Subject index outline

Burco Civils CC v Stolz and Another (26201/15) [2016] ZAGPPHC 350 (19 May 2016)

Directors-personal lability- section 424 of the Companies Act, 1973 (Act No. 61 of 1973) (the Companies Act), alternatively in terms of section 218 (2) of the new Companies Act.

[1] The Applicant seeks an order declaring the respondents personally liable for claim which creditors are unable to recover in the liquidation of Caveoplant (Pty) Ltd (Caveoplant).

[2] It is common cause that Caveoplant has been placed under final winding up in the hands of the Master of the High Court. Caveoplant is indebted to the applicant in the amount of R1 066 196-80. Despite notices in terms of section 345 of the Companies Act, 2008 (Act No. 71 of 2008) (the new Companies Act), Caveoplant failed and or refused to pay the amounts owed to the applicant. As a result, an application for the liquidation of Caveoplant was launched.

[3] The applicant, in anticipation of the liquidation, launched this application to protect its interests in terms of section 424 of the Companies Act, 1973 (Act No. 61 of 1973) (the Companies Act), alternatively in terms of section 218 (2) of the new Companies Act.

[4] The applicant alleges that, as a result of the material misrepresentations by the respondents, more specifically that the first respondent was authorized to act on behalf of Caveoprox (Pty) Ltd (Caveoprox) and that Caveoprox had sufficient funds to pay the applicant and other creditors, were they to let their equipment to Caveoprox, the applicant concluded an agreement, believing it to be with Caveoprox, in June 2014, in terms of which Caveoprox required plant from applicant to be let to EC Mining.

[5] The applicant alleges that it was advised by the first respondent, subsequent to the conclusion of the agreement, that Cavoeprox name have changed to Caveoplant with a new VAT number 4920266402, and that all suppliers, including applicant, were to ensure that the details were correct on all the invoices as from 1 August 2014, and that no invoices will be paid unless the correct details were on the invoice. The first respondent assured that it is only a name change as management and all services will still be done by herself.

The issue is whether the respondents contravened the provisions of section 22(1) and 76 (3) of the Companies Act, and if so, whether, in terms of section 218, the respondents are liable to the applicant for the loss suffered as a result of that contravention.

[37] Section 22(1) provides as follows:

“22. Reckless trading prohibited. – (1) A company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose.”

[38] Section 76(3) provides as follows:

“76. Standards of directors conduct. – … (3) Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director –

(a) In good faith and for a proper purpose;

(b) In the best interests of the company; and

(c) With the degree of care, skill and diligence that may reasonably be expected of a person –

(i) Carrying out the same functions in relation to the company as those carried out by that director; and

(ii) Having the general knowledge, skill and experience of that director.”

[41] The respondents have demonstrated a lack of skill, and may have been out of place and chose an inappropriate route for the purpose of commencing their business operations. However, that lack of aptitude or their ineptitude, in my view, cannot be said to have amounted to using the business to incur obligations recklessly grossly negligent, as interpreted in our law. In my understanding, to carry on business recklessly or grossly negligent is to carry on business by conduct which evinces a lack of any genuine concern for its prosperity, which conduct has an adverse effect on the creditors’ claims against the company.

[46] Against this background, I am unable to find that the respondents contravened section 76 (3) of the Companies Act.

[49] From the facts as set out in the papers before me, in my view, the real and proximate cause of the inability of Caveoplant to pay its creditors which include the applicant, is the financial difficulties experienced by EC Mining. In my view, the failure of Caveoplant was as a result of external forces, and not internal forces and more specifically it was not as a result of the conduct of the respondents. There is nothing to indicate that the respondents were not attentive to the affairs of Caveoplant.The application is dismissed with costs.

