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[2018] ZAECGHC 143
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Hlumisa Technologies (Pty) Ltd v Paterson NO and Others (111/18) [2018] ZAECGHC 143 (30 October 2018)
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IN THE HIGH COURT OF SOUTH AFRICA
{EASTERN CAPE DIVISION, GRAHAMSTOWN}
Case no. 111/18
In the matter between:
HLUMISA TECHNOLOGIES (PTY) LTD Applicant
And
ANDREW STUART PATERSON NO First Respondent
JEANINE ELIZABETH SAFFY N.O Second Respondent
MASTER OF THE HOGH COURT Third Respondent
CREDITORS & EMPLOYEES OF HLUMISA
TECHNOLOGIES (PTY) LTD Further Respondents
JUDGMENT
TONI AJ
Introduction
[1] This matter is an offspring of the liquidation proceedings instituted by Garth Merrick Voigt N.O (the applicant in those proceedings), a duly appointed business rescue practitioner to the applicant, Hlumisa Technologies (Pty) Ltd (Hlumisa), under the same case number. Garth Merrick Voigt, “ Voigt”, was appointed by this Court on 20 June 2017 in terms of its Order granted on the even date. Voigt’s appointment was subject to ratification by the majority of the independent creditors’ voting interest at the first meeting of creditors, as contemplated in section 147 of the Companies Act, 2008.
[2] The liquidation proceedings became a convoluted and protracted affair comprising in excess of a thousand pages of record. The applicant in casu is the first respondent in the liquidation proceedings.
[3] The relief sought in the liquidation proceedings was as follows:
“In terms of section 141 (2) (a) (ii) of the Companies Act, 2008;
1.1 an order be granted for the discontinuation of the business rescue proceedings to which the First Respondent, Hlumisa Technologies (Pty) Ltd is presently subject; and
1.2 that the First Respondent, Hlumisa Technologies (Pty) Ltd (in business rescue), be and is hereby placed under provisional winding-up Order in the hands of the Master of the High Court, Grahamstown.
2. That a rule nisi do hereby issue, calling upon the First Respondent and all interested or affected parties to show cause, if any, to this Court on Thursday, 26 April 2018 why the First Respondent, Hlumisa Technologies (Pty) Ltd (in business rescue), should not be placed under a final liquidation order in the hands of the Master of the High Court, Grahamstown”; and other ancillary relief.
[4] In terms of a judgment of this Court granted by my brother, Mageza AJ, on 15 June 2018, applicant was placed under final liquidation, something that did not sit well with its directors. This culminated in an application for leave to appeal the said judgment, the reasons whereof will be fully ventilated later in this judgment. It is worth mentioning though that even placing the applicant under business rescue was not immune from attack as the applicant launched an application to declare the said decision null and void. Pursuant to the granting of the final liquidation Order, applicant launched an application for appeal to the Supreme Court of Appeal, leave thereto having been granted by the learned Judge.
[5] The grounds of appeal is that the learned Judge misdirected himself on numerous grounds listed therein with the bone of contention being the interpretation of section 141 (2) (iii) of the Companies Act and more particularly whether the applicant, as business rescue practitioner, was entitled to apply for a provisional order of liquidation and, after business rescue proceedings, for a final order of liquidation.
[6] The appeal to the Supreme Court of Appeal is pending before that Court.
[7] Having set out the above introductory remarks, I now turn to deal with the application at hand.
This matter
[8] As briefly set out above the current application is a culmination of a tortuous bickering that resulted in a seesaw between the disenchanted directors of the applicant and the respondents. The order prayed for in this application is, in the main:
“That pending the finalisation of the appeal to the Supreme Court of Appeal the order granted by Acting Justice Mageza on 15 June 2018 for the final winding up of the applicant is hereby suspended and stayed.”
[9] Applicant also sought an order directing that the order referred to above be made operative pending the finalisation of the appeal and also an order for the costs.
[10] In deposing to the affidavit in support of the application at hand the deponent thereto, Sabelo Hlumelo Jela, describes himself as a director and the shareholder of the applicant and further states that he is duly authorised, in terms of a resolution of the applicant’s board of directors, ‘to depose to the affidavit’. The resolution of the board of directors (the resolution) is annexed as “SAB1” to the founding affidavit and is signed by the secretary.
[11] Not discernible from the founding affidavit and from the resolution itself though is whether the deponent is also authorised to launch the current application. The resolution merely states:
“That SABELO HLUMELO JELA in his capacity as the director of the company, is authorised to sign all affidavits and to take all necessary steps that are generally required and to sign all affidavits necessary to launch an application at the High Court, Grahamstown, for an order staying the final winding order (sic) issued against the applicant Hlumisa technologies (Pty) Ltd on 15 June 2018 under case no. 111/2018.”
