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[2013] ZAWCHC 213
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Van Der Merwe v Duraline (Proprietary) Limited (7344/2013) [2013] ZAWCHC 213 (23 August 2013)
IN THE HIGH COURT OF
SOUTH AFRICA
WESTERN CAPE HIGH COURT,
CAPE TOWN
Case Number:
7344/2013
DATE: 23
AUGUST 2013
REPORTABLE
In the matter between:
Dirk Johannes Van der
Merwe
....................................
Applicant
And
Duraline (Proprietary)
Limited
(Reg No
1997/000960/07)
.........................................
Respondent
REASONS DELIVERED: 23
AUGUST 2013
Gamble, J
[1] The applicant, a former
employee and admitted creditor of the respondent, sought to
provisionally liquidate the respondent on
the basis that it was
trading in insolvent circumstances. The matter was heard by a
Full Court because the applicant wished
to challenge a decision by
Binns-Ward, J sitting alone in this Division. In its answering
papers, the respondent challenged only
jurisdiction and did not deal
with the allegations relevant to its financial position. It reserved
the right to do so on the return
day in the event of a provisional
order being granted. The Court was therefore entitled to accept that
the respondent was insolvent
and unable to pay its debts. On
14 June 2013, the Court granted a provisional liquidation
order with 5 August 2013 as
the return date. On that day there was no
further opposition and a final order was made.
[2] The
applicant alleged that this Court had jurisdiction because the
respondent’s principal place of business was in the
Strand,
Western Cape, where its manufacturing plant was situated, where its
administration was conducted and where its board of
directors held
their management meetings. It was common cause that the respondent’s
registered office was in Gauteng.
[3] The respondent
challenged the jurisdiction of this Court on the basis, of the
judgment of Binns-Ward J in
Sibakhulu Construction v Wedgewood
Village Golf Country Estate (Pty) LTD
2013 (1) SA 191
(WCC). Mr
van Eeden for the Respondent contended that the High Court in
Pretoria was the only Court that had jurisdictions, given
that the
company’s head office was there.
[4] In
Sibakhulu
,
Binns Ward J found that in terms of the Companies Act, 71 of
2008 (‘
the New Act’
), a company may have only one
registered office and that that office must be at the company’s
principal place of business.
Binns-Ward J also held that only the
court in which a company’s registered office is located has
jurisdiction to hear a liquidation
or a business rescue application.
Mr Louis Olivier SC for the applicant contented that this finding was
wrong and asked the Judge
President to convene a Full Court to
address the issue.
[5] Given the withdrawal of
opposition after the granting of the provisional order, the plea of
jurisdiction appears to have been
a dilatory tactic adopted by the
Respondent’s directors. However, due to the importance of
the issue, full reasons
are now provided for the assistance of
practitioners.
[6]
Sibakhulu
involved an application for winding up before the Western Cape High
Court. In the course of those proceedings, which had became
protracted for reasons which are not now material, there was an
application for business rescue under section 131 (6) of the New
Act.
That application was brought in the Port Elizabeth High Court which,
it was claimed, had jurisdiction in relation to those
proceedings.
[7] The applicants in the
business rescue proceedings approached the Western Cape High Court
for leave to intervene in the liquidation
proceedings. This was
granted. They thereafter sought to obtain the postponement of the
liquidation proceedings pending the outcome
of the business rescue
application in the Port Elizabeth High Court.
[8] The issue of
competing jurisdictions evidently did not feature in the arguments
before Binns-Ward J. As appears from the report
[1]
,
His Lordship called for written submissions during the course of
preparation of his judgment.
[9] In a comprehensive and
detailed analysis of the provisions of both the Companies Act, 61 of
1973
(“the Old Act”)
and the New Act, Binns-Ward J
came to the conclusion,
inter alia,
that under the New Act a
company’s “place of residence” could only be in one
place and that that place was to
be its registered office.
[10] In the light of this
finding the Court then grappled with the problem that arose in
respect of dual jurisdiction which had
become common practice under
the Old Act. Binns-Ward J found that the New Act contemplated
that a company’s registered
office was required to coincide
with its principle place of business and that such office was to be
its only office for purposes
of general administration under the New
Act and for the institution of litigation.
[11] This finding by
Binns-Ward J immediately raised problems for a number of companies in
that a practice has arisen over the years
(as in the present case)
where a company’s registered office was at some location remote
to its principle place of business
(eg. often a firm of auditors in
another Province.) This disjuncture permitted creditors in a winding-
up application under Chapter
14 of the Old Act a choice of 2
jurisdictions in which to institute proceedings – either where
the registered office was
situated, or where the company’s
“main office” or “principal place of business”
was located
[2]
.
[12] Binns-Ward J
found
[3]
that the transitional provisions under the New Act did not deal with
the position where a pre-existing company’s registered
office
was situated elsewhere than its principal place of business and
accordingly came to the following conclusion:
“
The result
of this must be that a pre-existing company is obligated to change
its registered office in terms of s23 (3) (b) of the
[New] Act if the
address of the office does not coincide with that of its principal
place of business. The requirement that a company
register the
address of its principal office is plainly intended for the benefit
of 3
rd
parties who might wish to obtain information about it, communicate
with it, or in any manner formally transact with or in connection
with it”
And, in the interim, until
such change had been effected, Binns-Ward J found that only the court
in which the registered office
was located, had jurisdiction in
matters such as this.