2001 Management Services (Pty) Limited and Another v Anappa (88079/14) [2016] ZAGPPHC 353 (20 May 2016)

Business rescue proceedings-liquidation in terms of section 132 (2) of the Companies Act 71 of 2008 (the Act)-application by creditor forleave to institute liquidation proceedings against the applicant-granted

The business rescue practitioner, on behalf of the first applicant, applied for an order that the business rescue proceedings of the applicant be terminated and that the applicant be placed in final liquidation in terms of section 132 (2) of the Companies Act 71 of 2008 (the Act). As regards costs, it is prayed that the costs of the business rescue practitioner in the business rescue proceedings of the applicant including all disbursements and legal costs incurred by him, be costs in the winding-up of the applicant.

[2] The second applicant, the Bank, applied for leave to intervene in the application, and an order that the business rescue proceedings of the applicant be terminated and the applicant be placed in final liquidation in terms of section 132 of the Act. In the alternative, the second applicant seeks an order granting them leave to institute liquidation proceedings against the applicant in terms of section 133 of the Act and an order placing the applicant into final liquidation in the hands of the Master, and that the costs of the application, including costs of intervening, be costs in the liquidation.

[3] Before me, the business rescue practitioner did not pursue its motion, opting instead to support the application by the Bank. His interest and his submissions, only related to the costs. His prayer was that the court order, in relation to costs, be that the costs incurred by him in employing attorneys and counsel, in either defending or bringing interlocutory applications pending the winding-up application, are to be regarded as administration costs in the winding up and further that the question of his fees are to be reserved. The Bank did not support this stance of the business rescue practitioner. In its view this court cannot be asked to deal, in the main with costs related to the application brought in the matter before another court in another province, and as regards fees the Bank’s view is that this must be left up to the liquidator to decide which claims are to be admitted and which are not to be admitted.

[4] The Bank only pursued its alternative motion before me.

[5] In his founding affidavit in support of the application brought by first applicant, Thomas Hendrick Samons (Samons) says he deposed to the affidavit in his capacity as the business rescue practitioner appointed as such on 11 July 2014 in terms of a resolution dated 1 July 2014, passed by the sole director of the applicant, Walter Frederick Stephen Ward (Ward), in terms of the provisions of section 129 of the Act. The applicant commenced business rescue proceedings on 7 July 2014. He took effective control of the applicant on 11 July 2014.

[42] In my view, to position the court to exercise its discretion judiciously, in considering the leave sought, it is incumbent upon an applicant who seeks such leave of the court, to take the court into his/her confidence and disclose to the court the legal proceedings which he or she intends initiating. This is to allow the court to determine whether the facts as set out may stand as valid grounds to sustain such recourse. It will also assist the court to ensure that the process of seeking leave is not abused for ulterior purposes.

This will also assist the court to determine whether it is just and equitable, under the circumstances, to exercise its discretion in favour of the leave sought. In my view, liquidation is an appropriate recourse, and it is just and equitable in this case, that it be engaged as a process to deal with the affairs of the applicant.

For these reasons I make the following order:

1. The intervening creditor, The Standard Bank of South Africa Limited, is granted leave to institute liquidation proceedings against the applicant, 2001 Management Services (Pty) Limited.

2. The costs of the application, including the costs of intervening, are costs in the liquidation.

 

Constantia Insurance Company Limited v Master of the High Court, Johannesburg and Others (23968/2015) [2016] ZAGPJHC 121 (13 May 2016)

Claims-investigating of-after being proved-a liquidator to a creditor’s substantiation of its claim in terms of s.45(3) of the Insolvency Act 24 of 1936-liquidator and Master ordered to accept more information

 This is an application for declaratory orders to the effect that the Master of the High Court has no power to consider a response by a liquidator to a creditor’s substantiation of its claim in terms of s.45(3) of the Insolvency Act 24 of 1936, in response to a liquidator’s report to the Master under that section, after the second meeting of creditors of Protech Khuthele Property Investments (Pty) Ltd (in liquidation), when the Master is considering whether to reduce or disallow the creditor’s proven claim.

he background and the parties’ competing contentions is as follows. The applicant is a creditor in the insolvent estate for which the second and third respondents (“the liquidators”) have been appointed as provisional liquidators. At the second meeting of creditors, the applicant proved three claims against the Protech estate. Thereafter, on 14 January 2015, the liquidators reported to the Master in terms of s.45(3) of the Insolvency Act that they disputed the applicant’s claim, and advanced reasons for so disputing the claim.

