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[2014] ZACC 38
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Stratford and Others v Investec Bank Limited and Others (CCT 62/14) [2014] ZACC 38; 2015 (3) BCLR 358 (CC); 2015 (3) SA 1 (CC); (2015) 36 ILJ 583 (CC) (19 December 2014)
Links to summary
CONSTITUTIONAL
COURT OF SOUTH AFRICA
Case
CCT 62/14
In
the matter between:
IVOR
CHARLES
STRATFORD
................................................................................
First
Appellant
SHEILA
MARGARET
STRATFORD
..................................................................
Second
Appellant
CLEAN
NGOMA
........................................................................................................
Third
Appellant
ERIC
DLOKOLO
.....................................................................................................
Fourth
Appellant
ANDRIES
ADONIS
.....................................................................................................
Fifth
Appellant
and
INVESTEC
BANK
LIMITED
.................................................................................
First
Respondent
MINISTER
OF JUSTICE AND
CONSTITUTIONAL
DEVELOPMENT
...........................................................
Second Respondent
MINISTER
OF
LABOUR
.....................................................................................
Third Respondent
Neutral
citation:
Stratford and Others v
Investec Bank Limited and Others
[2014]
ZACC 38
Coram:
Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J,
Jafta J, Khampepe J, Leeuw AJ, Madlanga J, Nkabinde J,
Van der Westhuizen
J and Zondo J
Judgment:
Leeuw AJ (unanimous)
Heard
on:
2 September 2014
Decided
on:
19 December 2014
Summary:
Insolvency Act 24 of 1936
—
section 9(4A)
— “employees” includes domestic
employees
Insolvency
Act 24 of 1936
—
section 9(4A)
— peremptory nature of
“furnish” — petition must be made available in a
manner reasonably likely to make
it accessible to the employees
—
section cannot be used as a technical defence
Insolvency
Act 24 of 1936
—
section 12(1)
— advantage to creditors —
means a reasonable prospect that some pecuniary benefit will result —
“advantage”
is broad and should not be rigidified
ORDER
On
appeal from the Western Cape Division of the High Court, Cape Town
(Mantame J):
1.
The appeal is dismissed except to the extent set out below.
2.
It is declared that the word “employees” in
section 9(4A)
of the
Insolvency Act 24 of 1936
includes domestic employees.
3.
The order in paragraph 2 is not retrospective, except to the
following extent:
(a)
If in a pending application for sequestration a provisional order was
granted but a copy of the application was not furnished
to the
debtor’s domestic employee(s), before a final order is granted—
(i)
the petitioner must furnish the debtor’s domestic employee(s)
with a copy of the application papers, either personally
or in a
manner likely to make them accessible to the employee(s);
(ii)
the petitioner must deliver an affidavit setting out details of when
and how he or she has done so; and
(iii)
if necessary, the court must extend the rule
nisi
to allow the
petitioner to comply with this requirement.
(b)
If a final sequestration order has been granted and is subject to an
appeal but a copy of the application was not furnished
to the
debtor’s domestic employee(s)—
(i)
the final order must be set aside and replaced by a provisional
sequestration order; and
(ii)
a copy of the rule
nisi
must be served on the debtor’s
domestic employee(s) with a copy of the application papers, in
accordance with
section 11(2A)
read with
section 11(4)
of the
Insolvency Act 24 of 1936
.
4.
There is no order as to costs.
JUDGMENT
LEEUW AJ
(Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J,
Khampepe J, Madlanga J, Nkabinde J, Van der Westhuizen
J and Zondo J
concurring):
Introduction
[1]
This
is an appeal against the final sequestration order and dismissal of a
counter-application by the Western Cape Division of the
High Court,
Cape Town
[1]
(High Court), the
Supreme Court of Appeal having refused leave to appeal. In
terms of the
Insolvency Act
[2]
a
sequestration order granted against a debtor has the effect of
suspending contracts of service of the debtor’s employees
with
immediate effect.
[3]
The
effect of the suspension is that the employees are not entitled to
any remuneration and no employment benefits accrue to the
employees,
[4]
save
for unemployment benefits
[5]
in
terms of section 35 of the Unemployment Insurance Act.
[6]
[2]
An
amendment to the
Insolvency Act in
2002 inserted
section 9(4A).
[7]
It provides that a copy of the sequestration application must be
furnished to employees of the insolvent debtor before an
order for
provisional sequestration may be granted.
[8]
The Supreme Court of Appeal in
Gungudoo
[9]
interpreted this amendment to apply only to employees of the
insolvent’s business, to the exclusion of domestic
employees.
[10]
The
appellants assert that this interpretation is wrong and that domestic
employees
[11]
must be included
in the term “employees” in
section 9(4A).
Parties
[3]
The first appellant (Mr Stratford) is a
chartered accountant and former director of several companies that
formed part of the Pinnacle
Point Group which was engaged in the
business of developing luxury properties in Nigeria, the Seychelles
and South Africa.
Pinnacle Point Group Limited (PPG
Limited), its holding company, had dual listings on the Nigerian and
Johannesburg Stock Exchanges.
PPG Limited has since been placed
in final liquidation and an enquiry into its affairs has commenced.
Before its liquidation,
Mr Stratford was the non-executive deputy
chairperson of PPG Limited, as well as a director of a number of its
subsidiary companies.
[4]
The
second appellant (Ms Stratford) has been joined to these proceedings
in terms of
section 17
of the Matrimonial Property Act
[12]
by
virtue of her marriage to Mr Stratford in community of
property. The third appellant (Mr Ngoma), the fourth appellant
(Mr Dlokolo) and the fifth appellant (Mr Adonis) (together, the
domestic employees) are employed by Mr and Ms Stratford
(Stratfords)
as a domestic worker, gardener and handyman
respectively.
