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[2019] ZASCA 139
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Afrisam (South Africa) (Proprietary) Limited v Maleth Investment Fund (Proprietary) Limited (651/2018) [2019] ZASCA 139 (1 October 2019)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 651/2018
In
the matter between:
AFRISAM
(SOUTH AFRICA) PROPRIETARY
LIMITED APPELLANT
and
MALETH
INVESTMENT FUND PROPRIETARY
LIMITED RESPONDENT
Neutral
citation:
Afrisam (SA) (Pty) Ltd v Maleth Investment Fund
(Pty) Ltd
(651/2018)
[2019] ZASCA 139
(01 October 2019)
Coram:
Navsa, Wallis, Dambuza, Molemela and Mbatha JJA
Heard:
16 August 2019
Delivered:
01 October 2019
Summary:
Company Law – principles relating to court applications for
winding-up of a company restated – intervening voluntary
winding-up does not extinguish a pending application for compulsory
winding-up – where compulsory winding-up supersedes the
pending
voluntary winding-up provisions of s 340(2)
(a)
of the
Companies Act 71 of 1973 apply – compulsory winding-up shall be
deemed to have been effective from date of registration
of the
special resolution for the voluntary winding-up of a company.
ORDER
On
appeal from
: Gauteng Division of the High Court, Johannesburg
(Makume J sitting as court of first instance):
1
The appeal is upheld with costs, such costs to include the costs of
two counsel. 2 The order of the high court is set aside and
replaced
by the following:
‘
a)
Leave is granted to the appellant to intervene in case no 40865/13.
b)
The order of Windell J dated 04 December 2015 is varied by the
deletion of the words “with effect from 31 October 2013”
in paragraph 1 thereof.
c)
The costs of this application are to be paid by the respondent
including the costs consequent upon the employment of two counsel.’
JUDGMENT
Dambuza
JA (Navsa, Wallis, Molemela and Mbatha JJA concurring):
[1]
At the heart of this appeal, is an unusual sequence of events in
regard to the winding- up of a company unable to pay its debts.
Briefly summarised, an application for compulsory winding-up was
brought but, before any order was granted, the company was placed
in
voluntary winding-up. That continued for some eighteen months after
which the company was compulsorily wound-up in terms of
the original
application. The liquidators have pursued an action to set aside
certain dispositions made by the company prior to
its winding- up.
They do this in terms of certain provisions of the Insolvency Act 24
of 1936 (the
Insolvency Act) one
of which is more onerous as regards
the onus of proof for the recipient of the disposition, while the
other is, from the same perspective,
more onerous for the
liquidators. Determining which date applies determines under which
statutory provisions the dispositions can
be attacked.
[2]
On 4 December 2015 the Gauteng Division of the High Court,
Johannesburg (the high court) (Windell J) granted a court order that
a company, Cemlock Cement (Pty) Ltd (Cemlock), be finally wound up
‘with effect from 31 October 2013’. The order was
granted
at the instance of one of Cemlock’s creditors, Maleth
Investment Fund (Pty) Ltd (Maleth). At the time, Cemlock had
been in
voluntary liquidation for just over 18 months. Subsequent to the
grant of the December 2015 court order, the appellant,
Afrisam South
Africa (Pty) Ltd (Afrisam), also a creditor of Cemlock, launched an
application in the same court seeking to intervene
in the winding-up
application and that the December 2015 order be rescinded. The high
court (Makume J) dismissed the application.
Afrisam now appeals, with
leave of the high court, against the dismissal of its application.
Background
[3]
The events around Cemlock’s
winding-up started on 31 October 2013 when Maleth presented an
application before the high court,
seeking an order that Cemlock be
wound up as it was unable to pay its debts.
[1]
On 15 November 2013 Cemlock filed its notice of intention to oppose
the winding-up application. It also delivered a notice of application
for security for costs.
[4]
The opposition to the winding-up application prompted Maleth to
invoke ‘step-in- rights’ that it had under a ‘cession
and pledge agreement’ which it had concluded in 2011 with
Cemlock’s director, Stuart Paget. The cession and pledge
agreement provided for a loan of (moneys) by Maleth to Cemlock’s
sole shareholder, Scarab Investment Holdings (Pty) Ltd (Scarab).
