Minister of Justice v Firstrand Bank Ltd. and Others (534/2002) [2003] ZASCA 93; [2004] 1 All SA 268 (SCA) (25 September 2003)

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[2003] ZASCA 93
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Minister of Justice v Firstrand Bank Ltd. and Others (534/2002) [2003] ZASCA 93; [2004] 1 All SA 268 (SCA); 2003 (6) SA 636 (SCA) (25 September 2003)

IN
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO: 534/2002
In the matter between :
THE MINISTER OF JUSTICE Appellant
and
FIRSTRAND BANK LIMITED
First Respondent
BOE
BANK LIMITED Second Respondent
ABSA
BANK LIMITED Third Respondent
CREDIT
GUARANTEE INSURANCE
CORPORATION
LIMITED Fourth Respondent
RETAIL
APPAREL GROUP LIMITED Fifth Respondent
LESLIE
MATUSON Sixth Respondent
MARK
WILLIAM LYNN Seventh Respondent
YVONNE
THOKOZILE MBATHA Eighth Respondent
THAMSANQA
EUGENE MSHENGU Ninth Respondent
___________________________________________________________________________
Coram: HOWIE P, SCOTT, ZULMAN, BRAND
et
CLOETE JJA
Heard: 1 September 2003
Delivered:
25 September 2003
Summary: Section 371 of the Companies Act
does not apply to provisional liquidators.
___________________________________________________________________________
J U D G M E N T
___________________________________________________________________________
HOWIE P/
HOWIE P:
[1] First respondent, a creditor of
Retail Apparel Group Limited, obtained an order in the High Court at
Durban for the provisional
liquidation of that company. In due
course the Master of the High Court for Kwazulu-Natal appointed four
provisional liquidators.
Subsequently, appellant, the Minister of
Justice and Constitutional Development, directed the Master to
appoint a fifth provisional
liquidator, Mr E M Motala. In issuing the
directive the Minister relied on the provisions of s 371 (3) of the
Companies Act 61 of
1973, and on professional advice that the
sub-section empowered such a directive in the case of a provisional
liquidator. The Master
complied with the directive and appointed Mr
Motala.
[2] First respondent and others,
including the four originally appointed provisional liquidators, then
applied to the High Court in
Durban for an order reviewing and
setting aside the appointment of Mr Motala and the underlying
directive. Cited as respondents were
the Minister, the Master and Mr
Motala. Booysen J granted the application and later gave leave to
appeal. Only the Minister appeals.
[3] We were informed prior to the
hearing of the appeal that Mr Motala had been appointed a provisional
liquidator by way of a second
appointment entirely separate from that
presently in issue. This does not render the appeal moot, however,
for we were informed
at the hearing that the Minister has
relied on s 371 in other provisional liquidations as well. The
Court’s decision is
therefore of application not just to possible
future cases but actual pending matters.
[4] Formally, the question for
decision is whether the provisions of s 371(3) pertain only to
liquidators or also apply to provisional
liquidators. However, the
definition section in the Act defines ‘liquidator’ as including
‘provisional liquidator’ unless
the context indicates otherwise
and so the real issue is whether the relevant context does indicate
otherwise.
[5] The context which requires
analysis is provided by a number of sections of the Act. It is
convenient to recount them not in numerical
sequence but in the
sequence in which events pertaining to liquidation orders would
ordinarily occur.
[6] This case concerns a liquidation
ordered by the court at the instance of a creditor by reason of the
debtor company’s inability
to pay its debts but it is necessary to
consider, as part of the relevant context, provisions of the Act
which concern other types
of winding-up as well.
[7] Apart
from winding-up by the court, the Act provides for two forms of
voluntary winding-up, one by creditors and the other by
members (s
343). Either form of voluntary winding-up requires a special
resolution of the company (s 349). In terms of s 356 (2)
a
certified copy of that resolution must be lodged with the Master
together with any further resolution (in the case of a members’
voluntary winding-up) containing nominations for appointment as
liquidator of the company. I pause to observe that nomination is
provided for also in other situations dealt with in the Act, as will
be seen, and is a concept of crucial importance in resolving
the
question in issue.
[8] In
a winding-up by the court (and unless indicated otherwise I mean to
focus on such form of winding-up) all the property of the
company is
deemed to be in the custody and control of the Master until a
provisional liquidator has been appointed and has assumed
office (s
361).
[9] The
appointment by the Master of liquidators generally is empowered by s
367. The appointment of a provisional liquidator in particular
is
dealt with in s 368 which, omitting irrelevant wording, reads:
‘As
soon as a winding-up order has been made in relation to a company …
the Master may appoint any suitable person as provisional
liquidator
of the company concerned, who shall give security to the satisfaction
of the Master for the proper performance of his
duties as provisional
liquidator and who shall hold office until the appointment of a
liquidator’.