[5]
The first respondent, Investec Bank Limited
(Investec), is a financial institution conducting business as a
private bank in accordance
with the company and banking laws of the
Republic of South Africa. The second respondent, the Minister
of Justice and Constitutional
Development (Minister of Justice), and
the third respondent, the Minister of Labour, are joined in
these proceedings
in terms of rule 5 of the Rules of this Court.
The Minister of Justice opposes the appeal while the Minister of
Labour does
not.
Litigation
history
[6]
Investec entered into various agreements
with Mr Stratford, in terms of which he bound himself as surety and
co-principal debtor,
jointly and severally, with various entities in
the Pinnacle Point Group. Almost all these entities are either
in liquidation
or have been sequestrated. Investec also entered
into a loan agreement with Mr Stratford. The Stratfords
were
unable to satisfy a judgment debt of over R19 million
granted in favour of Rand Merchant Bank.
[7]
On
29 May 2012, Investec launched sequestration proceedings on an urgent
basis against the Stratfords in the High Court, alleging
that the
Stratfords owed it over R240 million, plus interest. A
candidate attorney, employed by the attorneys representing
Investec,
furnished a copy of the notice of motion and the founding affidavit
to the Stratfords. She also enquired from the
Stratfords
whether they had a domestic employee. The Stratfords informed
her that they had a domestic worker, but did not
disclose that they
also had two other domestic employees in their employ. The
candidate attorney then left a copy of the
petition
[13]
on the kitchen table for the identified domestic worker, Mr Ngoma,
without directing that the Stratfords bring it to the attention
of
the domestic worker.
[8]
The
application was set down for hearing in the High Court on
4 June 2012. By agreement between the parties, it
was
heard only on 15 October 2012. Cloete AJ refused an
application for a postponement by the Stratfords and granted
a
provisional order of sequestration. On 24 October 2012, the
sheriff served a copy of the provisional order of sequestration
on Mr
Stratford and Mr Ngoma and, on 30 October 2012, a copy was
served on Ms Stratford, Mr Adonis and Mr Dlokolo. A
rule
nisi
was issued in terms of the provisional sequestration order calling
upon the Stratfords, and all interested parties, to show cause
why a
final sequestration order should not be granted on 26 November 2012.
The Stratfords opposed the sequestration application
on 23 November
2012 and baldly denied that Investec had a liquidated claim against
them
[14]
and that they had
committed an act of insolvency as required by
section 8(b)
of the
Insolvency Act.
[15
]
On
the same date, the domestic employees filed an application to
intervene as applicants in the proceedings, which was granted.
[9]
In February 2013, the domestic employees –
together with the Stratfords – launched a counter-application
joining the
Minister of Labour and the Minister of Justice
and seeking an order declaring that: (1)
section 9(4A)
is
unconstitutional in that it indirectly discriminates against domestic
employees; and (2) failure to notify them of the sequestration
proceedings, amounted to a breach of their constitutional right to
fair labour practices and the right of access to courts.
They
submitted that had they been given prior notice of the provisional
sequestration proceedings, they would have sought legal
assistance
and opposed the application.
[10]
The constitutional challenge was not raised
at the time the answering papers were filed. They explained
that this was because
they were not aware of the judgment of
Gungudoo
.
They, however, pointed out that they believed at the time that
the definition of “employees” in
section 9(4A)
was wide
enough to be interpreted as including domestic employees. They
consequently contended that
Gungudoo
’s
interpretation of “employees” is incorrect.
[11]
Investec
presented evidence to the High Court which indicated that the
Stratfords had made various dispositions of property and
monies,
through the Pinnacle Point Group and other entities, which
had the effect of prejudicing the creditors as envisaged
by
section
8(c)
[16]
of the
Insolvency
Act. Investec
detailed known assets as well as an extensive
list of potentially impeachable transactions to a total of over R37
million.
[12]
On
14 August 2013, the High Court (Mantame J) found that the Stratfords
had committed an act of insolvency and had failed to explain
their
financial situation.
[17]
The Court further found that Investec had proved, on a balance of
probabilities, that there were prospects of pecuniary benefit
to
creditors. The Court was satisfied that a proper investigation
by the trustee would likely uncover a substantial amount
of assets
from the Stratfords’ joint estate.
[13]
With
respect to the constitutional challenge in the counter-application,
the Court held that compliance with the provisions of
section 9(4A)
is peremptory and that failure to comply with the section would
result in the discharge of the rule
nisi
.
Nonetheless, the Court concluded that the provision did not require
the petition to be served on each and every domestic
employee or that
it be brought directly to the attention of the employee or that each
employee be personally advised of the sequestration
application.
[18]
The Court expressed the view that the Stratfords and the domestic
employees had interpreted the statute more broadly than
what the
Legislature had intended.
[19]
The Court gave effect to the decision in
Gungudoo
and held that given the protections in the LRA and the Basic
Conditions of Employment Act
[20]
(BCEA),
the domestic employees could not argue that they had been
discriminated against.
[21]
Furthermore, the Court concluded that in any event the domestic
employees had not lost their employment and had failed to
present
valid grounds to oppose the granting of the provisional sequestration
order.
[14]
The
Court further held that the petition had in any event actually been
served on the domestic employees when the candidate attorney
left the
petition on the kitchen table of the Stratford’s household, and
that it was “rather absurd” to argue
that the domestic
employees had not been “served” with the petition.
[22]
Consequently, the Court held that since there was compliance with
section 9(4A) in respect of domestic employees, it was
not necessary
to determine the constitutional challenge to the section. The
Stratfords’ estate was placed under final
sequestration and the
counter application dismissed with no order as to costs.
[15]
The appellants sought leave to appeal
directly to this Court. That application was dismissed as it
was not in the interests
of justice to hear the matter at that
stage. The appellants then reverted to the High Court and
sought leave to appeal to
the Supreme Court of Appeal. It was
refused. The appellants then applied for leave to appeal
directly to the Supreme
Court of Appeal. That Court dismissed
the application with costs.