Also, under that agreement, all rights, title and interest to shares
in Scarab were ceded to Maleth as security for the loans.
[5]
Breaches under the cession and pledge agreement, and an application
by the Standard Bank of South Africa Limited for the winding-up
of
Cemlock, paved the way for Maleth to invoke its step-in-rights and
acquire all the shares in Scarab and the shares held by Scarab
in
Cemlock. On 14 November 2013 Maleth exercised the newly acquired
voting rights in Scarab and Cemlock to appoint two new directors,
Brendan Harmse and Rishendrie Thanthony, to Scarab’s and
Cemlock’s boards. On 25 November 2013 the newly appointed
directors voted to remove Paget as Scarab’s and Cemlock’s
director. On 17 January 2014, under the newly installed directors,
Cemlock withdrew its opposition to its compulsory winding-up. It also
withdrew its application for security of costs.
[6]
On 23 January 2014 another
creditor of Cemlock, Carlbank Mining Contracts (Pty) Ltd (CMC),
brought an application in the high court
for Cemlock’s
compulsory winding-up. However, on 12 March 2014, the eve of the
hearing of that application, an agreement
was reached between CMC and
Scarab, which led to the postponement of CMC’s application. On
the same day Scarab passed a special
resolution that Cemlock be
placed under ‘a creditors’ voluntary winding-up’ in
terms of
s 349
, read with s 351(1), of the Companies Act 61 of 1973
(the Act). The resolution was registered with the Companies and
Intellectual
Property Commission (CIPC) on the same day, thus placing
Cemlock under voluntary winding-up in terms of s 349 of the Act.
[2]
[7]
About a year later, on 18 March 2015, Maleth filed what it termed a
‘conversion application’ in which it sought
to have the
voluntary winding-up converted to a compulsory winding-up which would
be effective from 31 October 2013, the date on
which it had presented
its original winding-up application. Essentially, this unusual
conversion application sought to rekindle
the original winding-up
application launched by Maleth, and, at the same time, convert the
voluntary winding-up into a revived
compulsory winding-up. Although
in the conversion affidavit Maleth asserted that the pending
voluntary winding-up should be set
aside, no order to that effect was
sought in the conversion notice of motion. It is this conversion
application that led to the
December 2015 order by Windell J.
[8]
Three liquidators were appointed pursuant to the December 2015 court
order. Subsequent to their appointment they instituted
proceedings
against Afrisam, seeking to recover as impeachable dispositions,
moneys paid to it by Cemlock prior to 31 October 2013.
There were two
sets of payments – first, those made by Cemlock between 1 May
2013 to 31 October 2013, amounting to R62 297
826,77, which allegedly
constituted voidable preferences to Afrisam in terms of
s 29
of the
Insolvency Act 24 of 1936
, and secondly, amounts totalling R191 352
419,41 paid by Cemlock to Afrisam during the period 1 November 2012
to 31 October 2013,
which were alleged to constitute undue
preferences in terms of
s 30(1)
of the
Insolvency Act. It
was
subsequent to the institution of the action by the liquidators of
Cemlock that Afrisam launched the application in the high
court
seeking to set aside the winding-up order of December 2015.
[9]
In its application for rescission, Afrisam bemoaned the granting of
the winding-up order on the back of the 2013 application.
It
contended that the December 2015 order should never have been granted
because the 2013 application was either tacitly withdrawn
or
abandoned, or Maleth had waived its rights in relation thereto when
the voluntary winding- up was effected in March 2013. There
was,
therefore, no winding-up application to revive, and the conversion
application was, in fact, a new application for compulsory
winding-up. Afrisam then took issue with the fact that it was never
given notice of that new (conversion) application despite being
a
known interested party as one of Cemlock’s creditors. For this
reason it contended that the 2015 winding-up order fell
to be
rescinded as it was erroneously sought and erroneously, granted
without it being given due notice. Alternatively, the order
was
liable to be set aside on the basis of either
iustus error
,
exceeding the court’s jurisdiction, or grounds sufficient to
justify
restitutio in integrum
.
