About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2019
>>
[2019] ZASCA 152
|
|
Murray and Others NNO v African Global Holdings (Pty) Ltd and Others (306/2019) [2019] ZASCA 152; [2020] 1 All SA 64 (SCA); 2020 (2) SA 93 (SCA) (22 November 2019)
Links to summary
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 306/2019
In
the matter between:
C MURRAY
N.O.
FIRST APPELLANT
R F LUTCHMAN
N.O.
SECOND APPELLANT
T
OOSTHUIZEN N.O.
THIRD APPELLANT
C
MURRAY
FOURTH APPELLANT
R
F
LUTCHMAN
FIFTH APPELLANT
T
OOSTHUIZEN
SIXTH APPELLANT
And
AFRICAN GLOBAL HOLDINGS
(PTY)
LTD
FIRST RESPONDENT
THE
COMPANIES AND INTELLECTUAL
PROPERTY
COMMISSION
SECOND RESPONDENT
THE
MASTER OF THE HIGH COURT,
JOHANNESBURG
THIRD RESPONDENT
Neutral
citation:
Murray and Others NNO v African Global Holdings
(Pty) Ltd and Others
(306/2019)
[2019] ZASCA 152
(22 November
2019)
Coram:
Wallis, Mokgohloa, Plasket and Nicholls
JJA and Gorven AJA
Heard
:
15 November 2019
Delivered
:
22 November 2019
Summary:
Voluntary winding-up of group of companies – s 351 of
Companies Act 61 of 1973 – whether solvent companies needing to
be wound up in terms of ss 79 and 80 of
Companies Act 71 of 2008
–
company not solvent if commercially insolvent – on facts
companies commercially insolvent.
Liquidators
– appointment by Master in Pretoria – companies
registered offices within jurisdiction of Master in Johannesburg
–
Master in Pretoria exercising jurisdiction throughout Gauteng –
s 2(1)
(a)
(ii) of the
Administration of Estates Act 66 of 1965
– appointments valid.
Personal
costs orders – when granted.
ORDER
On
appeal from:
Gauteng Division of the High Court, Johannesburg
(Ameer AJ, sitting as court of first instance):
1 The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2
The order of the high court is altered to read:
‘
The
application is dismissed with costs, such costs to
include those consequent upon the employment of two counsel.’
JUDGMENT
Wallis
JA (Mokgohloa, Plasket and Nicholls JJA and Gorven AJA concurring)
[1]
The
events unfolding daily on our television screens at the hearings of
the Zondo Commission
[1]
have
given rise to the questions of company law arising in this appeal.
They concern a group of companies (the Group) of
which the
first respondent, Global Africa Holdings (Pty) Ltd (Holdings), is the
holding company. The group was formerly known as
the Bosasa Group.
Evidence of a sensational nature was given to the Commission
concerning the relationship between senior political
figures and the
Group. This prompted its bankers, First National Bank Ltd (FNB) and
ABSA Bank Ltd (ABSA), to indicate that continuing
a business
relationship with the Group involved them in unacceptable
reputational risk. Accordingly both banks indicated that they
would
withdraw banking facilities from African Global Operations (Pty) Ltd
(Operations), itself a wholly-owned subsidiary of Holdings
and the
company that performed the Group’s treasury functions in regard
to receipt of payments and payment of debts incurred
by the various
operating companies in the Group. All of the latter were wholly-owned
subsidiaries of Operations.
[2]
The Group then attempted to find another bank that would provide it
with banking facilities, but was
unable to do so. This was
catastrophic for its continued business operations. Its chairman, Mr
Gumede, who deposed to the founding
affidavit, explained that while
the subsidiaries had a number of ongoing contracts with government
departments and state owned
enterprises from which it could expect a
steady cash flow, in the absence of banking facilities the various
companies ‘would
be unable to pay their employees
(the Group’s employees number in
excess
of 4 500) and suppliers or to receive payment of amounts
due to them’. This led the Group to consult with a leading
business
rescue practitioner, but nothing came of that because the
practitioner was unable to assure it that he would be able to secure
the banking facilities needed to enable the Group to continue in
existence.
[3]
The
Group then consulted an attorney, Mr Potgieter, who advised that the
only possible course of action was to place Operations
and its
subsidiaries in voluntary winding-up. To that end he prepared what he
regarded as the necessary documents. At a meeting
on 12 February 2019
of all the directors of Holdings and Operations, resolutions were
signed by the directors of Holdings in the
case of Operations, and
the directors of Operations in the case of the subsidiaries, placing
Operations and the subsidiaries in
a creditors voluntary winding-up.
On 14 February the resolutions were filed with
the Companies
and Intellectual Property Commission
(CIPC).