[13] In the proceedings
before us, Mr Olivier SC, took issue with this finding of Binns-Ward
J and submitted that, upon proper analysis,
for so long as
liquidation proceedings were governed by the Old Act, the dual
jurisdiction approach available to petitioning creditors
under the
Old Act remained available to them under the New Act.
[14] Mr Olivier SC
submitted that the facts in
Sibakhulu
demonstrate that the
judgment of Binns-Ward J was
obiter dictum
as far as his
finding in para 20 of that judgment was considered. This was because,
counsel argued, on the facts before His Lordship,
the company’s
principal place of business and registered office were both within
the jurisdiction of the Western Cape High
Court and the Port
Elizabeth High Court accordingly did not have jurisdiction in the
matter before it. There was, said counsel,
therefore no need for a
finding on the legal position in relation to the dual jurisdiction
issue. Counsel went on to submit that
the present case was in any
event distinguishable on the facts.
[15] Mr Olivier SC’s
argument touched on issues which do not appear to have been fully
argued before Binns-Ward J. I consider
that had they been, Binns-Ward
J may have come to a different view on the applicability of the dual
jurisdiction approach in respect
of the winding up of insolvent
companies. However, to the extent that the views expressed by
Binns-Ward J are not
obiter dictum,
for purposes of the
present matter I decline to follow them since I am convinced of the
correctness of the argument advanced on
behalf of the applicant.
[16] Mr Olivier SC’s
analysis of the applicable statutory regime went as follows. Section
224(3) of the New Act provides that
the repeal of the Old Act does
not affect the transitional arrangements contained in Schedule 5,
Item 9 of the New Act. In that
schedule provision is made for the
continued application of Chapter 14 of the Old Act. Accordingly, any
winding up under the New
Act, other than a winding up in respect of a
solvent company, must take place under the Old Act as if the Old Act
had not been
repealed.
[17] The winding-up of
solvent companies is dealt with in Part G of the New Act. The
interplay between Sections 79 (2) and (3) and
Items 9 (2) and (3) of
Schedule 5 to the New Act make it clear that an application for
winding-up of a solvent company must take
place in accordance with
the provisions of the New Act. However, if in the course of such
proceedings it is found that the company
is in fact insolvent the
matter must then be determined in accordance with the provisions of
Chapter 14 of the Old Act.
[18] Turning to Section 344
of the Old Act (which will apply,
inter alia
, in regard
to the winding up of a company that is unable to pay its debts, or
deemed to be unable to do so), the section reads
as follows:
“
344.
Circumstances in which company may be wound up by the Court.
A company may be wound
up by
the Court
if - …
(a)
the company is unable to pay its debts
as described in section 345 …” (Emphasis added)
[19] The “
Court
”
referred to in Section 344 was assigned a particular meaning under
the Old Act and was defined in Section 1 as follows:
“
Court
”
in relation to any company or other body corporate, means the Court
which has jurisdiction under this Act in respect of
that company or
other body corporate…”
Further, the Old Act
(unlike the New Act) had a specific section which determined which
Court had jurisdiction in, inter alia, an
application for winding up:
“
12
.
Jurisdiction of Court under this
Act and review of decisions of Registrar.
(1)
The Court which has jurisdiction
under this Act in respect of any company or other body corporate,
shall be any provisional or local
division of the High Court of South
Africa within the area of jurisdiction whereof the registered office
of the company or other
body corporate or the main place of business
of the company or other body corporate is situate.”
[20] Under the Old
Act, therefore, Section 12 was the source of the dual jurisdictional
power to liquidate, a situation which has,
for a number of decades,
been recognised under Section 344
[4]
.
At the risk of stating the obvious, the entire winding up process of
an insolvent company on the basis of inability of a company
to pay
its debts must, until the transitional provisions of the New Act are
varied, take place in terms of Chapter 14 of the Old
Act. Once
reliance is placed on those sections for such winding up, I consider
that the definitions, internal references and interpretations
which
have applied to that Chapter of the Old Act will continue to apply,
and it is not permissible to cross-reference to provisions
of the New
Act whilst so applying Chapter 14 of the Old Act.
[21] Chapter 14 of the Old
Act does not only deal with the application for winding-up itself, it
governs,
inter alia
the functions and duties of liquidators,
meetings of creditors, the interrogation of directors and other
persons in relation to
the affairs of the bankrupt company, liability
of directors for the mismanagement of the company and importantly,
the incorporation
of various provisions of the
Insolvency Act of
1936
. The many sections under this Chapter have over the years been
interpreted by our Courts and there is therefore a substantial body
of authority and established jurisprudence which continues to be of
general application, notwithstanding the passing of the New
Act.