[10]
It was not in dispute however, that the payments the liquidators seek
to recover had, indeed, been made to Afrisam. It was
also not in
dispute that the first set of payments were made at a time when
Cemlock’s liabilities exceeded its assets and
that it was
proper that it be wound up. For this reason Afrisam had not opposed
the original application when it was launched in
October 2013. In the
end, the nub of Afrisam’s discontent with the December 2015
court order was that it disregarded the
intervening voluntary
winding-up when determining the commencement date for the compulsory
winding-up.
[11]
On the other hand, Maleth insisted that it had always intended to
pursue its original application and to preserve 31 October
2013 as
the effective winding-up date. The voluntary winding-up was merely a
strategy to avoid 24 January 2014, on which CMC presented
its
application for Cemlock’s winding-up, being the commencement
date for the winding-up. The intention was to later convert
the
voluntary winding-up to a compulsory winding-up such that it would be
effective from 31 October 2013.
[12]
In dismissing Afrisam’s application the high court determined
the issue as one grounded in waiver. It reasoned that in
facilitating
Cemlock’s voluntary winding-up in March 2014 Maleth had not
waived its rights under the original application.
The court found
that the evidence supported Maleth’s stated intention to
preserve 31 October 2013 as the effective date for
the winding-up.
Such evidence, according to the court, lay in the active role played
by Maleth in frustrating Cemlock’s opposition
to its compulsory
winding-up, discouraging CMC from proceeding with its application,
re-instating its own application and facilitating
the interrogatories
under s 417 of the Act.
Commencement
of winding-up
[13]
It is desirable to say something about the commencement of a
winding-up even though, at the end of the day, that is not the
decisive issue in this case. In the case of a compulsory winding-up,
the winding-up would be deemed to commence on 31 October 2013,
the
date of presentation of the application for its winding-up. Section
348 of the Act provides that the winding-up of a company
by the court
shall be deemed to commence at the time of presentation of the
application for the winding-up. Had nothing else intervened,
when the
winding-up order in this case was granted on 15 December 2015, the
winding-up would have been deemed to have commenced
on 31 October
2013. That was in accordance with the order of Windell J.
[14]
The position is different in
the case of a company that is being wound up in consequence of a
voluntary winding-up. There is then
no application to the high court
for a winding-up order. However, it is still necessary for a variety
of purposes, not least the
date of commencement of the
concursus
creditorum
, to know when
the winding-up commenced. Accordingly s 352(1) of the Act provides
that the winding-up will commence on the date
on which the special
resolution for its winding-up is registered by the CIPC.
[3]
[15]
This case was largely argued on the basis that we had to choose
between one of these two dates as the date of commencement
of the
winding-up. That was, however, incorrect. The reason is that the
section that governs the determination of the relevant
date for the
purposes of setting aside dispositions made before the winding-up
commences contains a special provision for determining
the relevant
date. That date is not the date of commencement of the winding-up,
save as a matter of coincidence. In the peculiar
factual
circumstances of this case it may be that the date of commencement of
the winding-up will have changed between the period
of its voluntary
winding-up and it subsequent compulsory winding-up, but it is
unnecessary for us to consider that possibility
or to pronounce upon
it. We are only concerned with proceedings to set aside impeachable
dispositions in terms of the
Insolvency Act. The
relevant date for
these purposes is not the date of commencement of the winding-up of
the company. Accordingly this judgment does
not deal with the
difficult question of when for the purposes of the winding-up of
Cemlock the winding-up commenced.