[2]
On the same day the
Deputy Master of the High Court in Pretoria
[3]
appointed Messrs Murray and Lutchman as the provisional liquidators
of all eleven of the companies. Shortly before the commencement
of
these proceedings Ms Oosthuizen was added as a provisional liquidator
of all of the companies. Messrs Murray and Lutchman and
Ms Oosthuizen
are, in their official capacities as provisional liquidators, the
first, second and third appellants, and in their
personal capacities,
the fourth, fifth and sixth appellants. Although their appointments
were provisional, I will refer to them
as ‘the liquidators’.
[4] The
present proceedings appear to have been precipitated by the vigorous
way in which Mr Murray went
about his business as provisional
liquidator. On 21 February 2019 he arrived at the Group’s
headquarters in Mogale City accompanied
by security guards and over
the next two days took control of the premises and the businesses and
excluded the staff and directors.
In the meantime, on 19 February,
Holdings had consulted new attorneys with a view to obtaining advice
on its position as a creditor
of the companies in voluntary
winding-up. On 26 February they were advised that the process of
voluntary winding-up was defective
and, when the liquidators would
not accept this, commenced these proceedings on 4
March 2019 before the Gauteng
Division of the High Court,
Johannesburg as a matter of extreme urgency. They sought orders
directed at having the resolutions
for voluntary winding-up declared
null and void and of no force and effect from inception. Consequent
upon that they sought an
order that the appointment of the
liquidators was likewise null and void and of no force and effect and
compelling the liquidators
to restore control of the companies to
their directors. They asked that the liquidators be ordered to pay
the costs of the application
in their personal capacities, whether or
not they opposed the application.
[5] Despite
the protestations of the liquidators the case was argued before Ameer
AJ on 13 March 2019, nine days
after it was launched. The following
day judgment was delivered granting Holdings the relief it had sought
and ordering the liquidators
to pay the costs of the proceedings in
their personal capacity. The appeal is with the leave of the high
court.
The issues
[6] The
resolutions placing Operations and its subsidiaries under a creditors
voluntary winding-up were expressed
as being taken in terms of s 351
of the Companies Act 61 of 1973 (the 1973 Act). This section
forms part of Chapter 14 of
the 1973 Act dealing with the winding-up
of companies. The continued operation of that chapter,
notwithstanding the repeal of the
1973 Act by the Companies Act 71 of
2008 (the 2008 Act), is preserved under Item 9(1) of the Fifth
Schedule to the 2008 Act. The
reason is that, subject to one
exception, the 2008 Act contains no provisions dealing with the
winding-up of companies. Accordingly,
in terms of s 343 of the 1973
Act, a company may still be wound up either by the Court or
voluntarily, and in the latter event
the winding-up will be either a
creditors’ or a members’ voluntary winding-up.
[7]
The
exception to the continued application of the 1973 Act arises under
ss 79 and 80 of the 2008 Act, which provide that in the
case of a
solvent company it can be wound-up either voluntarily or by way of a
winding-up and liquidation by court order. To this
end, Item 9(2) of
the Fifth Schedule to the 2008 Act provides that the provisions of
the 1973 Act providing for the compulsory
and voluntary winding-up
of companies do not apply to the winding-up of a solvent
company.
[4]
[8] Holdings’
primary case was that Operations, and all the subsidiaries, were
solvent companies and thus
could not be voluntarily wound-up in terms
of s 351 of the 1973 Act. Building on that foundation it contended
that the resolutions
were null and void from inception and that none
of the companies had been validly wound up. It followed, so they
contended, that
the appointment of the liquidators was null and void
from inception and should be set aside and the companies restored to
their
directors.
[9] In
addition to its primary case, Holdings advanced an argument
that the meetings at which the various
resolutions leading to the
voluntary winding-up of the companies were passed were not properly
convened in terms of s 62 of the
2008 Act and that this provided a
further reason for holding that the resolutions were null and void
from inception. The high court
upheld both the primary and this
additional contention.
[10] Both
contentions were advanced on the basis that the applicable
legislation for the purpose of winding-up
these companies was the
2008 Act, more particularly ss 79 and 80 thereof, and not the 1973
Act. This was apparent from the founding
affidavit, which summarised
the provisions of Item 9(1) of the Fifth Schedule to the 2008 Act,
and referred to Part G of
Chapter 2, as well as ss 79 and 80. Mr
Gumede said that he had been advised, and it would be argued, that
the consequence of these
provisions was that s 351(1) of the 1973 Act
was inapplicable to the winding-up of a solvent company and
that it
was not possible for the shareholders of
such a company to resolve to liquidate it in terms of that section.
In order to
advance that case it was accordingly essential for
Holdings to show that the companies were solvent at the time of their
voluntary
winding-up. If they were not then the 2008 Act was
inapplicable and its primary and secondary cases were both bad.