[3] The Master, as she was obliged to do under s.45(3) of the Insolvency Act if she were minded to reduce or disallow the applicant’s claim, on 5 February 2015 afforded the applicant an opportunity to substantiate its claim and, to that end, provided the applicant with the  report, and gave the applicant an opportunity to respond to it. This the applicant did on 19 February 2015. The Master then, without there being express provision for it either in the Insolvency Act, or in the Companies Act 61 of 1973, or the winding-up regulations made under that Act, provided the liquidators with a copy of the applicant’s substantiation of its claim, and afforded the liquidators an opportunity to respond to it.

[5] This the liquidators did by furnishing a voluminous response two months later on 24 April 2015. In it, according to the applicant, they raised new matter that had not been dealt with before by either the applicant or the liquidator. The Master then invited the applicant on 7 May 2015 to deal with this second document emanating from the liquidators,in turn the liquidators no power to accept the invitation

[6] The applicant’s argument focusses on the scheme of the Insolvency Act and sections 44 and 45 in particular. It submits that the principle of audi alteram partem (hereafter “audi”) does not apply in the present matter, for two reasons. First, the liquidators are not persons who are potentially affected by the decision to be taken by the Master; and second, in any event, audi does not permit the filing of a document that the Act does not permit. It contends that sections 44 and 45 of the Act envisage a speedy procedure to get the winding up process under way, and rely amongst others, Caldeira v The Master and Another for this proposition. The applicant submits that there is no provision, certainly not expressly and not by implication either, that warrants any further exchanges between the parties. The Master must make her decision on the basis only of the liquidators’ initial report and the applicant’s response to it, according to its submission.

Audi alteram partem and legitimate expectation

[15] The liquidators’ argument is an extension of the classic presentation of the audi principle in our law, developed as it was in Administrator, Transvaal and Others v Traub and Others. The development in Traub was the infusion into our pre-constitutional law of the concept of “legitimate expectation.”Before this infusion, the state of our law on audi was that where a statute empowered a public official to make a decision of a quasi-judicial nature that could potentially affect the rights or liberties of an individual prejudicially then, unless audi was expressly or by implication excluded, the individual had the right to be heard.

[19] As Cameron, J points out legitimate expectation in our law may take the form of so-called procedural legitimate expectation, or substantive legitimate expectation. In the case of the former, the expectation is that one will be heard before a potentially prejudicial decision will be taken. In the case of the latter, the expectation goes further; it is not only that one will be heard before the potentially prejudicial decision will be taken, but also that the decision will be favourable.[26] At present then, our law acknowledges the former, not the latter.

[22] The advent of the Constitution and PAJA initially raised the question whether the common law of the review of administrative action continued to exist side by side with the new constitutional administrative law; and the Supreme Court of Appeal held that it did.[29] The Constitutional Court rejected this notion, explaining that there is one system of law, all aspects of which derived its force from the Constitution.[30]

[23] It is thus now well accepted that s.33 of the Constitution incorporates and expands common law principles of administrative law. It is also accepted that PAJA is the indicated vehicle for the enjoyment and enforcement of the constitutional entitlement to just administrative action.[31] There is thus one system of law; and therefore one system of administrative law which, leaving aside the principle of legality, is currently codified in PAJA. The principle ofaudi alteram partem, and with it its embodiment of fair process, reposes within PAJA. In my view it is therefore unhelpful to go down the path of enquiring whether s.45(3) of the Insolvency Act excludes audi alteram partem.

