others 1998 (2) SA 138 (SCA)]. The section is aimed at discouraging fraudulent,
dishonest and reckless people from abusing the protection which is provided by a
corporate entity [Harri and Others NNO v Online Management CC and Others 2001 (4)
SA 1097 (T). Where fraud was alleged, the knowledge and the state of mind of the
person whose conduct was questioned was relevant. It was necessary for the
applicants to show that the first respondent had with mala fides or recklessly performed
acts to induce benefits for another company or the second respondent, knowing that the
company was insolvent and without reasonable prospects of meeting its obligations .
This meant carrying of the business of the company by actions which evinced a lack of
any genuine concern for the company’s prosperity [ Anderson and Others v Dickson and
Another NNO 1985 (1) SA 93 (NPD) at 110 D-H].

[12] The dispute between the parties require d that a court scrutinise the company’s
minute -books, correspondence, books of account and other records in order to gain a
picture of the responsibilities undertaken and the part played by the first respondent in
the conduct of the company's affairs; to calculate the approximate date by which the
company had lost its capital (its assets reduced to the level of its liabilities); to estimate
the possible date or dates by which the first respondent was likely to have become
aware of th e fact that the company had lost its capital and whether the fi rst respondent ,
after the date on which he probably knew of the insolvency of the company, caused or
permitted the company to carry on business (1) recklessly or (2) with intent to defraud
creditors of the company or (3) creditors of any other person than the company or 94)
for any fraudulent purpose [Headnote of Ex parte Lebowa Development Corporation Ltd
1989 (3) SA 71 and at page 110 E-H]. One of the primary intentions behind section
424(1) was to provide a meaningful remedy against abuses of fraud and fraudulent
purposes in the conduct of a company’s business . It is not wrong, in the interests of
justice and where appropriate , to order the parties to trial, for the remedy provided by
the subsection not to be lost to innocent creditors to whom the debts are owed
[Pressma Services (Pty) Ltd v Chu ttler and Another 1990 (2) SA 411 (CPD)] and for the
section 424(1) itself to be an effective for creditors .

Prescription

[13] The personal friendship between first and second respondent was piece of
evidence necessary for the 3rd applicant to prove collusion but was not a fact necessary
to prove collusion [Truter and Another v Deysel 2006 (4) SA 168 (SCA) ]. Friendship was
not a material fact which fact must be alleged and proven to prove collusion or to beget
the setting aside of a disposition . I am not persuaded that belated knowledge of the
friendship on its own, when other material facts were known earlier, was sufficient for
the claim to survive presc ription. Long before the discovery of the friendship , the 3rd
applicant had the minimum facts that were necessary to institut e action , in particular the
details of the transaction which involved the second respondent. It was at that point of
knowledge that prescription started to run.

[14] On the other hand, it was only during the enquiry in 2002 that the applicants
became aware that the first respondent caused the entire proceeds of the sale of the
company property, which was its only asset, to be paid to Retail , settling Retail’s
revolving credit debt , without having made any provision whatsoever to settle the
compa ny’s contingent liability of R2 million towards the 3rd applicant. The first
respondent did this despite having tendered to pay the 3rd applicant R300 988-10 under
oath and in breach of his undertaking to at least retain R300 988-10 in trust. Some of
these facts are disputed. However, if proved, a case may be made out for the section
424 (1) remedy. Before the enquiry in which the first respondent was forced to testify,
the applicants were not and could not be aware of some of these material facts. I am
not persuaded by the defence of prescription under the circumstances. In any event, the
first respondent disputes that his conduct amount ed to carrying out the business of the
company recklessly or with intent to defraud creditors of the company or credi tors of any
other person or for any fraudulent purpose . Justice demands that the disputes be
referred to trial.

[15] For these reasons I make the following order:

(a) Prayer 1 of the notice of motion is granted.

(b) Prayer 2 and more specifically based on 2.2 is dismissed with costs , including
the costs of counsel on scale C.

(c) The application against the 1st respondent is referred to trial.

(d) The notice of motion, answering affidavits and replying affidavits shall stand
as a combined summons, plea and replication respectively.

(d) Further trial procedures may follow .

(e) In respect of the claim against the 1st respondent, costs in the cause .


_________________________
DM THULARE
JUDGE OF THE HIGH COURT