[11]
Over and above these contentions on the merits Holdings attacked the
locus standi
of the liquidators at two levels. The first was
that their appointment was invalid because it had been effected by
the Deputy Master
in Pretoria, while the registered offices of all
the companies were within the area of jurisdiction of the Master in
Johannesburg.
This was said to be contrary to the relevant provisions
of the Administration of Estates Act 66 of 1965 (the Estates Act).
The
second related solely to their coming before this court in
their personal capacities to challenge the order for costs. It
was
submitted that the application for leave to appeal had been brought
by them solely in their capacity as provisional liquidators
and not
in their personal capacity and granted as such. In the absence of the
grant of leave to appeal in their personal capacity
they were not
properly before this court. The latter point was abandoned and there
is no need to mention it further. It is appropriate
and convenient to
deal first with the remaining issue of
locus standi
.
Appointment as
liquidators
[12] This
argument was raised before the high court, but no decision was
made on it because of the
finding that the appointments had in any
event to be set aside on the basis of Holdings’ primary case.
The point arises from
s 2(1)
(a)
(ii) of the Estates Act, which
provides that:
‘
Subject
to subsection (2) and the laws governing the public service, the
Minister—
(i)
…
(ii)
shall, in respect of the area of jurisdiction of each High Court,
appoint a Master of the High
Court’.
Section
3 then provides that each Master shall have an office at the seat of
the High Court ‘in respect of whose area of jurisdiction
he or she has been appointed’. There is a Master of the
High Court in both Pretoria, which is the main seat of the
Gauteng
Division, and Johannesburg, which is a local seat of that division.
[13]
Holdings pointed out that under s 1 of the 2008 Act the Master is
defined as the officer of the High Court
referred to in s 2 of the
Estates Act who has jurisdiction over a particular matter arising
under the 2008 Act. Given the provisions
of s 79(2) of the 2008 Act,
the procedure for appointing a liquidator in the case of the
winding-up of a solvent company are those
prescribed in Chapter 14 of
the 1973 Act. As a result this preliminary point is unaffected by
whether the winding-up fell to be
dealt with under the 2008 Act or
the 1973 Act.
[14]
Section
368 of the 1973 Act requires the Master to appoint a provisional
liquidator as soon as a special resolution for the winding-up
of the company has been registered with CIPC in terms of s 200 of the
1973 Act. The definition of ‘Master’ in s 1 of
the 1973
Act provides, in regard to a company that is not being wound-up
pursuant to a court order, that this is ‘the Master
having
jurisdiction in the area in which the registered office of that
company is situated’.
[5]
Although this definition was not referred to in the heads of
argument, Holdings contended that because the companies had their
registered offices within the area of jurisdiction of the Master in
Johannesburg only that Master was entitled to appoint
the
provisional liquidators of the companies. This despite the fact that
they had requisitioned the Master in Pretoria to have
Mr Lutchman
appointed as provisional liquidator of a number of the companies.
[15]
The
argument overlooked the fact that s 2 of the Estates Act was
formulated in 1965 in accordance with the structure of the
Supreme Court, as the High Court was then known. Under s 2 of the
Supreme Court Act 59 of 1959, read with the First Schedule, there
were originally five, and subsequently six,
[6]
provincial divisions of the Supreme Court of South Africa and
originally two, and subsequently three,
[7]
local divisions of the Supreme Court. Under the Constitution these
divisions of the Supreme Court became the High Courts. In 2012
the
Constitution was amended to constitute a single High Court in South
Africa. The
Superior Courts Act 10 of 2013
abolished local divisions
and constituted the High Court in its present nine divisions
corresponding to the nine provinces, with
main seats in all of them
and local seats in some.
[16]
Section
2(1)
(a)
(ii)
of the Estates Act must initially be construed against the historical
background prior to the changes effected in 2012 and
2013. It
required the appointment of a Master ‘in respect of the area of
jurisdiction of each High Court’. Prior to
1994 there had been
six provincial and three local divisions in South Africa and courts
in each of the TVBC states. A Master’s
office had to be
established in respect of the area of jurisdiction of each of these.
In the case of three provincial divisions
[8]
and the TVBC states a single Master’s office having
jurisdiction throughout the area of jurisdiction of those courts
was
established.
