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[2018] ZASCA 80
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De Villiers and Others v Trustees for the Time Being of the GJN Trust and Others (756/2017) [2018] ZASCA 80; 2019 (1) SA 120 (SCA) (31 May 2018)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 756/2017
In
the matter between:
FRANCOIS
JEAN DE VILLIERS
FIRST
APPELLANT
CAPE
VETERINARY WHOLESALERS CC
SECOND APPELLANT
THE
TRUSTEES FOR THE TIME BEING OF
THE
FRANCOIS DE VILLIERS SHARE TRUST
THIRD APPELLANT
and
THE
TRUSTEES FOR THE TIME BEING
OF
THE GJN TRUST
FIRST
RESPONDENT
CAPE
ANIMAL HEALTH BROKERS (PTY) LTD
(IN
LIQUIDATION)
SECOND RESPONDENT
CRAIG
PHILANDER
NO
THIRD RESPONDENT
CONSTANT
WILSNACH NO
FOURTH RESPONDENT
Neutral
citation:
De
Villiers v GJN Trust
(756/2017)
[2018] ZASCA 80
(31 May 2018)
Coram:
Shongwe
ADP and Seriti and Van der Merwe JJA and Rogers and Schippers AJJA
Heard:
16
May 2018
Delivered:
31
May 2018
Summary:
Practice
– order avoiding the dissolution of a company in terms of s 420
of the Companies Act 61 of 1973 – order granted
in the absence
of the appellants – whether the appellants were affected
parties within the meaning of rule 42(1)(a) –
ambit of s 420
and effect of order thereunder – appellants not affected
parties and had no
locus
standi
to challenge section 420 order.
ORDER
On
appeal from:
Western
Cape Division of the High Court, Cape Town. (Hack AJ sitting as court
of first instance):
The
appeal is dismissed with costs.
JUDGMENT
Van
der Merwe JA (
Shongwe
ADP and Seriti JA and Rogers and Schippers AJJA
concurring)
[1]
The first appellant, Dr Francois Jean de Villiers, is the sole member
of the second appellant, Cape Veterinary Wholesalers CC
(the CC) and
the duly authorized trustee of the third appellant, the trustees of
the Francois de Villiers Share Trust (the
Share Trust).
As explained below, the Share Trust is the holder of all the shares
in the second respondent, Cape Animal Health
Brokers (Pty) Ltd (in
liquidation) (the company). At the instance of the first appellant,
acting as a creditor of the company,
the Western Cape Division (the
High Court) issued an order of liquidation of the company. As a
result the company was in due course
dissolved in terms of s 419 of
the Companies Act 61 of 1973 (the Act).
[2]
However, the first respondent, the trustees of the GJN Trust (the GJN
Trust), launched an application for an order declaring
the
dissolution of the company to have been void in terms of s 420 of the
Act (the section 420 application). Such order was granted
by
Blignault J in the High Court on 19 November 2015 (the section 420
order). Pursuant hereto, the Master of the High Court appointed
the
third and fourth appellants (the liquidators) as joint liquidators of
the company. The appellants applied to the court a quo
to have the
section 420 order set aside on the ground that it had erroneously
been made without notice to any of them, but Hack
AJ dismissed the
application (the rescission application). The appellants appeal
against the dismissal of the rescission application
with the leave of
this court. The central issue in the appeal is whether any of the
appellants should have been joined in the section
420 application.
The determination of the issue calls for an analysis of the ambit of
s 420 of the Act and the effect of the section
420 order.
Background
[3]
Prior to the liquidation of the company, the Share Trust gave notice
of cancellation of the agreement in terms of which it had
acquired
the shares in the company and tendered retransfer thereof to the
sellers. The right of the Share Trust to cancel this
agreement is
disputed by the sellers and forms the subject of pending litigation.
Thus, the Share Trust remained the only shareholder
in the company.
By the same token the first appellant continued to be its sole
director.
[4]
It is not disputed that, at the time of the company’s
liquidation and immediately prior to dissolution, the first appellant
was a creditor of the company in the amount of approximately R2
million for moneys lent and advanced to the company and for payments
made as surety of the company. Nor is it in issue that the company
owed the CC some R4,6 million. The bulk of this amount was for
goods
sold and delivered to the company and the balance for loans (payments
to creditors of the company) and payments as surety
of the company.
The company was indebted to the GJN Trust in the amount of
approximately R23 000 in respect of arrear rental.
