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Last Updated: 3 December 2005
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
CASE NO. 446/2004
In the matter between
JOHN MALCOLM GRIFFIN FIRST APPELLANT
NEWBERRY INTERNATIONAL
INC SECOND APPELLANT
PIETER JOHANNES HANEKOM THIRD
APPELLANT
(Applicants a quo)
and
THE
MASTER OF THE HIGH COURT FIRST RESPONDENT
MICHAEL JOHN LANE N O
SECOND RESPONDENT
JOHN COMMINS THIRD RESPONDENT
HUGO
LEGGATT FOURTH
RESPONDENT
____________________________________________________________
CORAM: ZULMAN, STREICHER, NAVSA, PONNAN JJA
et COMBRINCK AJA
DATE HEARD: 30 AUGUST 2005
DELIVERED: 19 SEPTEMBER 2005
In
terms of s 386(3)(a) read with s 386(4)(c) of the Companies Act 61 of 1973 made
applicable to a close corporation by s 66(1) of
the Close Corporations Act 69 of
1984, a liquidator of a close corporation is required to be authorized by
meetings of creditors
and members or contributors or on the directions of the
Master in order to admit any claim against the close corporation. A members
resolution will not suffice.
______________________________________________________________________
______________________________________________________________________
JUDGMENT
____________________________________________________________
ZULMAN JA
[1] This is an appeal with leave, against an order granted by Erasmus
J in the Cape High Court dismissing an application by the appellants
in terms of
section 407(4)(a) of the Companies Act 61 of 1973 (the Companies Act) against
the first respondent’s (the Master)
refusal to sustain an objection to an
amended liquidation and distribution account which did not include the
appellants’ claims.
[2] The Master and the second respondent (the
liquidator) who is the liquidator of Cape Trails CC (In Liquidation) (the Close
Corporation)
abide the decision of the court. The third and fourth respondents
who intervened in the application seek the dismissal of the appeal.
For the sake
of convenience these respondents will be referred to simply as the
respondents.
[3] Counsels’ heads of argument canvas two essential
issues as arising in this appeal:
3.1 Whether the liquidator was authorized in terms of s 386(3)(a) of the Companies Act to admit the appellants’ claims in terms of s 386(4)(c); and
3.2 whether the application of the appellant is time-barred in terms of s 407 of the Companies Act.
However, counsel for the appellant fairly conceded that if the appellants were unable to show that the liquidator was authorized to admit the appellants’ claim then the appeal would fail and it would be unnecessary to determine the second issue.
[4] The following are the relevant common cause facts:
4.1 The Close Corporation was placed under provisional winding-up at the instance of the first appellant on 26 March 1998 and finally wound up on 2 December 1998.
4.2 At the time of its liquidation the first appellant and the respondents were members of the Close Corporation. The first appellant held a 1/6 share in the members’ interest and the respondents held the remaining 5/6 in equal shares.
4.3 The liquidator convened a first meeting of members and creditors of the Close Corporation in terms of s 78 of the Close Corporations Act before the Master on 29 December 1998. Only the first appellant attended the meeting. A resolution was adopted at the meeting. I will refer to this resolution in detail later in this judgment. No claims were lodged for proof.
4.4 After subsequent meetings of creditors the appellants tendered three claims for proof against the Close Corporation. The claims were rejected by the presiding officer.
4.5 The claims were subsequently admitted to proof by the liquidator. The claims were originally reflected in the liquidation and distribution account.
4.6 Following an objection by the Respondents, the liquidator framed an amended liquidation and distribution account which lay open for inspection for a fourteen day period from 1 August 2003. The appellants’ claims were not reflected in the amended liquidation and distribution account.
4.7 On 13 August 2003 the appellants lodged an objection with the Master. The basis of the objection was that in spite of the prior admission by the liquidator of the claims, these had not been reflected in the amended liquidation and distribution account.
4.8 On 5 August 2003 the Master refused to sustain the appellants’ objection.
4.9 In upholding the Master’s refusal, Erasmus J, held that it had not been shown that the liquidator had been granted any authority to compromise or admit any claim.
[5] In order to determine whether the liquidator
was authorized to act in the manner that he did it is necessary to interpret the
relevant provisions of s 386 of the Companies Act read with s 66 of the Close
Corporations Act 69 of 1984 (the Close Corporations
Act). Section 66(1) in part
IX of the Close Corporations Act deals specifically with the winding-up of close
corporations. The section
applies the provisions of the Companies Act which
relate to the winding-up of a company including the regulations made thereunder,
with the exception of certain specifically mentioned sections, including s 387,
but not s 386, of the Companies Act, mutatis mutandis in so far as they
can be applied to the liquidation of a close corporation, in respect of any
matter not specifically provided for
in part IX of the Close Corporations Act or
in any other provision of the Act. Sections 386(3)(a) and 386(4)(c) of the
Companies
Act which deal specifically with the powers of liquidators provide as
follows:
‘386(3) The liquidator of a company –
(a) in a winding-up by the Court, with the authority granted by meetings of creditors and members or contributories or on the directions of the Master given under section 387;
...
shall have the powers mentioned in subsection (4).