[9]
[17]
That
left three divisions where there was a provincial division
[10]
having jurisdiction over the entire area of the province in question
and three local divisions
[11]
having jurisdiction over a defined portion of those provinces. As the
local divisions were separately constituted as high courts,
the
effect of s 2(1)
(a)
(ii)
of the Estates Act was that a Master had to be appointed for both the
provincial and the local divisions. As a result there
was the same
overlap in the jurisdiction of the Masters as there was in regard to
the jurisdiction of the provincial and local
divisions to which they
were attached. The Masters in Grahamstown (now Makhanda), Pretoria
and Pietermaritzburg could exercise
jurisdiction over the whole
province, including the areas covered by the local divisions, but the
Masters in Port Elizabeth, Johannesburg
and Durban were confined to
exercising jurisdiction within the areas in which the courts to which
their offices were attached exercised
jurisdiction.
[18]
The
passage of the
Superior Courts Act 10 of 2013
did not alter
this in any way. If anything, it strengthened the conclusion flowing
from the above analysis. The reason is
that it established a single
High Court for South Africa consisting of nine divisions,
corresponding to the nine provinces, and
abolished local divisions.
The courts that formerly existed there, and those in Mthatha, Bhisho
and Thohoyandou, are now local
seats of the provincial divisions.
They are not separate courts and it is no longer appropriate to
refer to them as such
or to describe them as local divisions.
[12]
The Masters’ offices situated at those local seats exercise
their functions within a limited territorial jurisdiction,
while the
Masters’ offices at the main seat of each division
[13]
exercise jurisdiction throughout the provinces for which those
divisions are constituted.
[19]
Section
2(1)
(a)
(ii) does not give the Minister the power to appoint a
Master for a portion of the area of jurisdiction of a High Court. Nor
is
the Minister empowered to limit a Master’s jurisdiction in
any way or to prescribe which matters will be dealt with in which
Master’s office where there is concurrent jurisdiction. As a
matter of fact there is no indication that the Minister has
tried to
do so. The assumption underlying Holdings’ argument was that
the areas of jurisdiction of the Master in Johannesburg
and that of
the Master in Pretoria do not overlap. That was incorrect because the
area of jurisdiction of the Master in Pretoria
includes the entire
area of jurisdiction of the Master in Johannesburg, in the same way
that the former Transvaal Provincial Division
exercised concurrent
jurisdiction over the entire area of jurisdiction of the former
Witwatersrand Local Division. As then, so
now, it is open to parties
requiring the assistance of the Master to use the office of either
where their areas of jurisdiction
overlap. The objection to the
appointment of the liquidators by the Deputy Master, Pretoria was
therefore without merit.
Were the companies
solvent?
[20]
The evidence in this regard was sparse. Mr Gumede said:
‘
The
Group and its individual members were (and are) all solvent with no
significant debt (apart from a liability on the part of
Operations to
the South African Revenue Services, which is covered by reserves and
the settlement of which is in the process of
being negotiated) and
held a number of current contracts for the provision of services and
providing for a healthy cash flow.’
No
financial statements or any financial information was put up to
support this.
[21]
In his answering affidavit, deposed to on 7 March 2019, three days
after the application was launched, Mr Murray
said that the claim of
solvency was not borne out by the CM100 forms setting out the
financial position of the companies, but did
not attach these forms
to his affidavit. His complaint was that given the time constraints
imposed by Holdings, that required the
answering affidavit to be
delivered two days after service of the application papers, it
was not possible to provide a detailed
analysis of the financial
position of the Group. Accordingly he said that the affidavit would
need to be amplified. In particular
he raised the fact that Mr Gumede
merely asserted the solvency of the companies without providing a
factual basis for his assertion.
[22]
I will deal later with the judge’s approach to the case,
including the filing of the document to which
I am about to
refer. Mr Murray dealt with the companies’ financial position
in much greater detail in a report that he filed
under cover of an
affidavit sworn on 10 March 2019. He said in the affidavit under
cover of which the report was filed that it
had been prepared and
filed at the request of the Master. Attached to the report were the
audited annual financial statements of
Operations for the year ended
28 February 2017. The following passage appeared in the Directors’
Report signed by Mr Gumede
and Mr Gavin Watson, then the moving
spirit behind the Group, on 7 March 2018:
‘
The directors draw
attention to the statement of equity in the annual financial
statements which indicates that the company incurred
a net loss of
R40,864,615 during the year ended 28 February 2017, and as of that
date, the company’s total liabilities exceeded
its total assets
by R -173,026,543. These conditions indicate the existence of
uncertainty which may cast doubt about the company’s
ability
to continue as a going concern.’
Had
the judge had any regard to that document it is difficult to see on
what basis he could have accepted at face value Mr Gumede’s
statement that the companies were all solvent. As there is a dispute
over its status in the record, it is fortunate that it is
unnecessary
to rely upon the report to resolve the issue of the solvency of the
companies in the Group.
[23]
There
is no definition of a solvent company in the 2008 Act. Initially this
occasioned some difficulty in various high courts, as
litigants
sought to avoid compulsory winding-up under the 1973 Act on the
grounds that they were solvent and hence could only be
wound-up in
terms of the 2008 Act. The confusion was set to rest by the decision
of this court in
Boschpoort
.