[33]The point here is that the legislature did not intend for the decision under s.45(3) to represent a final and definitive determination of the validity of the creditor’s claim. That is why the Master, and not the High Court, decides the issue.

[34]Moving on to the facts of this case, the first observation is that the liquidators do not suggest in their answering affidavits that this case has any special feature that places it outside of the ordinary, vanilla, objection in terms of s.45(3). They argue[33]that the audi principle applies and that therefore they had the right to place the additional material before the Master. But they do not deal with the fact that the section already gives them the right to place material before the master.

[35] They argue also that if the creditor had the last say in the matter, “ … a creditor would be able to lie, misstate facts or present false evidence in substantiation of a claim and the liquidator would be powerless to inform the Master of the true state of affairs.” But they have not made out a case that in this instance any of these hypotheticals find application.

[36] Finally, they refer to regulation 3 of the Insolvency Act regulations provision is made in regulation 3(2) for the trustee in similar circumstances to “…submit his remarks thereanent to the Master in writing…”. In argument counsel for the liquidators conceded, in my view correctly so, that these regulations do not apply to winding-up of close corporations. The winding-up regulations apply, and as has been pointed out above, they do not provide for a liquidators’ reply.

[37] It is understandable why there is a distinction. The minister likely considered that the administration of an insolvent estate of an individual is likely to be less comprehensive than that of a company or close corporation. That would explain why language such as “remarks” is used. If the same procedure were employed in winding-up, the issue may have become substantially overburdened. Already in the present matter one saw the liquidators’ reply come to 394 pages, whereas the liquidators’ initial report was 17 pages, and the applicant’s substantiation, 19 pages.

[38] In sum, in my view s.45(3) envisages a procedure that is procedurally fair, all things being equal. In this case, no facts or circumstances are disclosed that rendered the procedure there laid down procedurally unfair. It follows that the applicant is entitled to the relief it sought in the amended draft order handed up during the hearing.

[39] There remain the questions of the authorisation sought by the liquidators, and the applicants request that they pay costs de bonis propriis. I accept that the liquidators have not in their answering affidavit explained why authorisation should be granted. But this is a case in which the facts speak for themselves. The legal issue involved is novel, so both counsel conceded; and the submissions made on behalf of the liquidators were lucid and helpful. I will therefore grant the liquidators the authorisation sought; the estate is to pay the costs of the application. Costs of two counsel were warranted; the liquidators employed only one, but Silk.

[40] In the result I make the following order:

(a) The second and third respondents are authorised to oppose the application.

(b) The Master of High Court is obliged to decide the second and third respondents’ application to expunge the applicant’s proved claim in Protech Khuthele Property Holdings (Pty) Ltd (in liquidation), in terms of section 45(3) read with section 158 of the Insolvency Act, 24 of 1936,regulation 18 of the Regulations for the Winding-Up and Judicial Management of Companies promulgated in Government Notice R2490 of 28 December 1973, and section 339 of the Companies Act, 61 of 1973, based on the second and third respondents’ report to the Master dated 14 January 2015 and the applicant’s substantiation dated 19 February 2015, but to the exclusion of the further document delivered by the second and third respondents on 24 April 2015.

(c) The second and third respondents are ordered to pay the costs of this application in their representative capacity, including the costs occasioned by the employment of two counsel.

Masilo N.O and Others v Betterbridge (Pty) Limited (37/2015) [2016] ZASCA 73 (25 May 2016)

Prescription – extinctive prescription – delay in completion – debt object of claim filed against company in liquidation – claim withdrawn after ‘admitted to proof’ under s 44 of the Insolvency Act 24 of 1936. Whether prescription delayed in terms of s 13(1)(g) of the Prescription Act 68 of 1969.

 This is an appeal from the North Gauteng Division of the High Court, Pretoria (Unterhalter AJ) rejecting a special plea by the defendants that the plaintiff’s claim had prescribed. Instead, it upheld the plaintiff’s contention that the completion of prescription was delayed in terms of s 13(1)(g) of the Prescription Act 68 of 1969.