In
this Court
[16]
Leave
to appeal was granted on 4 June 2014. The appellants persist in
their constitutional challenge raised before the High
Court that
Gungudoo
’s
interpretation of section 9(4A) renders the section
unconstitutional in that it infringes the right to equality,
[23]
the right to human dignity,
[24]
the right to fair labour practices
[25]
and the right of access to courts.
[26]
They add that differentiation between domestic and business employees
amounts to indirect discrimination against domestic
employees.
They submit that a reasonable interpretation consistent with the
Constitution is that section 9(4A) includes
domestic employees.
They also say a final sequestration order should not have been
granted because the requirement that there
be an advantage to
creditors was not satisfied.
[27]
Issues
[17]
The issues to be decided are—
1.
whether section 9(4A) includes domestic employees;
2.
if not, whether the differentiation renders the provision
inconsistent with the Constitution;
3.
whether compliance with the section is peremptory or directory; and
4.
whether the granting of a final sequestration order by the High Court
was correct.
Does
section 9(4A) include domestic employees?
[18]
Section 9(4A)(a) provides:
“
When
a petition is presented to the court, the petitioner must furnish a
copy of the petition—
(i) to every
registered trade union that, as far as the petitioner can reasonably
ascertain, represents any of the debtor’s
employees; and
(ii)
to the employees themselves—
(aa) by affixing a
copy of the petition to any notice board to which the petitioner and
the employees have access inside the debtor’s
premises; or
(bb) if there is no
access to the premises by the petitioner and the employees, by
affixing a copy of the petition to the front
gate of the premises,
where applicable, failing which to the front door of the premises
from which the debtor conducted any business
at the time of the
presentation of the petition;
(iii)
to the South African Revenue Service; and
(iv)
to the debtor, unless the court, at its discretion, dispenses with
the furnishing of a copy where the court is satisfied that
it would
be in the interest of the debtor or of the creditors to dispense with
it.”
[19]
In
determining whether section 9(4A) includes domestic employees, we
must be guided by the Constitution. Section 39(2) of
the
Constitution requires courts to promote the spirit, purport and
objects of the Bill of Rights when interpreting any legislation.
The
Constitution, therefore, requires that section 9(4A) be interpreted
in conformity with it. Thus, if there is a
reasonable
interpretation that promotes the spirit, purport and objects of the
Bill of Rights, that interpretation must be preferred.
[28]
[20]
There are “three interrelated riders”
to the basic principle of statutory interpretation. They were
adumbrated
in
Cool Ideas
,
where Majiedt AJ stated:
“
A
fundamental tenet of statutory interpretation is that the words in a
statute must be given their ordinary grammatical meaning,
unless to
do so would result in an absurdity. There are three important
interrelated riders to this general principle, namely:
(a)
that statutory provisions should always be interpreted purposively;
(b)
the relevant statutory provision must be properly contextualised; and
(c)
all statutes must be construed consistently with the Constitution,
that is, where reasonably possible, legislative provisions
ought to
be interpreted to preserve their constitutional validity. This
proviso to the general principle is closely related
to the purposive
approach referred to in (a).”
[29]
(Footnotes omitted.)
[21]
The
term “employees” is not defined in the
Insolvency Act
except
for the definition of “employee” in
section
98A(5)
,
[30]
which is similar
to the definition of “employee” in the LRA.
However, it is apparent from
section 9(4A)
that “employees”
is capable of including domestic employees because it does not
distinguish between a debtor’s
domestic employees and those who
are employed in the debtor’s place of business.
[22]
The
Minister of Justice concedes that from a reading of
section 9(4A)
the
word “employees” is unqualified and hence capable of
including domestic employees. However, he argues that
given the
context – including the background and apparent scope and
purpose of the section and related provisions in the
Insolvency Act –
“employees
” means persons employed in a business
conducted by a debtor. This approach in relation to the package
of legislation
amended in 2002, that includes amendments to the LRA,
the
Insolvency Act and
the old Companies Act,
[31]
was adopted by the Supreme Court of Appeal in
Gungudoo
in
its interpretation of “employees” in section 9(4A).
[23]
In
Gungudoo
,
one of the grounds of appeal was similarly that the domestic
employees of Gungudoo, who was the insolvent debtor, were not
furnished
with the petition before the provisional sequestration
order was granted. They argued that compliance with both
sections
9(4A) and 11(2A) is peremptory and that non compliance
made the entire application defective. This latter issue was
left open. The Supreme Court of Appeal held that a debtor’s
“employees” in section 9(4A) refers to the insolvent
debtor’s employees in the employ of his or her business to the
exclusion of his or her domestic employees.
[24]
The
Supreme Court of Appeal,
[32]
in
evaluating the package of legislation, looked at the amended section
197B of the LRA, which behoves an employer who applies for
voluntary
sequestration or against whom an application for compulsory
sequestration has been launched, to “provide a consulting
party
contemplated in section 189(1) with a copy of the
application”.
[33]
The
Court reasoned that because “consulting party” is not
defined, section 189(1)
[34]
requires the employer to consult only with employees that face
dismissal for operational requirements of the employer, which
operational
requirements can only refer to an employer’s
business requirements.
[35]
[25]
The
Court held that the language used in sections 9(4A) and 11(2A)
[36]
of the
Insolvency Act suggests
that only business employees are
affected because notice of the application should be furnished “at
the
premises
from which the debtor conducted business”.
[37]
“Premises”, like “employees”, is not
defined in the
Insolvency Act.
[38
]
[26]
The
exclusion of domestic employees, according to the Court’s
interpretation, suggests that
sections 9(4A)
and
11
(2A) of the
Insolvency Act have
no bearing on those employers who do not conduct
any form of business but nonetheless have employees in their private
homes. Thus
the Court used provisions of the LRA to bolster a
conclusion that
section 9(4A)
of the
Insolvency Act excludes
domestic
employees.