[14]
It decided that a solvent company for the purposes of the 2008 Act is
a company that is commercially solvent.
[15]
It matters not that its assets may exceed its liabilities if it is
commercially insolvent. Conversely it may be commercially solvent
despite the fact that its liabilities exceed its assets.
[16]
If it is commercially insolvent it is liable to be wound-up in terms
of the provisions of the 1973 Act and it may not be wound-up
in terms
of the 2008 Act.
[24] The
terse statement by Mr Gumede quoted above in para 9 appears to have
been formulated with a view to conveying
that the Group’s
assets exceeded its liabilities and the Group companies were all
going concerns. Its conclusion that all
the companies were solvent
was an assertion not supported by empirical data. In dealing with
urgency Mr Gumede disclosed one major
obstacle to its being correct.
It was that the principal assets of Operations appeared to be loans
of over R416 million owed to
it by the various subsidiary companies.
Mr Gumede said that if these loans could not be recovered the damage
to Holdings would
be considerable. In the absence of evidence that
the subsidiaries would be able to repay these loans the financial
situation of
the Group appeared to be precarious.
[25]
The assertion of solvency on its own was insufficient to warrant a
conclusion that the companies were
solvent, an essential finding if
the attack on the resolutions underpinning their voluntary winding-up
was to be sustained. As
it happens the judge did not address the
issue in any detail and merely said that there was no indication that
the companies were
at the time insolvent. Possibly he accepted Mr
Gumede’s statement in the replying affidavit that the solvency
of the companies
was irrelevant – a proposition that was
manifestly incorrect and not pursued in this court. In my view,
given that
the assertion of solvency was disputed, the
Plascon-Evans
rule required that the application be dismissed on this ground
alone.
[26] In
any event, there was a considerable body of material in Mr Gumede’s
affidavit and in the surrounding circumstances
to demonstrate that
the companies were commercially insolvent. According to him the
damage was done to the Group by the evidence
at the Zondo Commission
and the endeavours to repair it had failed. Despite his efforts, in
November 2018 FNB gave notice of its
intention to close the Group’s
accounts. In early February 2019 ABSA followed suit. When he deposed
to his affidavit
the attempts to obtain alternative banking
facilities elsewhere had failed. A leading business rescue
practitioner had advised
them that there was no point in pursuing
business rescue, because the business rescue practitioner would not
be able to secure
banking facilities for the group.
[27]
Mr Gumede and his co-directors recognised that this was fatal to the
continued business operations of the Group.
Once the banking
facilities were withdrawn, something that was imminent, they could
neither pay their bills nor receive payment
of amounts due to them.
The faint suggestions by counsel that some other way could have been
found were unsupported by any evidence.
Apart from anything else it
faced the difficulty that payments by government departments and
government entities have to be effected
through the conventional
payment system in terms of
s 7
of the
Public Finance Management Act 1
of 1999
and the regulations made thereunder.
[28]
Commercial
insolvency is dealt with in the following passage from
LAWSA:
[17]
‘
A
company is unable to pay its debts when it is unable to meet current
demands on it, or its day-to-day liabilities in the ordinary
course
of business, in other words, when it is “commercially
insolvent”. The test is therefore not whether the company’s
liabilities exceed its assets, for a company can be at the same time
commercially insolvent and factually solvent, even wealthy.
The
primary question is whether the company has liquid assets or readily
realisable assets available to meet its liabilities as
they fall due,
and to be met in the ordinary course of business and thereafter
whether the company will be in a position to carry
on normal trading,
in other words whether the company can meet the demands on it and
remain buoyant.’
[29]
‘Liquid assets’ in this context mean assets that are
available to the company for the purpose
of meeting its obligations.
These will include not only cash on hand, but receipts that it can
expect to receive in the ordinary
course; overdraft or other banking
facilities that can be used to make payment of debts when they fall
due; or assets, such as
shares, bonds or book debts, that can be
realised quickly so as to generate cash with which to pay debts.
When, for whatever reason,
a company is unable to access any liquid
assets it is illiquid and unable to pay its debts as they fall due.
[30]
Counsel’s argument on behalf of Holdings was that the moment of
inability of the Group to pay its debts had
not yet arrived when the
resolutions placing the companies in voluntary winding-up were
passed. The bank accounts had not yet been
closed and at that point
in time they could pay their debts, although an inability to pay was
imminent once the Group’s access
to banking facilities was
terminated. Although Mr Gumede did not say when the banking
facilities would be terminated he did say
that when that occurred the
Group would be unable to pay its employees and suppliers, which
suggested that it might be as early
as the end of that month. It was
conceded in the heads of argument that the Group would be unable to
continue to do business and
it would have to be liquidated.