[5]
The company was finally liquidated on 8 March 2013. Neither the first
appellant nor the CC proved claims in the liquidation.
The GJN Trust
also did not prove its claim, because the erstwhile liquidators of
the company alerted creditors of the danger that
a contribution might
be payable by concurrent creditors. In the event, only Standard Bank
proved its secured claims of approximately
R340 000 and
concurrent claims of approximately R370 000. Further unproved
concurrent creditors of the company amounted
to some R308 000.
[6]
The first and final liquidation and distribution account was
confirmed by the Master on 11 February 2014, whereafter a dividend
equal to its secured claims and a very small concurrent dividend were
distributed to Standard Bank. In the result, concurrent debts
of the
company of some R7,4 million remained unpaid.
[7]
In terms of s 419 of the Act the Master reported that the affairs of
the company had been completely wound up. Although the
precise date
thereof does not appear from the record, the parties are in agreement
that the company was thereafter dissolved in
terms of s 419(2) of the
Act. Therefore, the existence of the company came to an end and the
erstwhile liquidators were discharged.
All remaining assets of the
company became
bona
vacantia
(ownerless property) and automatically passed to the state without
any form of delivery. See
Rainbow
Diamonds (Edms) Bpk en andere v Suid-Afrikaanse Nasionale
Lewensassuransie Maatskappy
[1984]
ZASCA 41
;
1984 (3) SA 1
(A) at 10-12.
[8]
The section 420 application was launched during November 2015. The
erstwhile liquidators of the company and the Master were
cited as
respondents. In essence, the GJN Trust averred that, according to the
financial records of the company, the CC owed the
company a debt in
the amount of R1 232 847. 04, but that during December 2012
that debt had been written off on the instruction
of the first
appellant. The GJN Trust also alleged that trading stock of the
company to the value of R650 000 had, on the
instruction of the
first appellant at more or less the same time, been transferred first
to the CC and then to another business
of the first appellant. In
this regard the GJN Trust presented the evidence of a person who had
at the time been the manager of
both the company and the CC. The GJN
Trust accordingly contended that it had presented sufficient evidence
to justify an order
in terms of s 420 of the Act for purposes of
appointment of new liquidators to investigate these matters with a
view of retrieving
assets for distribution to creditors.
[9]
In the rescission application, the first appellant admitted that the
books of the company had been altered to remove the record
of a debt
owed to the company by the CC, but said that that simply entailed the
correction of an error in the books. He
explained that the CC supplied the company with products but had
retained ownership thereof until payment took place. Because the
company defaulted in paying for the products, the CC repossessed the
products. This, according to the first appellant, should have
been
accompanied by the issuing by the CC of a credit note but instead the
CC was erroneously invoiced for the products that it
had repossessed.
Section
420
[10]
The Act was repealed by the Companies Act 71 of 2008 (the new Act),
subject to the transitional arrangements set out in Schedule
5
thereto. Item 9(1) of Schedule 5 provides that, despite the
repeal of the Act, Chapter 14 thereof continues to apply to
the
winding-up and liquidation of companies, as if not repealed, until a
date to be determined. Chapter 14 of the Act comprises
ss 337-426.
Section 339 of the Act provides for the application of the laws
relating to insolvency in the winding-up of a company
that is unable
to pay its debts. Section 420 of the Act provides:
‘
When
a company has been dissolved, the Court may at any time on an
application by the liquidator of the company, or by any other
person
who appears to the Court to have an interest, make an order, upon
such terms as the Court thinks fit, declaring the dissolution
to have
been void, and thereupon any proceedings may be taken against the
company as might have been taken if the company had not
been
dissolved.’
It
bears mentioning that the provisions of s 83(4) of the new Act are
substantially similar to those of s 420.
[11]
In
Goodman v Suburban Estates, Ltd (in liquidation) and others
1915 WLD 15
at 26, Mason J stated the following with reference to
s 193 of the Transvaal Companies Act 31 of 1909 (a forerunner of
s 420
of the Act):
‘
Having
regard to all these matters it seems to me that the Court ought not
to avoid a dissolution unless some unforeseen event such
as the
discovery of new assets has occurred or unless there has been some
fraud or concealment practiced or unless the dissolution
has become
either by reason of surrounding circumstances or through some
contrivance of parties the instrument of injustice.’
In
Henochsberg
on the Companies Act
5
ed (2008) vol 1 at 902, it is contended that the application of s 420
should not be limited to the grounds set out in
Goodman
.