Ordinarily,
sequestration proceedings relate to a person who or a partnership
that has employees including domestic employees.
[39]
In view of the fact that
Gungudoo
did
not deal with the constitutional issues raised in this case,
I
respectfully disagree with the Court’s analysis of the LRA and
its impact on the interpretation of
section 9(4A).
[27]
Although the definition of “employee”
in
section 213
of the LRA is not directly applicable, it gives a
strong indication of the kinds of employees the package of
legislation that simultaneously
amended insolvency procedures had in
mind. It envisages two types of employees, namely those—
(a) employed by a
person or the State and who receive or are entitled to a salary or
remuneration; or
(b)
who assist in carrying on or conducting the business of an
employer.
[40]
I
am of the view that a domestic employee not employed in his or her
employer’s place of business falls within the category
of
section 213.
[28]
Section 213
defines “operational
requirements” as concerning “requirements based on the
economic, technological, structural
or similar needs of an
employer”. It is accepted that economic needs of an
employer include financial needs which may
result in an employer not
being able to afford the salaries of employees. This may occur
to an employer who does not conduct
a business but employs domestic
employees, who for that reason would be dismissed for operational
requirements of that employer.
[29]
When
section 197B
prescribes that an
employer must provide a copy of a sequestration application to a
“consulting party” contemplated
in
section 189(1)
of the
LRA, “consulting party” applies to employees in both a
domestic and a business context.
[30]
Section 189(1)
does not define consulting
party. It however provides that where the employer contemplates
dismissing one or more employees
he or she must consult: (1) a person
identified as a “consulting party” in terms of the
collective agreement; (2) if
there is no collective agreement, a
workplace forum and registered trade union; (3) where there is no
workplace forum, a registered
trade union; or (4) where (1), (2) and
(3) are not applicable, the employees or their representatives
directly. The latter
category should be interpreted to include
employees such as domestic employees. Thus this section does
not distinguish between
employees defined in
section 213
when
providing for dismissals based on operational requirements.
[31]
The
Minister of Justice and Investec argue that the purpose of notice in
section 9(4A)
is to: (1) initiate consultation in respect of
section 189
of the LRA; and (2) if provisional sequestration is
granted, to initiate consultation in respect of
section 38(5)
[41]
and (6)
[42]
of the
Insolvency
Act. The
respondents submit that the purpose of consultation is
only to save the total or part of the business, which the domestic
employees
cannot meaningfully participate in, thus resulting in
notice being superfluous for them and further, that giving notice to
domestic
employees will create additional costs and administrative
burdens for the creditor.
[32]
The respondents’ argument overlooks
the fact that the consultation envisaged in
section 38
must happen
regardless of the notice envisaged in
section 9(4A)
as it is the
trustee who must initiate such consultation if the trustee intends on
terminating contracts. From this it is
clear that consultation
and notice are distinctly separate issues. And there is nothing
in the text of
section 38
to indicate otherwise.
[33]
The
parties agree that where
section 38(1)
[43]
of the
Insolvency Act refers
to “employees”, it envisages
all employees including domestic employees. Thus, the section
suspends the employment
contracts of all employees upon a provisional
sequestration order being granted. This means that the
contracts of domestic
employees are effectively suspended without
notice, while their business counterparts who could conceivably be
doing the same kind
of work in the insolvent employer’s
business will receive notice.
[34]
Notice prevents a situation where employees
would show up at work and suddenly find out that they can no longer
render their services
or receive remuneration. Notice at an
earlier stage, before a provisional sequestration order, will not
only warn an employee
of the tumultuous financial state of the
employer, but also meaningfully enable employees to find alternative
jobs or make alternative
arrangements. These are the virtues of
being informed of the possibility of a sequestration. Notice,
ultimately, signifies
respect for the human dignity of employees.
[35]
The interconnection between the right to
dignity and work has long been articulated by this Court. In
Affordable Medicines
it
held:
“
One’s
work is part of one’s identity and it is constitutive of one’s
dignity. . . . And there is a
relationship between work
and the human personality as a whole. ‘It is a
relationship that shapes and completes the
individual over a lifetime
of devoted activity, it is the foundation of the person’s
existence’.”
[44]
(Footnote omitted.)
The
impact of a narrow reading of “employees” on their right
to dignity, so illustrated, tilts the interpretive balance
decisively
in favour of a wider reading. And this is indeed required by
section 39(2)
of the Bill of Rights.
[36]
The respondents acknowledge the
vulnerability of domestic employees but contend that their plight is
not as a result of the conduct
of the creditors, but rather as a
result of the conduct of their employers. Investec stated
poignantly:
“
It
is indeed unfortunate that their employers are insolvent and can no
longer employ them. This is not as a consequence of
the [first
respondent’s] making but is a consequence of the manner in
which the [Stratfords] have managed their financial
affairs.”
This
is of course true. But to interpret the statute as including
domestic employees will protect their dignity in situations
where
their employers face sequestration. This interpretation better
promotes the spirit, purport and objects of the Bill
of Rights.
[45]
Also, it will give them timeous notice and an opportunity to
re-arrange their affairs going forward.
[37]
Finally, given the ordinary meaning of
“employees”, the interpretation of various provisions in
the LRA and constitutional
considerations, I conclude that
“employees” in
section 9(4A)
includes
all
employees, as well as domestic
employees. The challenge to the constitutional validity of the
provision therefore falls away.
Is
compliance with
section 9(4A)
peremptory or directory?
[38]
The appellants contend that the order of
sequestration must be set aside because the domestic employees were
not properly furnished
with the petition when the order for
provisional sequestration was sought. Investec argues that even
if it were to be assumed
that
section 9(4A)
includes domestic
employees, it has nonetheless complied with the provision.