[31]
The
argument about timing misconceived the nature of commercial
insolvency. It is not something to be measured at a single point
in
time by asking whether all debts that are due up to that day have
been or are going to be paid. The test is whether the
company
‘is able to meet its current liabilities, including contingent
and prospective liabilities as they come due’.
[18]
Put slightly differently, it is whether the company ‘has
liquid assets or readily realisable assets available
to meet its
liabilities as they fall due to be met in the ordinary course of
business and thereafter to be in a position to carry
on normal
trading – in other words, can the company meet current demands
on it and remain buoyant?’
[19]
Determining commercial insolvency requires an examination of the
financial position of the company at present and in the immediate
future to determine whether it will be able in the ordinary course to
pay its debts, existing as well as contingent
[20]
and prospective, and continue trading.
[32]
In the case of the Group the answer to this was clearly that it would
not. Mr Gumede recognised this
because he said that the endeavours
explored by the directors were aimed at continuing to provide
services to clients for a period
and manage the termination of staff
contracts in the best interest of employees. Mr Gumede said
substantial sums of VAT, provisional
tax of more than R15 million and
pension fund contributions due primarily by Operations fell due for
payment on 28 February 2019
and had not been paid. It followed that
there were already debts that had fallen due and not been paid in the
ordinary course.
These amounts were attracting interest and
penalties.
[33] One
further factor pointed to the financial problems confronting the
Group. It was that the voluntary winding-up
was a creditors voluntary
winding-up in terms of s 351(1) of the 1973 Act, not a members
voluntary winding-up
in terms of s
350(1). Had the latter route been followed
security would have to have
been furnished to the satisfaction of the
Master for the payment of the debts of the company within a period
not exceeding twelve
months. Alternatively, the directors would have
had to deliver to the Master a sworn statement or a certificate from
their auditors
that the companies had no debts. The latter was not
possible because the companies had debts. The absence of security,
which meant
that in liquidation the liquidators of the companies
would take their directions from their creditors, was a further
factor pointing
to the fact that the companies were
commercially insolvent. Under the more stringent provisions of s
80(3) of the 2008 Act
such security would have had to be provided in
order for a voluntary winding-up to proceed, whether that was a
creditors or a members
voluntary winding-up. An application to court
under s 81 would have been necessary.
[34]
I conclude that Operations and the other companies in the Group were
commercially insolvent at the time that the
resolutions for their
voluntary winding-up were taken. That conclusion removes the
underpinnings of Holdings case. It should not
have been granted any
relief by the high court and the application should have been
dismissed. Before setting out the order
to be made it is, however,
desirable that I say something about the proceedings in the high
court and the costs order the judge
made against the liquidators in
their personal capacities.
The proceedings in the
high court
[35] The
application was brought as one of extreme urgency. It was launched on
4 March; the papers were served
on 5 March; the answering affidavit
had to be filed by 7 March and the case was argued on 13 March,
with a 24 page judgment
being delivered the following day. The
liquidators rightly complained that this
extraordinarily
hasty litigation timetable, contrary to the
Practice Manual of the court, gave them inadequate time to prepare a
substantive answer
on the merits. Nonetheless they challenged the
factual foundation of the claim in regard to the solvency of the
companies and raised
a number of preliminary points of principle.
Notwithstanding the shortness of the time given to them a more
detailed response on
the question of solvency was set out in the
report annexed to Mr Murray’s affidavit of 10 March. That
report was prepared
and furnished to the court at the request of the
Master.
[36] The
judgment makes no mention of this report, yet it contained highly
material information in regard to the central issue
of the solvency
of the companies. The objection by counsel on behalf of Holdings,
repeated in heads of argument in this court,
that in order for it to
be part of the record there needed to be an application under
Uniform Rule 6(5)(
e
) was patently incorrect. This was a
document prepared and lodged with the court, via the liquidator, at
the instance of the official
charged by statute with oversight of the
liquidation of companies and, what is more, the official who had
appointed the liquidators
to perform their task. I would add that
because of Holdings’ erroneous view of which Master was
supervising the liquidations,
the Master who made the appointments
was not cited or served. How else was that Master to ensure in the
discharge of their duties
that the court was fully apprised of the
facts?
[37]
The court should have had regard to the report’s contents. It
would then have read Operations annual financial
statements as at 28
February 2017 and seen the note quoted in para 22 above. It would
also have seen that on 22 February 2019 two
major contracts
generating revenue in excess of R40 million per month had been
terminated because the companies concerned
had
been placed in voluntary winding-up. There was much
else besides. In the face of this evidence the
judge could not have
concluded that there was no evidence of commercial insolvency.