Impeachable
transactions
[16]
Section 339 of the Act provides that in the winding-up of a company
that is unable to pay its debts, the provisions of the
law relating
to insolvency shall, in so far as they are applicable, be applied
mutatis mutandis
in respect of any matter not specifically
provided for by the Act. Against this background s 340 of the Act
regulates the impeachment
of dispositions made by a company prior to
its winding-up. The section provides that:
‘
(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)
in the case of a voluntary winding-up, the registration in terms of
section 200 of the special resolution to wind up the company;
(c)
. . .’ (Emphasis supplied)
[17]
The need to have a special deeming provision in regard to the date
corresponding with the date of sequestration of an insolvent,
arises
from the terms of the statutory provisions in the
Insolvency Act
dealing
with voidable and undue dispositions. The law of insolvency
applicable to impeachment of dispositions as specified under
s 340(1)
and
340
(2)
(a)
is set out in
ss 29
and
30
of the
Insolvency
Act. Section
29 of that Act regulates voidable preferences as
follows:
‘
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.’ (Emphasis
added.)
[18]
Section 30
of the
Insolvency Act regulates
the setting aside of undue
preferences. It provides that:
‘
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.’
[19]
The difference between these
two sections is clear. Under
s 29
the onus rests upon the recipient
of the disposition to prove that it was made in the ordinary course
of business and was not intended
to prefer one creditor (usually the
recipient) above another. Under
s 30
the liquidator or other person
seeking to set the disposition aside must prove that it was made with
the intention to prefer the
recipient or some other creditor.
[4]
[20]
Once this distinction is appreciated the real dispute between the
parties in this case becomes apparent. The earlier the ‘date
of
sequestration’ of Cemlock the more of the admitted dispositions
to it fall within
s 29
, where the onus rests upon it to show that
they were made in the ordinary course of business and without
intending to prefer one
creditor over another. The later the date,
the fewer dispositions fall within
s 29
and can only be recovered if
the liquidators prove that they were made with the intention of
preferring one creditor over another.
Maleth’s purpose in
asking for a winding-up order ‘with effect from 31 October
2013’ was to entrench that date
as the applicable date for the
purpose of the attack on the dispositions to Afrisam.
The
date of sequestration
[21]
As is evident from
s
340(2)
(a)
,
[5]
the Act envisages replacement of a voluntary winding-up with a
compulsory winding-up. That section then provides, in terms, that
where a compulsory winding-up order replaces a voluntary winding-up,
the deemed date of commencement shall be the date of registration
of
the special resolution for the winding-up as provided in s 200 of the
Act, rather than the date of presentation of the application
for
compulsory winding-up. This means that the six month period for
impeachable transactions will be determined with reference
to the
date of registration of the special resolution to wind up the
company, rather than the date of presentation of the winding-up
application.
[22]
Other sections in the Act that envisage the replacement of a
voluntary winding-up by a compulsory winding-up court order include
s
346(1)
(e)
of the Act, which expressly provides as follows in
regulating who may apply to court for a winding-up order:
‘
(1)
An application to the Court for the winding-up of a company may,
subject to the provisions of this section, be made-
(a)
by the company;
(b)
…
(e)
In the case of any company being wound up voluntarily
, by the
Master or any creditor or member of that company…’
(Emphasis supplied).
[23]
Also, in terms of s 347(4)
(a)
of the Act:
‘
Where
the application is presented to the Court by –
(a)
any applicant under section 346 (1) (e), the Court may in the
winding-up order or by any subsequent order confirm all or any
of the
proceedings in the voluntary winding-up.’
[24]
The facts in this case fit squarely within the provisions of the Act
referred to above, particularly s 340(2)
(a)
. The December 2015
winding-up order superseded the voluntary winding-up that had
commenced in March 2014. It follows, therefore,
that in terms of s
340(2)
(a)
the effective date of Cemlock’s winding-up was
the date of registration of the special resolution, i.e 12 March 2014
and not
31 October 2013.
[25]
While this disposes of the
appeal, it is appropriate to deal with a submission by the appellant
that a compulsory winding-up order
cannot be obtained unless the
voluntary winding-up has been set aside. In
King
Pie Holdings (Pty) Ltd v King Pie (Pinetown) (Pty) Ltd; King Pie
Holdings (Pty) Ltd v King Pie Durban (Pty) Ltd
[6]
the court was confronted with similar issues, except that, unlike in
this case, a provisional winding-up order had been granted
in the
compulsory winding-up proceedings. The applicant had launched court
proceedings for the winding-up of each of the two respondents
and had
obtained a provisional winding-up order in respect of each of them.