The authors submit, with reference to inter alia
Ex
parte Liquidator Natal Milling Co (Pty) Ltd
1934
NPD 312
, that the court may avoid the dissolution of a company in any
circumstances where the interests of justice warrant such a cause.
[12]
I agree with this submission. In
Natal Milling Co
Hathorn J
pointed out that in
Goodman
the court had construed s 193 of
the Transvaal Act, which corresponded with s 191 of the Companies Act
46 of 1926, with reference
to s 196 of the Transvaal Act. He said
that s 196 of the Transvaal Act corresponded with s 199 of the 1926
Act. Both these sections
dealt with companies presumed to be defunct
and empowered the Registrar of Companies to strike such a company
from the register,
resulting in its dissolution. These sections also
specified the circumstances under which a court could reverse such a
striking
off and dissolution. Section 193 of the Transvaal Act and s
191 of the 1926 Act, in turn, dealt with the subject matter of s 420,
namely the power of a court to avoid the dissolution of a company
that took place after its affairs had been wound up. These sections
did not enumerate any circumstances under which the power of the
court could be exercised. Hathorn J indicated persuasively that
these
two sets of provisions dealt with matters which had little bearing on
each other and that the meaning of s 191 of the 1926
Act was clear.
He declined to follow
Goodman
and concluded:
‘
According
to my view the power of the Court to make an order declaring the
dissolution to have been void is unlimited in any respect,
and as the
circumstances under which the section may be brought into operation
are likely to vary in every case, it seems to me
inadvisable to lay
down any principle upon which the Court will act.’
[13]
There is no reason to differentiate in this regard between s 191 of
the 1926 Act and its successor, s 420. In my judgment this
dictum in
Natal
Milling Co
is
equally applicable to s 420. I hold that s 420 provides the court
with a wide discretion that defies precise definition. Paragraph
12
of the judgment in
Motala
and others v Master of the High Court (North Gauteng) and others
[2013] ZASCA 185
; [2014] 2 All SA 154 (SCA) should be read in
this light.
[14]
The effect of an order under s 420 is to revive the company and to
restore the position that existed immediately prior to its
dissolution. Thus the company is recreated as a company in
liquidation, with the rights and obligations that existed upon its
dissolution. Property of the company that passed to the state as
bona
vacantia
is automatically re-vested in the company by operation of law. An
order under s 420 is only retrospective in this sense and does
not
validate any corporate activity of the company which may have taken
place during the period of its dissolution. The effect
of an order in
terms of s 420 must therefore be contrasted with the effect of the
reinstatement of a company in terms of s 82(4)
of the new Act after
its deregistration by the Companies and Intellectual Property
Commission in terms of s 82(3) thereof. See
Newlands
Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd
[2015]
ZASCA 25
;
2015 (4) SA 34
(SCA). The abovementioned principles appear
from
Henochsberg
,
above p 900(1)-902 and Blackman et al
,
Commentary on the Companies Act,
Vol
3, pp 14-506 – 14-507. See also
Pieterse
v Kramer
1977
(1) SA 589
(A) at 600-601. The findings of the court a quo that the
aim of s 420 is to set aside the entire liquidation process of a
corporation
for purposes of commencing the liquidation anew, were
therefore clearly wrong. The steps taken during the prior
liquidation, up
to the time of dissolution, stand.
[15]
Paragraph 1 of the section 420 order, as rectified by agreement in
respect of the name and number of the company by the court
a quo,
declared the dissolution of the company to have been void. Paragraph
2 of the order provided:
‘
The
Master is authorized and directed to appoint new liquidator(s), which
liquidator(s) shall be clothed with all powers and competencies
as if
the company is liquidated
de
novo
.’
(My
translation)
[1]
[16]
The appellants interpreted this part of the order as providing that
the company was to be liquidated
de
novo
and that this would entail reopening the confirmed liquidation and
distribution account in terms of which distribution has already
taken
place. This is incorrect. First, that is not what the words of para 2
of the order convey. The paragraph does not deal with
the
commencement of liquidation. It deals only with the appointment and
powers of a new liquidator(s). These powers shall be as
if the
company is liquidated
de
novo
.
The words ‘as if’ indicate that in fact there will be no
de
novo
liquidation.
De novo
liquidation
is only postulated to define the powers of the new liquidator(s).