[39]
Gungudoo
left
open the question whether
section 9(4A)
is peremptory. In other
words, it did not decide whether non-compliance with the provision is
fatal to the granting of a
provisional order. However in
EB
Steam Company
,
[46]
the
Supreme Court of Appeal dealt with
section 346(4A)
[47]
of the old Companies Act – a section almost identical to
section 9(4A)
of the
Insolvency Act. There
it held that
compliance with
section 346(4A)
is peremptory whilst the method in
which a creditor furnishes the application to the employees is
directory.
[48]
The
appellants accepted
EB
Steam Company
as
correct.
[40]
The
fact that “furnish” is used in
section 9(4A)
and the word
“serve” is used in
section 11(2A)
[49]
of the
Insolvency Act indicates
that the legislation envisaged a
lower threshold for notifying the employees than service in respect
of
section 11(2A).
I am of the view that “furnish”
requires that petitions “must be made available in a manner
reasonably
likely to make them accessible to the employees”.
[50]
[41]
What needs to be determined in the present
case is whether the candidate attorney, on behalf of Investec, made
the petition available
in a manner that was reasonably likely to
become accessible to the employees. The following observations
are relevant:
(a)
The candidate attorney, according to the Stratfords, enquired whether
they had a domestic employee and they answered that they
had one
domestic employee (referring to Mr Ngoma).
(b)
She then left a copy of the petition on the kitchen table for Mr
Ngoma after having alerted the Stratfords that it was for the
employee.
(c)
It was reasonable of her to assume that the Stratfords would pass on
the information to their employees (after she said that
a copy of the
petition was for their employee).
(d)
The candidate attorney could not have been aware that there were
other employees because of the Stratfords’ failure to
disclose
that fact to her.
(e)
The Stratfords, as the employer, had a duty to bring the application
to the attention of the employees in terms of
section 197B
of the
LRA.
I
conclude that the candidate attorney’s effort to furnish the
petition on the employees was sufficient to meet the standard
set by
EB Steam Company
.
[42]
Failure
to furnish the employees with the petition may not be relied upon by
the debtor for opposing sequestration when the question
to be decided
is whether sequestration is to the advantage of creditors. In
EB
Steam Company
the
Supreme Court of Appeal stated that the purpose is not to provide a
“technical defence to the employer, invoked to avoid
or
postpone the evil hour when a winding-up or sequestration order is
made”.
[51]
I
agree. There may be instances where a provisional order should
be granted to avoid the concealing of assets or for
other urgent
reasons in circumstances where a delay would substantially prejudice
the creditors. Thus, non compliance
will not always render
the granting of an order fatal, but this should be only in
exceptional circumstances.
Was
the granting of a final sequestration order correct?
[43]
In
terms of the
Insolvency Act, a
court may grant a sequestration order,
either provisionally
[52]
or finally,
[53]
if “there
is reason to believe that it will be to the advantage of creditors of
the debtor if his estate is sequestrated”.
[54]
It is the petitioner who bears the onus of demonstrating that there
is reason to believe that this is so.
[55]
In
Friedman
the Court held:
“
[T]he
facts put before the Court must satisfy it that there is a reasonable
prospect – not necessarily a likelihood, but a
prospect which
is not too remote – that some pecuniary benefit will result to
creditors. It is not necessary to prove
that the insolvent has
any assets. Even if there are none at all, but there are
reasons for thinking that as a result of
enquiry under the
[Insolvency Act] some may be revealed or recovered for the benefit of
creditors, that is sufficient”.
[56]
[44]
The
meaning of the term “advantage” is broad and should not
be rigidified. This includes the nebulous “not-negligible”
pecuniary benefit on which the appellants rely. To my mind,
specifying the cents in the rand or “not-negligible”
benefit in the context of a hostile sequestration where there could
be many creditors is unhelpful.
[57]
Meskin et al state that—
“
the
relevant reason to believe exists where, after making allowance for
the anticipated costs of sequestration, there is a reasonable
prospect of an actual payment being made to each creditor who proves
a claim, however small such payment may be, unless some other
means
of dealing with the debtor’s predicament is likely to yield a
larger such payment. Postulating a test which is
predicated
only on the quantum of the pecuniary benefit that may be demonstrated
may lead to an anomalous situation that a debtor
in possession of a
substantial estate but with extensive liabilities may be rendered
immune from sequestration due to an inability
to demonstrate that a
not-negligible dividend may result from the grant of an order.”
[58]
(Footnotes omitted.)
[45]
The
correct approach in evaluating advantage to creditors is for a court
to exercise its discretion guided by the dicta outlined
in
Friedman
.
[59]
For example, it is up to a court to assess whether the sequestration
will result in some payment to the creditors as a body;
[60]
that there is a substantial estate from which the creditors cannot
get payment except through sequestration;
[61]
or that some pecuniary benefit will result for the creditors.
[62]
[46]
Given
the potential impeachable transactions detailed by Investec,
totalling over R37 million, it is evident that there is reason
to
believe that there will be an advantage to creditors. It is
apparent from the facts that the sequestration is inevitable.
I
will not interfere with the final sequestration order.
[63]
Remedy
[47]
The
appellants failed in the appeal except in relation to the correct
interpretation of
section 9(4A).
A declaration will be made to
that effect. The remaining question is whether the declaration
should operate retrospectively.
[64]
In my view, it should not. I would, in the circumstances,
declare that the proper interpretation of
section 9(4A)
includes
domestic employees and limit the retrospective effect of the
interpretation.
[65]
This
is just and equitable in the circumstances given that many
petitioners would have acted on the decision given in
Gungudoo
.