...
(4) The powers referred to in subsection (3) are –
(a) ...
(b) ...
(c) to compromise or admit any claim or demand against the company, including an unliquidated claim;’
[6] It is clear that s 386(3)
specifies in terms that a liquidator may only exercise the powers given (with
certain exceptions which
are not here relevant) if granted authority to do so.
Furthermore s 386(3)(a) specifies from whom this authority must be obtained;
namely in the case of a winding-up by the court, meetings of creditors and
members or contributories or on the directions of the
Master. It is not
suggested that in this case there was any authority given by contributories or
that there were directions from
the Master.
[7] The learned authors Blackman
et al in their Commentary on the Companies Act (2002) Vol 3 page
14 – 330 correctly state the position in these terms:-
‘Section
386(3) provides that with the required authority the liquidator ‘shall
have the powers mentioned in subsection
(4)’. Thus it would seem that the
grant of authority is not merely a condition for the exercise of those powers,
but, is rather,
a necessary condition for their existence. Where the liquidator
requires such authority to exercise a particular power, other than
the power to
litigate, [a situation not of application here] it is open to a third party to
raise the question of liquidator’s
lack of authority’.
(See also
Ex parte Du Plessis 1965 (2) SA 438 (T) 440D, Du Plessis v Protea
Inryteater (Edms) Bpk 1965 (3) SA 319 (T) 320A-B and Henochsberg on The
Companies Act – Vol 1 (5th Edition) p 821.
[8] The way I
understood the argument of counsel for the appellants it was to the effect that
although he accepted that in regard
to a company, a liquidator seeking to
exercise powers under s 386(4) was in terms of s 386(3) required to be
authorized both by creditors
and members, the position was different when
considering the powers of a liquidator of a close corporation. In my view this
argument
is plainly untenable, particularly, if one has proper regard to s
386(3) of the Companies Act made applicable to close corporations
by s 66(1) of
the Close Corporations Act. One cannot have one interpretation of a section of
an Act for the one purpose and another
interpretation of the same section for
another purpose.
[9] The appellants submitted that it could be implied in
the case of the winding up of a close corporation that the words ‘with
the
authority granted by meetings of creditors and members’ in s 386(3)(a) of
the Companies Act had no application to a close
corporation and that the words
in question must be read disjunctively and not conjunctively. There is no
substance in the argument
in the light of the unambiguous words in s 66(1) of
the Close Corporations Act or s 386(3)(a) of the Companies Act.
[10] It was
also suggested that a possible deadlock in the winding-up of a close corporation
would arise if one were to require its
liquidator to be authorized not only by
members but also by creditors and it was not possible for the liquidator of the
close corporation
to obtain authority from creditors. However, on a proper
construction of s 386 there is no substance in the argument. Section 386(5)
of
the Companies Act gives the Court the power to grant leave to a liquidator to do
‘any other thing which the Court may consider
necessary for winding up the
affairs of the company and distributing its assets’. There is therefore no
possibility of a deadlock
occurring.
[11] Section 78(3) of the Insolvency Act
24 of 1936 similarly requires a trustee to be authorized to admit claims by
creditors who
have proved claims against the estate, or if no claim has been
proved, by the Master.
[12] Turning again to the facts of the matter it is
contended by the appellants that the liquidator was in any event authorized by
the resolution passed at the first meeting of members and creditors of the close
corporation on 29 December 1998 to which I have
previously referred. More
particularly it is argued that paragraph 1(c) of the resolution authorized the
liquidator to compromise
or admit any claim or demand. However an examination of
the stereotyped form containing the resolution reveals that although it is
headed ‘First Meeting of Members and Creditors’ at the foot, below
the signature of the first appellant, the words ‘qq
creditors’ have
a line drawn through them and in handwriting the word ‘member’ is
written underneath. This resolution
could therefore only have been one taken by
a member and not also by creditors. This much is clear from para 7.2 of an
affidavit
deposed to by the liquidator to the effect that no claims were lodged
for proof at this meeting. Since only creditors who have proved
claims can take
resolutions (the voting going according to number and value) it follows that at
the first meeting there were no creditors
who could give the liquidator the
authority required by s 386(3)(a) read with s 386(4)(c) of the Companies
Act.
[13] The appeal is accordingly dismissed with
costs.
---------------------------------------
R
H ZULMAN
JUDGE OF APPEAL
STREICHER
JA )
NAVSA JA ) CONCUR
PONNAN JA )
COMBRINCK
AJA )
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