Second, as I have shown, the legal consequence of
an order under s
420 is no more than the restoration of a dissolved company to the
position existing immediately prior to its dissolution.
[17]
Section 104
of the
Insolvency Act 24 of 1936
provides that a creditor
who has proved a claim against the estate after the confirmation of
an account by the Master is excluded
from the distribution under that
account, but may share in the distribution under a subsequent
account. In terms of s 408 of the
Act the confirmation of a
liquidation and distribution account by the Master ‘. . . shall
have the effect of a final judgment,
save as against such persons as
may be permitted by the Court to re-open the account after such
confirmation but before the liquidator
commences with the
distribution.’ Therefore, save possibly in the case of fraud, a
confirmed account may only be reopened
before distribution in terms
thereof commences. Even then, reopening will only be ordered on
grounds for
restitutio
in integrum
such as
justus
error
or
dolus
.
See
Kilroe-Daley
v Barclays National Bank Ltd
[1984] ZASCA 90
;
1984
(4) SA 609
(AD) at 626F-G. See also
Gilbey
Distillers & Vintners (Pty) Ltd
&
others v Morris NO
[1990] ZASCA 134
;
1991
(1) SA 648
(AD) at 65G in respect of the similarly worded
s 112
of
the
Insolvency Act. As
distribution in terms of the confirmed first
and final liquidation and distribution account of the company was
completed during
2014, the
section 420
order could not in law have
the effect of reopening that account.
[18]
In the light of these considerations and of the explicit purpose of
the
section 420
application, namely investigation aimed at
distribution of assets not dealt with in that account, para 2 of the
section 420
order must in my view be interpreted to mean that the
liquidators shall have the powers in terms of the Act to deal with
further
assets of the company. It follows that further assets of the
company recovered by the liquidators must be dealt with in a further
liquidation and distribution account in terms of s 403 of the Act.
Section 403(1)
(b)
of the Act also provides that the Master may at any time and in any
case where a liquidator has funds in hand, which ought, in
the
opinion of the Master, to be distributed or applied towards the
payment of debts, direct a liquidator in writing to frame and
lodge a
liquidation and distribution account within a specified period.
[19]
Section 44(1)
of the
Insolvency Act provides
for late proof of claims
by creditors. In terms thereof a creditor may prove a claim after the
expiry of the prescribed period,
with the leave of the Master or a
court and on payment of such amount as either directs to cover the
costs occasioned by the late
proof. Where the dissolution of a
company has been avoided under
s 420
for the very purpose of
distribution of further assets of the company, the Master or a court
may well be persuaded to allow late
proof of claims, especially when
the erstwhile liquidators had discouraged proof of the claims.
[20]
The phrase ‘any person who appears to the Court to have an
interest’ in
s 420
, is very wide. This broad language may
encompass parties who do not have a direct and substantial interest
of the kind which would
necessitate joinder. It certainly encompasses
an unpaid creditor, including, in my view, a creditor who intends to
prove a late
claim under
s 44(1)
of the
Insolvency Act. It
follows
that the GJN Trust had
locus
standi
to bring the
section 420
application.
Rule
42(1)(a)
[21]
Whether the
section 420
order fell to be set aside on the ground that
it had been granted without notice to any of the appellants, must be
determined against
this background. In the rescission application the
appellants relied on Uniform
Rule 42(1)(a).
In terms of
rule 42(1)(a)
a court may, upon the application of any
party affected, rescind or vary an order or judgment erroneously
sought or erroneously
granted in the absence of any party affected
thereby.
[22]
In
United
Watch and Diamond Co (Pty) Ltd and others v Disa Hotels Ltd and
another
1972
(4) SA 409
(CPD), Corbett J held that in order to establish
locus
standi
under
rule 42(1)(a)
, an applicant must show a direct and substantial
interest in the judgment or order that the applicant wishes to have
varied or
rescinded. This means a legal interest in the subject
matter of the action or application which could be prejudicially
affected
by the order in that action or application. This judgment
has been cited with approval on numerous occasions, including by this
court in, inter alia,
Aquatur
(Pty) Ltd v Sacks and others
1989
(1) SA 56
(A) at 62.