[38] The
judge dealt with the case as one of extreme urgency. It was
not. There was no doubt that resolutions for
the winding-up of the
companies had been taken and lodged with the CIPC and provisional
liquidators had been appointed. But that
had occurred on 12 February
and the appointments, at least of Mr Lutchman, had been in terms of
requisitions signed by Mr
Gumede and submitted
to the Master. On 19 February the board of Holdings
met with their current
attorneys for advice in regard to their rights
and obligations as creditors in the various liquidations. For reasons
that were
not explained those attorneys asked for copies
of the resolutions, but these were only furnished on 25 February,
whereafter
the advice was given that led to these proceedings.
Another week passed during which the application papers were prepared
and lodged
with the registrar – a total period of three weeks.
Yet the newly appointed liquidators were given two days to deliver an
answering affidavit and when they protested their protests were
overruled. Even then they did the work that led to the report being
filed on 11 March, but this report was ignored.
[39]
The urgency was created by Holdings in the course of its endeavours
to overturn the consequences of its own actions.
They demanded that
Mr Murray cease to exercise his statutory powers and relinquish
control of Operations and the other companies
to their directors on
one day’s notice. The fact that he could not comply with this
demand until the voluntary winding-up
of the companies was set aside
together with his appointments was ignored. The basis of urgency was
that the directors of the companies
should be placed in control
thereof as soon as possible to mitigate any potential damage.
There was no evidence that the
exercise by the liquidators of the
restricted powers conferred on provisional liquidators could harm the
companies. Nor was it
explained how the directors were going to
conduct the operations of the companies without banking facilities.
There was no suggestion
that Mr Murray – who was the principal
target of the complaints by Mr Gumede – had in any way acted
improperly or would
not act so as to protect the interests of the
companies, their creditors and shareholders. No complaint was
levelled at Mr Lutchman,
the liquidator they had nominated.
[40]
The liquidators justifiably complained that the matter did not
warrant such urgent attention of the court and could
easily wait
another week, if not longer, in terms of the Practice Directive
before being heard. Instead the judge held that it
was urgent. When
the liquidators complained that they had not had sufficient time to
provide a defence on the merits, but could
argue the preliminary
objections and would then need time to file further papers, he put
them to an election to proceed on the
papers as they stood or to seek
an adjournment in the face of strenuous objection from
Holdings. He then treated their decision
to argue the
preliminary issues and challenge the urgency of the matter as
‘inappropriate’ and assumed that by not
requesting more
time they ‘did not really require more time’.
[41]
That brings me to the grounds for rejecting the liquidators’
contentions in regard to urgency. The
relevant passage in the
judgment reads as follows:
‘…
if the
resolutions are a nullity or unlawful, the control of a business of
such magnitude in the hands of liquidators who are at
large to do
with it as they please, of itself is illustrative of the ongoing
irreparable harm which is not only suffered on a daily
basis but on
an hourly basis. Critical decisions that are not necessarily in the
company’s best interests can be decided
upon. Of course, the
liquidators, in the course of administering the estate by selling off
its assets, would earn a fee on the
tariff which is representative of
a percentage of the sale value and may well be very eager to
execute their mandate, particularly
in an estate as large as this
one.’
[42]
That passage consists of completely unfounded insinuations that the
liquidators would not discharge their duties
properly under the
supervision of the Master and in accordance with the directions of
creditors. It ignored the fact that as provisional
liquidators their
powers were limited and did not extend to doing the things he
attributed to them. In this regard it is worth
mentioning that the
creditors who nominated Mr Murray as liquidator were SARS, which was
investigating the tax affairs of Operations
and the Group, and
Firstrand Bank, together with its Wesbank Division, which had claims
of some R12 million. The irreparable harm
being suffered ‘on an
hourly basis’ was purely speculative, as was the suggestion
that critical decisions might be
made against the companies’
best interests in the period of a week or two needed to enable the
liquidators to provide a full
answer.
[43] Finally
there was the unfounded insinuation that the reason for the
liquidators’ opposition was their
own financial interests. The
judge returned to this when he dealt with costs. He said that the
liquidators should have abided the
Court’s decision, ignoring
the fact that from the outset Holdings sought an order against them
personally that they pay the
costs of the application, including the
costs of two counsel. He went on to say that the interests of
creditors did not need protection
because the companies were solvent.
This in the face of the fact that their solvency was disputed on the
papers; had not been the
subject of any analysis despite Mr Gumede’s
extremely tenuous evidence; and when, for the reasons already given,
they were
commercially insolvent.