Each of the respondents subsequently passed a special
resolution for
its voluntary winding-up. On the return date, the court had to
decide: (i) whether section 359(1)
(a)
of the Act had the effect
of suspending the applications for compulsory winding-up of the
respondents from the date of commencement
of the voluntary
winding-up; (ii) whether it was necessary before proceeding with the
applications for compulsory winding-up, to
stay or set aside the
voluntary winding-up; (iii) whether a compulsory winding-up order
ought to replace the voluntary winding-up;
and (iv) what order for
costs would be appropriate in the circumstances.
[26]
Although the provisions of s 354 are not central to the issues in
this appeal, certain findings made by the court in
King Pie
are
relevant. Section 354 of the Act provides that: ‘(1) The Court
may at any time after the commencement of a winding-up,
on the
application of any liquidator, creditor or member, and on proof to
the satisfaction of the court that all proceedings in
relation to the
winding-up ought to be stayed or set aside, make an order staying or
setting aside the proceedings or for the continuance
of any voluntary
winding-up on such terms and conditions as the Court may deem fit.
(2)
The Court may, as to all matters relating to a winding-up, have
regard to the wishes of the creditors or members as proved to
it by
any sufficient evidence.’
[27]
In
King Pie
, the Court held that a voluntary winding-up of a
company was no bar to the launching of an application for its
compulsory winding-up.
That application for winding- up did not
constitute ‘civil proceedings’ as envisaged in s 354, and
therefore no stay
of the voluntary winding-up process was
consequential therefrom. The court also held that it had a wide
discretion to set aside
the pending voluntary winding-up process; but
it was not necessary to have the voluntary winding-up set aside
before an application
for compulsory winding-up could be launched.
However, on the facts before it, the Court found that it was in the
interests of the
creditors that the voluntary winding-up of each
company be set aside and that the provisional winding-up order be
confirmed.
[28]
The decision of the court in
King Pie
is
consistent with the provisions of the Act, which allude to the
granting of a winding-up court order in the context of a pending
voluntary winding-up. The wide discretion which the court has when
considering that application was described in
Ward
& another v Smit & others: In re Gurr v Zambia Airways
Corporation Ltd
[7]
as follows:
‘
The
language of the section is wide enough to afford the Court a
discretion to set aside a winding- up order both on the basis that
it
ought not to have been granted at all and on the basis that it falls
to be set aside by reason of subsequent events.’
As
shown above, the wide discretion of a court when considering an
application for winding- up is specifically given under s 347(4)
(a)
,
that the court ‘
may
in the winding-up order or by a
subsequent order confirm all or any of the proceedings in the
voluntary winding-up.’ (Emphasis
supplied)
[29]
Were it necessary for the voluntary winding-up to be set aside before
granting an order of compulsory winding-up, confirmation
of the
proceedings under the voluntary winding-up would be an anomaly. The
setting aside of Cemlock’s voluntary winding-up
was therefore
not necessary. Those proceedings could be set aside if the court, in
the exercise of its discretion, found that it
was necessary to do so.
[30]
Further, there is no indication in the Act that the voluntary
winding-up process extinguishes pending compulsory winding-up
proceedings, such as the court applications that were pending against
Cemlock in March 2014. There can be no basis for an applicant,
who
opts not to proceed for the time being with their application for
compulsory winding-up pending a parallel winding-up process,
to be
divested of its application of their rights under that application.
That is why, when a provisional winding-up order has
been granted by
the court, a creditor who believes that the provisional winding-up
order may not be confirmed, may on the return
day, seek leave to
intervene in the winding-up proceedings. Also, if the applicant seeks
to discharge the provisional winding-up
order, an intervening
creditor may be granted an extension of the rule to enable them to
bring his own winding-up application.
[31]
However, once it is accepted that the determination of the date that
for the purposes of setting aside dispositions is equivalent
to the
date of sequestration under is resolved in terms of s 340(2)
(a)
of
the Act, the contention by Afrisam that Maleth withdrew, abandoned or
waived its rights under the original application becomes
irrelevant.