[48]
We
are indebted to counsel for the Minister of Justice, who provided us
with a draft order which we adopt in part. Our order
will not
affect any application for the sequestration of an estate that has
been made final and where no appeal is pending or the
time for filing
an application for leave to appeal has expired.
[66]
Costs
[49]
The appellants have partially succeeded.
They have succeeded in their interpretation of
section 9(4A)
but failed to show that
section 12(1)(c)
of the
Insolvency Act was
not satisfied. In addition, a costs order against the
Stratfords would be ineffectual, given that their estate is to be
sequestrated. There should be no order as to costs.
Order
[50]
The order is as follows:
1.
The appeal is dismissed except to the extent set out below.
2.
It is declared that the word “employees” in
section 9(4A)
of the
Insolvency Act 24 of 1936
includes domestic employees.
3.
The order in paragraph 2 is not retrospective, except to the
following extent:
(a)
If in a pending application for sequestration a provisional order was
granted but a copy of the application was not furnished
to the
debtor’s domestic employee(s), before a final order is granted—
(i)
the petitioner must furnish the debtor’s domestic employee(s)
with a copy of the application papers, either personally
or in a
manner likely to make them accessible to the employee(s);
(ii)
the petitioner must deliver an affidavit setting out details of when
and how he or she has done so; and
(iii)
if necessary, the court must extend the rule
nisi
to allow the
petitioner to comply with this requirement.
(b)
If a final sequestration order has been granted and is subject to an
appeal but a copy of the application was not furnished
to the
debtor’s domestic employee(s)—
(i)
the final order must be set aside and replaced by a provisional
sequestration order; and
(ii)
a copy of the rule
nisi
must be served on the debtor’s
domestic employee(s) with a copy of the application papers, in
accordance with
section 11(2A)
read with
section 11(4)
of the
Insolvency Act 24 of 1936
.
4.
There is no order as to costs.
For the Appellants:
L
J Van Rensburg instructed by Van Rensburg & Co.
For
the First Respondent:
B
J Manca SC and M L Norton instructed by ENS Africa Inc.
For
the Second Respondent:
A
M Breitenbach SC and N Mangcu Lockwood instructed by the
State Attorney.
[1]
Investec
Bank Limited v Stratford and Another
[2013] ZAWCHC 207.
[2]
24
of 1936.
[3]
Section
38(1)
provides: “The contracts of service of employees whose
employer has been sequestrated are suspended with effect from the
date of the granting of a sequestration order.” A
“sequestration order” is defined in
section 2
as “any
order of court whereby an estate is sequestrated and includes a
provisional order, when it has not been set aside”.
[4]
Section
38(2)
provides:
“
Without
limiting subsection (1), during the period of suspension of a
contract of service referred to in subsection (1)—
(a)
an employee whose contract is suspended is not required to render
services in terms of the contract and is not entitled to any
remuneration in terms of the contract; and
(b)
no employment benefit accrues to an employee in terms of the
contract
of service which is suspended.”
[5]
Section
38(3)
provides:
“
An
employee whose contract of service is suspended is entitled to
unemployment benefits in terms of section 35 of the Unemployment
Insurance Act, 1966 (Act No. 30 of 1966), from the date of such
suspension, subject to the provisions of that Act.”
[6]
30
of 1966. This legislation has since been repealed but the
benefits accrued in terms of section 35 have been retained
by
schedule 1 of the
Unemployment Insurance Act 63 of 2001
.
[7]
See
section 2
of the
Insolvency Second Amendment Act 69 of 2002
.
[8]
Section
9(4A)(a)
quoted at [18].
[9]
Gungudoo
and Another v Hannover Reinsurance Group Africa (Pty) Ltd and
Another
[2012]
ZASCA 83
; 2012 (6) SA 537 (SCA) (
Gungudoo
).
[10]
Id
at para 41.
[11]
According
to section 17 of the Labour Relations Act 66 of 1995 (LRA) domestic
employees will include those employees in the “domestic
sector” “engaged in domestic work in their employers’
homes or on the property on which the home is situated.”
[12]
88
of 1984.
[13]
The
Insolvency Act uses
the word “petition”, which is the
equivalent of a notice of motion and founding affidavit.
[14]
In
terms of
section 9(1)
of the
Insolvency Act:
“
A
creditor (or his agent) who has a liquidated claim for not less than
fifty pounds, or two or more creditors (or their agent)
who in the
aggregate have liquidated claims for not less than one hundred
pounds against a debtor who has committed an act of
insolvency, or
is insolvent, may petition the Court for the sequestration of the
estate of the debtor.”
[15]
Section
8(b)
provides that a debtor commits an act of insolvency—
“
if
a Court has given judgment against him and he fails, upon the demand
of the officer whose duty it is to execute that judgment,
to satisfy
it or to indicate to that officer disposable property sufficient to
satisfy it, or if it appears from the return made
by that officer
that he has not found sufficient disposable property to satisfy the
judgment”.
[16]
Section
8(c)
provides that a debtor commits an act of insolvency—
“
if
he makes or attempts to make any
disposition of any of his property which has or would have the
effect of prejudicing his creditors
or of preferring one creditor
above another”.
[17]
Investec
Bank Limited
above
n 1 at para 36.
[18]
Id
at para 42.
[19]
Id.
[20]
75
of 1997.
[21]
Investec
Bank Limited
above n 1 at para 32.
[22]
Id
at para 42.
[23]
Section
9.
[24]
Section
10.
[25]
Section
23(1).
[26]
Section
34.
[27]
In
terms of
section 12
of the
Insolvency Act. This
section is set
out at n 53 below.
[28]
Investigating
Directorate: Serious Economic Offences and Others v Hyundai Motor
Distributors (Pty) Ltd and Others: In re Hyundai
Motor Distributors
(Pty) Ltd and Others v Smit NO and Others
[2000] ZACC 12
;
2001 (1) SA 545
(CC);
2000 (10) BCLR 1079
(CC) at
paras 22-3.