[44] The
judge said that SARS, as the largest creditor and the one that
requisitioned for Mr Murray’s appointment,
would be prejudiced
because the amounts due to it would otherwise have been promptly
paid. He had no evidence that this was SARS’
view. How SARS was
to be paid if the banking facilities had been withdrawn in the
interim – a fact of which he had not been
apprised, because Mr
Gumede dealt only with the position at the date of liquidation
– was ignored or overlooked. Had
he considered, as he should,
Mr Murray’s report he would have discovered that the FNB
facilities had been terminated and
the ABSA facilities would be
terminated on 18 March 2019 so that restoring the companies to the
directors would not result in their
being able to trade.
[45]
Finally the judge returned to his canard that the liquidators were
motivated by financial self-interest. He refused
to consider Mr
Murray’s report in the face of submissions that it contained
evidence of serious improprieties. He did so
on the grounds that it
was not under oath, although it had been filed under cover of an
affidavit. His conclusion was that their
opposition involved a
conflict of interest and was a business decision. On that basis he
ordered them to pay Holdings’ costs
personally including the
costs of two counsel.
[46] There
was no justification whatsoever for that order. It is trite that
where a court is dealing with someone
such as a liquidator coming to
court, it is only if there is impropriety on their part that an order
to pay costs personally will
be made against them. The grounds relied
on by the judge were based on speculation
and insinuations
that verged on the
defamatory. I have dealt with it in some detail to make it plain that
orders such as this should
not be sought and should not be granted on
this basis.
The order
[47] The
following order is made:
1 The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2 The
order of the high court is altered to read:
‘
The application is
dismissed with costs, such costs to include those consequent upon the
employment of two counsel.’
M
J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellants:
K W Lüderitz SC (with him P Lourens)
Instructed
by:
MacRobert Attorneys, Pretoria;
Lovius
Block Inc, Bloemfontein
For
first respondent: M R Hellens SC (with him J G Richards)
Instructed
by:
Rushmere Noach Inc, Port Elizabeth;
McIntyre
Van der Post, Bloemfontein.
[1]
Technically the Judicial Commission of Enquiry into Allegations of
State Capture, Corruption and Fraud in the Public Sector including
Organs of State established in terms of Proclamation 3 of 2018 of 23
January 2018,
Government
Gazette
41403,
dated 25 January 2018.
[2]
CIPC is the second respondent in this appeal, and was the
twenty-fourth respondent in the high court, but has played no part
in the proceedings.
[3]
The Master of the High Court, Johannesburg was cited as the
twenty-third respondent in the high court and as the third
respondent in this appeal, but has likewise played no part in the
proceedings
[4]
The relevant provisions are ss 343, 344, 346 and 348 to 353 of the
1973 Act
[5]
Companies Act 61 of 1973, s 1 sv ‘Master’ para (c).
[6]
The original five were the Cape of Good Hope Provincial Division,
the Eastern Cape Division, the Natal Provincial Division, the
Orange
Free State Provincial Division and the Transvaal Provincial
Division. The Northern Cape Division was established in 1968.
[7]
The original two were the Durban and Coast Local Division and the
Witwatersrand Local Division. The South-Eastern Cape Local
Division
was established later.
[8]
The Cape of Good Hope Division, the Northern Cape Division and the
Orange Free State Division.
[9]
Of course the position in fact had been that these Master’s
offices had existed for many years prior to the enactment of
the
1965 Estates Act
[10]
The Eastern Cape Division, the Gauteng Division and the
KwaZulu-Natal Division with their seats in Grahamstown, Pretoria and
Pietermaritzburg respectively.
[11]
The South-Eastern Cape Local Division, the Witwatersrand Local
Division and the Durban and Coast Local Division with
their seats in Port Elizabeth, Johannesburg and Durban respectively.
[12]
Nedbank
Ltd v Norris
2016
(3) SA 568
(ECP) para 14.
[13]
Masters have now been appointed at Polokwane for the Limpopo
Division and Nelspruit for the Mpumulanga Division
[14]
Boschpoort
Ondernemings (Pty) Ltd v ABSA Bank Ltd
[2013]
ZASCA 173; 2014 (2) SA 518 (SCA).
[15]
Boschpoort
para
21.
[16]
Ex
Parte De Villiers & another NNO: In Re Carbon Developments (Pty)
Ltd (in Liquidation)
1993
(1) SA 493
(A) at 502H-503H.
[17]
LAWSA
Vol
4(3), (2 ed, 2014), para 74.
[18]
Rosenbach
and Co (Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962
(4) SA 593
(D) at 597B-C.
[19]
ABSA
Bank Ltd v Rhebokskloof (Pty) Ltd
1993
(4) SA 436
(C) at 440F-H.
[20]
Contingent liabilities include such claims as an unliquidated claim
for damages.
Koekemoer
v Taylor and Steyn NNO and Another
1981
(1) SA 267
(W) at 271 B-D.