[2] The facts and the reasoning of the learned judge are set out fully in his judgment, which has now been reported sub nom as Betterbridge (Pty) Ltd v Masilo & others 2015 (2) SA 396 (GP). I agree fully with the judgment. No purpose will be served by rehashing the facts or repackaging the reasoning.

[3] Before us the appellants raised a new argument, one that the court a quo was not asked to consider. They now contend that if a claim is withdrawn before the presiding officer at the meeting of creditors decides whether to admit or reject the claim, as in this case, the claim will not be the ‘object of a claim filed’ as s 13(1)(g) envisages. This is because a creditor, who wants the benefit of a delay in the completion of prescription, must participate in the process provided for in s 44 of the Insolvency Act until completion. A creditor, who lodges a claim with the Master, and then withdraws it from the adjudication process provided for in s 44, does not make his claim the object of a claim filed against the company in liquidation. And therefore cannot gain the benefit of the delay of prescription. A withdrawn claim, so it is contended, is as good as no claim at all.

[4] There is no merit in this contention. Apart from the fact that this defence was not pleaded in the rejoinder, it is apparent from the judgment of the court a quo that the impediment becomes operative as soon as the claim is ‘admitted to proof’. This occurs when the presiding officer at the meeting of creditors accepts the claim as filed in terms of s 13(1)(g); the adjudication process need not be completed. This is precisely what happened in this case.

[5] Mr Pye properly accepted that if the court a quo was correct in coming to this conclusion, the appeal could not succeed. The appeal must therefore fail.

[6] I make the following order:‘The appeal is dismissed with costs.’

Golden Dividend 339 (Pty) Ltd and Another v Absa Bank Limited (569/2015) [2016] ZASCA 78 (30 May 2016)

Business Rescue-Application to set aside business rescue proceedings – creditors have a direct and substantial interest – non-joinder of creditors is fatal to the relief sought in the application.

The issue in this appeal is whether the non-joinder of creditors in an application to set aside a business rescue plan is fatal to the granting of that application.

[2] The appellant, Golden Dividend 339 (Pty) Ltd (the company) concluded a written loan agreement on 05 April 2016 with the respondent, Absa Bank Ltd (the bank)  in terms of which the bank advanced an amount of approximately eight million to finance the acquisition of immovable property by the company. A first mortgage bond was registered over the immovable property as security for the loan. During January 2012 the company stopped making regular payments in terms of the loan agreement and as at 07 July 2013, an amount of approximately six million together with interest was outstanding. On 25 July 2013 the bank, through its attorneys served a letter of demand on the company in terms of s 345 of the Companies Act 61 of 1973 (read with clause 9 of schedule 5 of the Companies Act 71 of 2008 as amended), (the 2008 Act) but the company, for a period of three weeks after service of the letter, neglected to pay the amount due.

[3] On 27 August 2013 the company’s board of directors passed a resolution placing it in business rescue proceedings in terms of s 129(1)(b) of the 2008 Act on the basis that it was financially distressed. Pursuant thereto the second appellant, Mr Etienne Naude (Naude) was appointed as a business rescue practitioner for the company. On 4 October 2013 Naude published a business rescue plan and a business rescue meeting was held on 8 October 2013 in terms of s 151 of the 2008 Act. The meeting however did not proceed due to inadequate notice and the plan was withdrawn and a new plan was published. At that meeting the majority of the creditors voted to extend the 25 day period provided for in terms of s 150(5) of the 2008 Act for the publication of the plan and the meeting was rescheduled for 22 November 2013. At that next meeting the plan was adopted by a majority vote of 89 per cent of creditors with voting rights.

[4] On 21 November 2013 the bank launched an application, served on Naude on 5 December 2013 (later amended on 15 December 2013) seeking an order declaring the business rescue plan published by the second appellant on 11 November 2013 unlawful and invalid.