[29]
Cool
Ideas 1186 CC v Hubbard and Another
[2014] ZACC 16
;
2014 (4) SA 474
(CC);
2014 (8) BCLR 869
(CC) (
Cool
Ideas
)
at para 28.
[30]
Section
98A(5)
provides in part:
“
For
the purposes of this section—
(a)
‘employee’ means any person, excluding an independent
contractor, who works for another person and who—
(i)
receives, or is entitled to receive, any salary or wages;
or
(ii)
in any manner assists in carrying on or in conducting the business
of an employer”.
[31]
61
of 1973 (old Companies Act).
[32]
Gungudoo
above n 9 at para 36.
[33]
Section
197B, entitled “Disclosure of information concerning
insolvency”, provides:
“
(1)
An employer that is facing financial difficulties that may
reasonably result
in the winding-up or sequestration of the
employer, must advise a consulting party contemplated in section
189(1).
(2)
(a)
An
employer that applies to be wound up or sequestrated, whether in
terms of the
Insolvency Act, 1936
, or any other law, must at the
time of making application, provide a consulting party contemplated
in
section
189(1)
with a copy of the application.
(b)
An employer that receives an application for its winding-up or
sequestration must supply a copy of the application to any
consulting party contemplated in
section
189(1)
, within two days of receipt, or if the proceedings are
urgent, within 12 hours.”
[34]
Section 189
of the LRA, entitled “Dismissals based on
operational requirements”, provides in part:
“
(1)
When an employer contemplates dismissing one or more employees for
reasons
based on the employer’s operational requirements, the
employer must consult—
(a)
any person whom the employer is required to consult in terms of
a
collective agreement;
(b)
if there is no collective agreement that requires consultation—
(i)
a workplace forum, if the employees likely to be affected
by the
proposed dismissals are employed in a workplace in respect of which
there is a workplace forum; and
(ii)
any registered trade union whose members are likely to be affected
by the proposed dismissals;
(c)
if there is no workplace forum in the workplace in which the
employees
likely to be affected by the proposed dismissals are
employed, any registered trade union whose members are likely to be
affected
by the proposed dismissals; or
(d)
if there is no such trade union, the employees likely to be affected
by the proposed dismissals or their representatives nominated for
that purpose.”
[35]
Gungudoo
above n 9 at para 37, where the Court held:
“
The
rationale for
section 189(1)
is to enable employees engaged in the
employer’s business operations, or their representatives, to
explore possible solutions
with their employer to obviate the need
for dismissal or to limit the number of dismissals for operational
requirements of an
employee in
section 213
of the LRA. It
follows that
section 197B
of the LRA requires an employer to
disclose information concerning insolvency
only
to those employees that are employed in the employer’s
business
.” (Emphasis
added.)
[36]
Section
11
(2A)
provides:
“
A
copy of the rule
nisi
must be served on—
(a)
any trade union referred to in subsection (4);
(b)
the debtor’s employees by affixing a copy of the petition
to
any notice board to which the employees have access inside the
debtor’s premises, or if there is no access to the premises
by
the employees, by affixing a copy to the front gate, where
applicable, failing which to the front door of the premises from
which the debtor conducted any business at the time of the
presentation of the petition; and
(c)
the South African Revenue Service.”
[37]
Gungudoo
above n 9 at para 39. The Court noted at para 40 that
sections
9(4A)
and
11
(2A) are mirror images of sections 346(4A) and 346A
of
the old Companies Act respectively.
[38]
See
section 2, entitled “Definitions”, of the
Insolvency
Act.
[39
]
In
the
Insolvency Act “debtor
” means—
“
a
person or a partnership or the estate of a person or partnership
which is a debtor in the usual sense of the word, except a
body
corporate or a company or other association of persons which may be
placed in liquidation under the law relating to Companies”.
[40]
In
terms of
section 213
, entitled “Definitions”, “employee”
means—
“
(a)
any person, excluding an independent contractor, who works for
another person
or for the State and who receives, or is entitled to
receive, any remuneration; and
(b)
any other person who in any manner assists in carrying on or
conducting
the business of an employer,
and
‘employed’ and ‘employment’ have meanings
corresponding to that of ‘employee’.”
[41]
Section
38(5)
provides:
“
A
trustee may not terminate a contract of service unless the trustee
has consulted with—
(a)
any person with whom the insolvent employer was required to consult,
immediately before the sequestration, in terms of a collective
agreement defined in section
213 of the Labour Relations Act,
1995 (Act No. 66 of 1995);
(b)
(i)
a workplace forum defined in
section
213
of the
Labour Relations Act, 1995
; and
(ii)
any registered trade union whose members are likely to be affected
by the termination of the contract of service, if there is no such
collective agreement that existed immediately prior to the
sequestration;
(c)
a registered trade union representing employees whose contracts
of
service were suspended in terms of subsection (1) and who are likely
to be affected by the termination of the contract of
service, if
there is no such workplace forum; or
(d)
the employees whose contracts of service were suspended in terms
of
subsection (1) and who are likely to be affected by the termination
of the contract of service or their representatives nominated
for
that purpose, if there is no such trade union.”
[42]
Section
38(6)
provides:
“
The
consultation referred to in subsection (5) must be aimed at reaching
consensus on appropriate measures to save or rescue the
whole or
part of the business of the insolvent employer—
(a)
by the sale of the whole or part of the business of the insolvent
employer; or
(b)
by a transfer as contemplated in
section
197A
of the
Labour Relations Act, 1995
; or
(c)
by a scheme or compromise referred to in section 311 of the
Companies
Act, 1973; or
(d)
in any other manner.”
[43]
See
above n 3.
[44]
Affordable
Medicines Trust and Others v Minister of Health of RSA and Another
[2005]
ZACC 3
;
2006 (3) SA 247
(CC);
2005 (6) BCLR 529
(CC) (
Affordable
Medicines
)
at para 59.