[23]
The application of these principles is illustrated in the judgment in
Standard
General Insurance Co Ltd v Gutman NO and others
1981
(2) SA 426
(C). There the owner of a business entered into an
agreement with the applicant insurance company in terms of which the
property
of the business was inter alia insured against destruction
by fire. After the owner had sold the business, a fire destroyed
certain
property covered by the insurance policy. The owner submitted
a claim in terms of the policy, but the claim was repudiated on the
ground that, because of the sale of the business, the owner no longer
had an insurable interest in the property destroyed. Thereafter
the
estate of the owner was sequestrated. The trustee of the owner sued
the purchaser of the business for an order declaring the
sale of the
business void and for the return of all the assets of the business
and obtained such an order by default. The trustee
then sued the
applicant for indemnification under the policy. The applicant applied
to have the default judgment rescinded in terms
of the
rule 42(1).
The applicant contended that the sale was erroneously found to have
been void and that the default judgment had deprived the applicant
of
its defence of absence of an insurable interest.
[24]
The court accepted for purposes of argument that the effect of the
sale of the business had been to eliminate the owner’s
insurable interest. However, the court held that the applicant had no
locus
standi
in terms of
rule 42(1).
It accepted that the applicant’s rights
might have been affected by the order in the sense that it had
deprived the applicant
of a defence against the action of the
trustee. It held, however, that this constituted a mere indirect
financial interest in the
subject matter of the litigation between
the trustee and the purchaser.
[25]
In the rescission application the appellants averred that the
section
420
order adversely affected their interests in that they were not
afforded the opportunity to respond to the serious allegations of
impropriety that had been made in the
section 420
application. This
misses the point. Although the purpose of the
section 420
application
was to enable the liquidators to claim from the appellants, the
subject matter of that application was the restoration
of the
dissolved company to a company in liquidation and not the
enforceability of the alleged claims against the appellants. The
prosecution of these claims will no doubt take place by due process,
during which the appellants will be afforded the full opportunity
to
protect their rights. In his replying affidavit in the rescission
application, the first appellant in fact declared that he
had no
reason to seek protection from investigation by the liquidators.
Thus, no legal interests of the appellants were adversely
affected by
the
section 420
order.
[26]
For the sake of completeness it should be mentioned that, as unproved
creditors, the first appellant and the CC also had no
legal interest
in the
section 420
order. The rights of unproved creditors could
clearly not be adversely affected by the revival of the company to a
company in liquidation.
The same must apply to the mere fact that the
section 420
order restored the first appellant and the CC as the
director and shareholder respectively of the company in liquidation.
In this
regard it will be recalled that the stance of the Share Trust
is that it cancelled the sale agreement in respect of the shares.
The
first appellant’s directorship is inextricably linked to the
shareholding of the Share Trust.
[27]
The appellants obliquely also relied in the rescission application on
the common law. However, as explained in Herbstein and
Van Winsen,
The
Civil Practice of the High Courts of South Africa
5
ed (2009) at 929,
rule 42
is for the most part a reinstatement of the
common law and must be interpreted in the context of the common law
principles of finality
of judgments in the interests of certainty.
This leaves no room for rescission of a judgment at the instance of a
person who was
not a necessary party to the litigation concerned. In
the result I hold that the appellants had no
locus
standi
to challenge the
section 420
order.
[28]
As a last resort, the appellants contended that the state,
represented by the Minister of Finance, should have been joined
in
the
section 420
application on the basis that the
section 420
order
deprived the state of the assets of the company (including the
alleged claims against the appellants) that had passed to
it on the
dissolution of the company. I accept that in principle this is
correct. But as the appellants have no
locus
standi
to challenge the
section 420
order, the
section 420
application is
not before this court. This is not a case such as
Amalgamated
Engineering Union v Minister of Labour
1949 (3) SA 637
(A), where both parties before the court desired it
to deal with the merits of the matter in the absence of a necessary
party thereto.
[29]
For these reasons the appeal must fail. The following order is
issued:
The
appeal is dismissed with costs.
_________________________
C
H G van der Merwe
Judge
of Appeal
APPEARANCES
For
Appellants:
L M Olivier SC (Heads of Argument prepared by P S Bothma)
Instructed
by:
Terblance Slabber Pieters
Inc, Malmesbury
Hill
McHardy & Herbst, Bloemfontein
For
Respondents:
A J R van Rhyn SC
Instructed by:
Lamprecht Attorneys,
Stellenbosch
Symington & De Kok,
Bloemfontein
[1]
‘
Die Meester word gemagtig en
beveel om nuwe likwidateur(s) aan te stel, welke likwidateur(s) met
alle magte en bevoegdhede beklee
sal wees asof die maatskappy
de
novo
gelikwideer word.’