Afrisam correctly did not persist with this submission. Even if the
conversion application were to be considered to
be a new application
for winding-up as Afrisam insisted, in terms of s 340(2)
(a)
,
the commencement date for the winding-up remained the date of
registration of the voluntary winding-up resolution.
Failure
to give service
[32]
The complaint regarding the failure to give notice of the application
does not take the matter further. Given the concession
by Afrisam
that, as far back as October 2013, Cemlock was unable to pay its
debts and the attempt by CMC to have Cemlock wound
up there was ample
evidence of the hopelessness of Cemlock’s circumstances. As
Meskin puts it: ‘Where a creditor seeks
the winding-up and his
application is not opposed by other creditors, the Court’s
discretion is very narrow; for an
unpaid creditor who cannot
obtain payment and who brings his claim within the Act is, as against
the company, entitled
ex debito justitiae
to a winding-up
order; he is not bound to give the company time …’
In
this instance a case for the winding-up of Cemlock had been properly
made out on the papers.
[33]
In any event, in terms of s 346A of the Act, service of a winding-up
order, including a provisional winding-up order is required
only in
respect of trade unions, employees of the company, the South African
Revenue Service; and the company itself, unless
the application
was made by the company.
[34]
In the result the following order is made:
1
The appeal is upheld with costs, such costs to include the costs of
two counsel. 2 The order of the high court is set aside and
replaced
by the following:
‘
a)
Leave is granted to the appellant to intervene in case no 40865/13.
b)
The order of Windell J dated 04 December 2015 is varied by the
deletion of the words “with effect from 31 October 2013”
in paragraph 1 thereof.
c)
The costs of this application are to be paid by the respondent
including the costs consequent upon the employment of two counsel.’
__________________
N
Dambuza
Judge
of Appeal
APPEARANCES
For
Appellant: S Symon SC (with D Watson)
Instructed
by:
Norton
Rose Fulbright South Africa Inc., Sandton
Webbers,
Bloemfontein
For
Respondent: D M Fine (with J M Hoffman)
Instructed
by:
Edward
Nathan Sonnenbergs, Johannesburg
Rosedorf
Reitz Barry Attorneys, Bloemfontein
[1]
As contemplated in s 344F and 345 of the Companies Act 61 of 1973.
It was not in dispute that although at the time of the events
under
consideration, the Companies Act 71 of 1973 (the Act) had been
repealed and replaced by the
Companies Act 71 of 2008
, the dispute
was to be determined in terms of the 1973 Act. This is because
despite the repeal of the 1973 Act, the winding-up
of insolvent
companies remained regulated under Chapter XIV of that Act.
[2]
Section 351 stipulates the following in relation to creditors’
voluntary winding-up:
‘
(1) A voluntary winding-up of
a company shall be a creditors’ voluntary winding-up if the
resolution contemplated in section
349 so states, but such a
resolution shall be of no force and effect unless it has been
registered in terms of section 200.’
And in terms of s 352 of
the Act a voluntary winding-up of a company shall commence at the
time of the registration in terms
of section 200 of the special
resolution authorising the winding-up.’
A
members’ voluntary winding-up in terms of s 350(1) of the Act
is one where either the company has no debts or security
has been
provided for their payment.
[3]
The section refers to the Registrar of Companies but that function
is now fulfilled by the CIPC in terms of
s 187(4)(b)
of the
Companies Act 71 of 2008
.
[4]
For example a payment to one creditor may release, and thereby
prefer, another creditor under a deed of suretyship.
[5]
See para 15 above.
[6]
King Pie Holdings (Pty) Ltd v King Pie (Pinetown) (Pty) Ltd; King
Pie Holdings (Pty) Ltd v King Pie (Durban) (Pty) Ltd [1998]
4 All SA
179D; 1998 (4) SA 1240 (D).
[7]
Ward & another v Smit & others: In re Gurr v Zambia Airways
Corporation Ltd
1998 (3) SA 175
(SCA) at 180G-181D.