[45]
See
Minister
of Home Affairs and Others v Watchenuka and Another
[2003]
ZASCA 142
;
2004
(4) SA 326
(SCA) at para 27 where Nugent JA held:
“
The
freedom to engage in productive work – even where that is not
required in order to survive – is indeed an important
component of human dignity . . . for mankind is pre eminently a
social species with an instinct for meaningful association.
Self-esteem and the sense of self-worth – the fulfilment
of what it is to be human – is most often bound up
with being
accepted as socially useful.”
[46]
EB
Steam Company (Pty) Ltd v Eskom Holdings Soc Ltd
[2013] ZASCA 167
;
2014 (1) All SA 294
(SCA) (
EB
Steam Company
).
[47]
Section
346(4A) provides:
“
(a)
When an application is presented to the court in terms of this
section, the
applicant must furnish a copy of the application—
(i)
to every registered trade union that, as far as the applicant
can
reasonably ascertain, represents any of the employees of the
company; and
(ii)
to the employees themselves—
(aa)
by affixing a copy of the application to any notice board to which
the applicant
and the employees have access inside the premises of
the company; or
(bb)
if there is no access to the premises by the applicant and the
employees,
by affixing a copy of the application to the front gate
of the premises, where applicable, failing which to the front door
of
the premises from which the company conducted any business at the
time of the application;
(iii)
to the South African Revenue Service; and
(iv)
to the company, unless the application is made by the company, or
the
court, at its discretion, dispenses with the furnishing of a
copy where the court is satisfied that it would be in the interests
of the company or of the creditors to dispense with it.
(b)
The applicant must, before or during the hearing, file an affidavit
by the person who furnished a copy of the application which sets out
the manner in which paragraph (a) was complied with.”
[48]
EB
Steam Company
above
n 46 at para 17, where the Court held—
“
whilst
the obligation to furnish the application papers to the employees is
peremptory,
the modes of doing so
indicated in the section are directory and alternative effective
means may be adopted.
In other
words the methods for furnishing employees with the application
papers as set out in section 346(4A)(a)(ii) are
no more than
guides.” (Emphasis added.)
[49]
Quoted
above at n 36.
[50]
EB
Steam Company
above
n 46 at para 14.
[51]
Id
at para 8.
[52]
Section
10, entitled “Provisional sequestration”, provides:
“
If
the court to which the petition for the sequestration of the estate
of a debtor has been presented is of the opinion that
prima
facie
—
(a)
the petitioning creditor has established against the debtor a claim
such as is mentioned in subsection (1) of section
nine; and
(b)
the debtor has committed an act of insolvency or is insolvent; and
(c)
there is reason to believe that it will be to the advantage of
creditors
of the debtor if his estate is sequestrated,
it may make an
order sequestrating the estate of the debtor provisionally.”
[53]
Section
12, entitled “Final sequestration or dismissal of petition for
sequestration”, provides:
“
(1)
If at the hearing pursuant to the aforesaid rule
nisi
the court is satisfied that—
(a)
the petitioning creditor has established against the debtor a claim
such as is mentioned in subsection (1) of section
nine; and
(b)
the debtor has committed an act of insolvency or is insolvent; and
(c)
there is reason to believe that it will be to the advantage of
creditors of the debtor if his estate is sequestrated,
it
may sequestrate the estate of the debtor.
(2)
If at such hearing the court is not so satisfied, it shall dismiss
the petition for the sequestration of the estate of the debtor and
set aside the order of provisional sequestration or require
further
proof of the matters set forth in the petition and postpone the
hearing for any reasonable period but not
sine die.
”
[54]
See
sections 10(c) and 12(1)(c).
[55]
Trust
Wholesalers and Woollens (Pty) Ltd v Mackan
1954 (2) SA 109
(N) at 112C-D.
[56]
Meskin
& Co v Friedman
1948 (2) SA 555
(W) (
Friedman
)
at 559.
[57]
Courts
have required a not-negligible benefit to be shown in the context of
a single creditor. See
Gardee
v Dhanmanta Holdings and Others
1978
(1) SA 1066
(N) at 1069H-1070A, and, in respect of friendly
sequestrations,
Hillhouse
v Stott; Freban Investments (Pty) Ltd v Itzkin; Botha v Botha
1990 (4) SA 580
(W) at 585H and 586A-C and
Epstein
v Epstein
1987 (4) SA 606
(C) at 609B D.
[58]
Meskin
et al
Insolvency
Law
Service Issue 42 (2014) at 2.4.1.
[59]
Friedman
above n 56.
[60]
London
Estates (Pty) Ltd v Nair
1957 (3) SA 591
(D) at 591G.
[61]
Realizations
Ltd v Ager
1961 (4) SA 10
(D) at 11D-E.
[62]
BP
Southern Africa (Pty) Ltd v Furstenburg
1966
(1) SA 717
(O) at 720E-G.
[63]
For
a detailed explanation as to when this Court will interfere with the
exercise of discretion by a lower court, see
Florence
v Government of the Republic of South Africa
[2014]
ZACC 22; 2014 (6) SA 456 (CC); 2014 (10) BCLR 1137 (CC).
[64]
For
an analysis on a court’s powers in respect of retrospective
orders, see
Head
of Department, Mpumalanga Department of Education and Another v
Hoërskool Ermelo and Another
[2009] ZACC 32
;
2010 (2) SA 415
(CC);
2010 (3) BCLR 177
(CC) at para
96-7.
[65]
In
terms of section 172(1) of the Constitution.
[66]
Estate
Agency Affairs Board v Auction Alliance (Pty) Ltd and Others
[2014] ZACC 3
;
2014 (3) SA 106
(CC);
2014 (4) BCLR 373
(CC) at 47-8.