[22] That the application
of Chapter 14 requires resort to, and reliance upon, the definitions
and other internal references to
the Old Act, is further borne out by
the following. There are several instances where definitions under
the Old Act have a different
meaning under the New Act, or where a
term is not defined under the Old Act but is defined under the New
Act. See for example “
Accounting Records”, “Company”,
“Director”, “External Company”, “Member”
“Memorandum”,
“Share” and “Special
Resolution”.
[23] As I have said many of
these terms have been interpreted by the Courts over the years, and
in the continued interpretation
of Chapter 14 of the Old Act (that is
until the introduction of the promised winding up legislation
referred to below), the Courts
must continue to have regard to such
definitions and internal references. It would be chaotic to have to
to apply New Act definitions
and provisions to Old Act provisions in
Chapter 14 without an express direction in the New Act to do so.
[24] In
Sibakhulu
,
Binns-Ward J was troubled by the provisions of Section 128 (1) (e)
(i) of the New Act in which the word “
Court
”
is defined for purposes of business rescue procedures as “
the
High Court that has jurisdiction over the matter
”.
It must be emphasized that this definition of “Court” is
the only section in the New Act defining a court,
and it is notable
that the definition is strictly limited to cases involving business
rescue.
[25] Given that the New Act
specifically directs that liquidation proceedings (save in respect of
solvent companies) are to be brought
under Chapter 14, I consider
that the dual jurisdiction regime recognised under the Old Act by
virtue of the definition of “Court”
read with the
provisions of Section 12 thereof, prevails in respect of such
proceedings, notwithstanding the introduction of the
New Act.
[26] I am satisfied, too
that this view accords with the express wording of Item 9 of Schedule
5 to the New Act of which the relevant
provisions read as follows:
“
9.
Continued application of
previous Act to winding- up and liquidation
(1)
Despite the repeal of the previous
Act, until the date determined in terms of sub-item (4), Chapter 14
of that Act continues to
apply with respect to the winding- up and
liquidation of companies under this Act, as if that Act had not been
repealed and subject
to sub-items (2) and (3).
(2)
Despite sub-item (1), sections 343,
344, 346, and 348 to 353 do not apply to the winding-up of a solvent
company, except to the
extent necessary to give full effect to the
provisions of Part G of Chapter 2.
(3)
If there is a conflict between a
provision of the previous Act that continues to apply in terms of
sub-item (1), and a provision
of Part G of Chapter 2 of this Act with
respect to a solvent company, the provision of this Act prevails.
(4)
The Minister, by notice in the
Gazette, may -
(a) determine a date on
which this item ceases to have effect, but no such notice may be
given until the Minister is satisfied that
alternative legislation
has been brought into force adequately providing for the winding- up
and liquidation of insolvent companies;
and
(b) prescribe ancillary
rules as may be necessary to provide for the efficient transition
from the provisions of the repealed Act,
to the provisions of the
alternative legislation contemplated in paragraph (a)”.
[27] It will be observed
that Item 9 (3) directs the applicability of the New Act in regard to
any conflict arising in the interpretation
of Part G of Chapter 2 of
the New Act – as I have said a Part which deals with the
winding- up only of solvent companies.
However, the proviso’s
to Item 9 (1) contained in Items 9 (2) and (3), which are applicable
to the winding- up only
of a solvent company are not applicable
to the sections of the Old Act mentioned therein which must be
administered as before.
[28] The provisions of
Items 9 (4) (a) and (b) are also relevant. It is apparent from those
items that it is the intention of the
Legislature to introduce new
and distinct legislation sometime in the future to deal specifically
with the winding-up and liquidation
of
insolvent
companies. When that Legislation eventually sees the light of day,
efficient transitional provisions will be introduced to facilitate
a
changeover from the Old Act to that new legislation. Such
transitional provisions will, undoubtedly, have to deal with the
problems
identified by Binns-Ward J in
Sibakhulu
in regard to
the interpretation of Section 23 of the New Act.
[29] But until such new
legislation is introduced, the situation remains, as it were, fixed
in time and insolvent companies will
continue to be wound up as
before under the Old Act with due regard for the extensive
jurisprudence which has developed in relation
to Chapter 14.
[30] Accordingly, I
considered that the continued applicability of the provisions of
Chapter 14 of the Old Act to the case before
us included the
entitlement of a creditor to approach the Court in whose jurisdiction
the main or principal place of business was
located, in
circumstances where the registered office of the company is located
elsewhere.
[31] It follows in my view
that this Court had jurisdiction to entertain the application. In
consequence of this finding, it is
unnecessary to consider the
consequences of the failure of a company to align its registered
office with its main place of business
in terms of Section 23 (3) of
the New Act
Gamble
J
[1]
193 H
[2]
Diary Board v John T Rennie and Company
(Pty) Ltd
.
1976 (3) SA 76
at 8;
Bisonboard Ltd. v K Braun Woodworking
Machinery (Pty) Ltd
1991 (1) SA 482
(A)
[3]
198 F para 20
[4]
Henochsberg on the Companies Act
Vol 1; 5
th
Edition (by Meskin et al) at 692;
Diary
Board case
supra
;
Bisonboard case
supra