[10] In
terms of s 364(1), as soon as possible after a final winding-up
order, the Master must summon separate meetings of creditors
and
members. Both kinds of meeting are held for the purpose,
inter
alia
, of
‘nominating
a person or persons for appointment as liquidator or liquidators’.
In
the case of a members’ voluntary winding-up, so the subsection
provides, the nomination process will be unnecessary if nomination
has already been effected in a s 349 resolution.
[11] That
the nomination procedure in a winding-up by the Court does not apply
also to provisional liquidators, is indicated by the
terms of s
364(2) according to which, for the purposes of summoning a creditors’
meeting (at which nominations will be made) the
Master may direct the
company
or the provisional liquidator
to send notice of the
meeting to creditors. In other words, a provisional liquidator
enters upon the scene before nominations for
the office of liquidator
can be made.
[12] Section
369 is headed ‘Determination of person to be appointed liquidator’
and lays down that, subject to s 370, the Master
must appoint as
liquidator or liquidators the person or persons ‘nominated’ under
the sections (to which I already have referred)
dealing respectively
with a members’ winding-up and a winding-up by the court.
[13] Section
370(1) details circumstances in which the Master may decline to
accept a nomination or to appoint the nominee. Where
that occurs a
remedy is provided in s 371. It is appropriate to quote s 371 in
full. It reads:
‘371.
Remedy
of aggrieved persons. –
(1) Any person aggrieved by the
appointment of a liquidator or the refusal of the Master to accept
the nomination of a liquidator
or to appoint a person nominated as a
liquidator, may within a period of seven days from the date of such
appointment or refusal
request the Master in writing to submit his
reasons for such appointment or refusal to the Minister.
(2)
The Master shall within seven days of the receipt by him of the
request referred to in subsection (1) submit to the Minister,
in
writing, his reasons for such appointment or refusal together with
any relevant documents, information or objections received
by him.
(3)
The Minister may, after consideration of the reasons referred to in
subsection (2) and any representations made in writing by
the person
who made the request referred to in subsection (1) and of all
relevant documents, information or objections submitted
to him or the
Master by any interested person, confirm, uphold or set aside the
appointment or the refusal by the Master and, in
the event of the
refusal by the Master being set aside, direct the Master
to accept
the nomination of the liquidator
concerned and to appoint him
as liquidator
of the company concerned.’
(Emphasis
supplied.)
[14] Reverting
to s 370, subsection (2) provides that when the Master has declined
to accept a nomination or to appoint the nominee,
or the Minister
has, under s 371(3), set aside the appointment of a liquidator, the
Master must once again convene meetings of creditors
and members for
the purpose of a fresh nomination and appointment process.
[15] Similarly,
s 377 provides that when a vacancy in the office of liquidator
occurs, and the Master does not leave completion of
the winding-up to
any remaining liquidators, he must convene members’ and creditors’
meetings to obtain the nomination and appointment
of a new liquidator
(subsec (1)). Subsections (2) and (3) are also of significance. The
former emphasizes that the provisions of
the Act applicable to the
convening and conduct of meetings and the
nomination and
appointment
of liquidators must apply to the filling of a
vacancy. Subsection (3) states that where a vacancy is for any
reason not filled by
implementation of such procedure or the Master
does not leave it to any remaining liquidators to complete the
winding-up, he may
appoint a person as provisional liquidator or as
liquidator to fill the vacancy. The latter subsection, therefore,
contrasts an
appointment pursuant to the statutorily provided
nomination and appointment process, and an appointment by the Master
where that
process fails, acting in his own discretion and on his own
initiative in making an appointment of either a provisional
liquidator
(or a liquidator). The important point is that even where
he acts in his own discretion that must necessarily be only after the
prescribed nomination process has failed to effect the filling of the
vacancy.
[16] Section
375 then states the essentials for appointment as liquidator. The
first is that the person to be appointed has been
‘determined’
and the second is that such person has given security to the Master’s
satisfaction. As the earlier sections show,
the person determined
cannot be anyone other than somebody nominated at a convened meeting
of members or creditors. And the requirement
of nomination remains
even if the Minister uses his s 371 powers of intervention. I shall
revert to this last point.
[17] Finally
as to the legislative context, there is a blanket provision in s 374
which empowers the Master, whenever he considers
it desirable, to
appoint any person not disqualified from holding the office of
liquidator, and who gives the necessary security,
as a co-liquidator
with the liquidators. Of note here is that any appointment under
this section, unlike the position in s 371(3),
is not made subject to
any possible directive by the Minister.
[18] Turning
to the argument in support of the appeal, counsel for the Minister
said that the cornerstone of his submissions consisted
in the
provisions of s 39(2) and 33(1) of the Constitution. (The
former requires promotion of the values of the Constitution
in
statutory interpretation and the latter bestows the right on everyone
to fair and reasonable administrative action.) The need
for that
quality of administrative action, said counsel, was especially
required at the time in a winding-up before a final liquidator
was
appointed because it was at those early stages when a company’s
assets were peculiarly vulnerable to illicit concealment or
disposal.
It was at this juncture and with the risk of this mischief,
therefore, that effective action was necessary to ensure that
adequate and appropriate provisional liquidators were in charge. It
there was a shortcoming in their numbers, competence or approach
to
any aspect of the winding-up, there was a need for a quick remedial
process whereby informal nominations could be made and, if
not
accepted by the Master, then enforced by a Ministerial directive
under s 371(3).
[19] From
the papers it emerges that the provisional liquidators originally
appointed were considered by the Minister, or rather,
perhaps, by
those advising him, to be unduly sceptical or dismissive in regard to
an alleged claim against the company by the South
African Revenue
Services and it was consequently the Minister’s wish to obtain the
appointment of Mr Motala so that the Revenue’s
claim could be
accorded the attention to which it was, in the Minister’s view,
entitled in the proper execution of the winding-up.
[20] Counsel
for the Minister accepted that the Master’s actions could be
subject to review if a creditor’s interests were irregularly
disregarded but he contended that by the time review proceedings were
finalised a successful outcome would be cold comfort if the
consequences of wrong or ineffective action in the preservation of
the assets or in the treatment of a valid claim had long since
been
felt.
[21] Counsel
went on to outline existing practice consequent upon the grant of a
provisional winding-up order as being one whereby
creditors put
forward names of suggested provisional liquidators, the latter lodged
requisitions with the Master and he usually accepted
those
suggestions and made appointments of provisional liquidators
accordingly. It was submitted that this practice really involved
an
informal nomination procedure and that when the Act referred to
nomination the interpretation accorded that word should embrace
this
informal intimation as well as the formal process provided for in the
statute.
[22] In
evaluating the argument advanced in support of the appeal it is
realistic to bear in mind that some company insolvencies do,
unfortunately, involve irregular dealing with assets by former
directors, members or employees. However, I find nothing in the
sections
of the Act to which I have referred, or in the practice
described by counsel whereby provisional liquidators are usually
appointed
(assuming that description to be correct) which tends to
jeopardize a creditor’s, or any other interested party’s,
constitutional
right to fair administrative action. If
irregularities are perceived on the part of the Master, a provisional
liquidator or anyone
else involved in the provisional winding-up of a
company, review or interdictory remedies are available. Should the
circumstances
warrant speedy relief, they can be brought as matters
of urgency and disposed of with expedition. Essentially, therefore,
the case
turns on the proper construction of s 371 viewed in the
context set out above.
[23] What
the contention for the Minister really seeks to achieve is the
interpretation of the opening words of s 371(1) (‘Any person
aggrieved by the appointment of a liquidator’) as including any
person aggrieved by the non-appointment of a provisional liquidator;

and the interpretation of ‘nomination’ or nominated’ as also
referring to nomination made otherwise than in the manner provided
for in the Act.
[24] In
my view ‘appointment’ in the opening quoted phrase of s 371(1)
cannot include ‘non-appointment’. Non-appointment
is
specifically dealt with in the immediately following words which
cover refusal of the Master to accept a nomination and refusal
of the
Master to appoint a nominee. Moreover the section deals not with
appointment
per se
but only appointment pursuant to
nomination. As for ‘nomination’ or ‘nominated’, these words
can, in the relevant context,
refer to nothing other than the s 364
nomination process, the result of which is that the Master is
required, by s 369, to appoint
as liquidator (meaning final
liquidator) the person or persons nominated. Nothing in the Act
leaves room for understanding those
words in any other sense.
Therefore the grievances for which s 371 provides a remedy are
grievances consequent upon the appointment
of a person duly nominated
(or the non-appointment of a person duly nominated) within the
meaning of the Act, and particularly s
364.
[25] The
fundamental flaw in the statutory construction on the strength of
which the Minister issued the directive in question is
that it was
thought sufficient to direct the Master to
appoint
Mr Motala.
The vital point, however, is that where the Minister acts under s
371(3) and sets aside a Master’s s 370 refusal, he
must not just
direct the person concerned’s appointment. He must, in addition,
by reason of the closing words of s 371(3)
‘direct
the Master to accept the nomination of the liquidator concerned and
to appoint him as liquidator …’
In
the present case there was no such nomination of Mr Motala within the
meaning of the Act. It remains to add that s 371, properly
construed,
cannot apply to the Master’s appointment, or non-appointment, of a
provisional liquidator. In the result the Minister’s
directive,
and the appointment based on it, were not in conformity with the
provisions of the Act. They were therefore invalid.
[26] The
appeal is dismissed with costs, including the costs of two counsel.
_________________
CT HOWIE
PRESIDENT
SUPREME COURT
OF APPEAL
CONCURRED
:
SCOTT JA
ZULMAN JA
BRAND JA
CLOETE JA