[12] The application has been brought on an urgent basis and in the founding affidavit applicant has set out background facts that instigated the launching of the application and in which it set out grounds which it avers renders the matter urgent. The applicant also alludes to a number of court orders previously granted by this Court, including that which was granted by the East London Circuit Local Division. I will revert to these orders later in this judgment.
[13] Parroting the grounds of urgency in paragraph 71 of the founding affidavit, applicant avers that on 27 August 2018 it became apparent that the first respondent has started the process of unlawfully disposing the applicant’s assets in contravention of section 150 of the Insolvency Act which requires the stay of the winding-up proceedings. Apart from this averment, nothing more is deducible from the founding affidavit as to why the applicant cannot be afforded a substantial redress at a hearing in due course. It does not appear to me that the matter is sufficiently urgent. Urgency is more apparent than real. It is contrived. The above having been said, the issue of urgency will be dealt with at the tail end of this Judgment.
[14] The application is opposed by the respondents. In its opposition, first respondent filed an affidavit deposed to by first respondent, disputing the allegations contained in the founding affidavit. Respondents’ answering affidavit was served on the applicants on 4 September 2018. In the answering affidavit first respondent further raised the issue of the applicant’s lack of authority.
[15] The applicant did not file a replying affidavit. This is despite the fact that the applicant initiated the application purportedly on an urgent basis. Inexorably, in the absence of replying affidavit the application will have to be decided on the respondents’ version.
Postponement
[16] On the date of hearing, applicant’s Counsel sought postponement of the matter to enable it to file its replying affidavit. The application was made from the bar and no explanation was proffered by way of an affidavit relative to applicant’s failure to file its replying. No substantive application was made and consequently I refused postponement and directed the parties to argue the matter on merits. Applicant’s legal representative did not proffer any argument on merits. I further granted an order that the deponent to the founding affidavit, Sabelo Hlumelo Jele, shall pay the costs of the application for postponement de bonis propriis and on an attorney and client scale.
[17] In refusing postponement, I took the view that a postponement is an indulgence which a party seeks from the court and may not be granted merely for the sake of taking[1]. The party seeking postponement must make it timeously and as soon as the circumstances which give rise to the application are known to him or her. The applicant must show good and strong reasons for it and must satisfy the court that it is in the interest of justice that postponement be granted[2]. In a manner of speaking, the applicant must furnish a full and satisfactory explanation of the circumstances that give rise to the application.
[18] Upon furnishing such full and satisfactory explanation, the Court will then exercise its discretion which it has to exercise judicially and decide whether to grant the postponement or refuse it. It has been held that the application itself must be bona fide and must not be used as a tactical endeavour to obtain an advantage to which the applicant is not entitled. In Psychological Society of South Africa v Qwelane[3] the Constitutional Court held:
“In exercising its discretion, a court will consider whether the application has been timeously made, whether the explanation for the postponement is full and satisfactory, whether there is prejudice to any of the parties and whether the application is opposed. All these factors will be weighed to determine whether it is in the interests of justice to grant the postponement. And, importantly, this Court has added to the mix. It has said that what is in the interests of justice is determined not only by what is in the interests of the immediate parties, but also by what is in the broader public interest.”
[19] Applicant launched this application on urgent basis on 31 August 2018 and directed the Registrar of this Court to place the matter on an urgent roll on 11 September 2018. The applicant in its own wisdom and for its own convenience truncated the times for the further conduct of the matter as follows:
(a) that the respondents notify the applicant of their intention to oppose
the application by no later than 12h00 on Monday, 3 September 2018;
(b) that the respondents file their answering affidavit by no later than
12h00 on 5 September 2018; whereupon
(c) applicant would file its replying affidavit by no later than 12h00 on 6
September 2018.
[20] In keeping with the applicant’s truncated time frames, first respondent filed a notice of acting on 3 September 2018, followed by the answering affidavit on 5 September 2018. In breach of its own truncated time frames, applicant failed to file its replying affidavit on 6 September 2018 or at all which is the reason for it seeking postponement. At the time of the hearing of its own application, applicant had not filed its replying affidavit and despite it being a dominis litis, applicant was not ready for the hearing of its own application.
[21] Applicant had known since 6 September 2018 that it had not filed its replying affidavit and would seek postponement but failed to bring a substantive application for a postponement. No full and satisfactory explanation for its failure to file its replying affidavit was made and no reasons for the postponement were furnished. The application for a postponement was made orally from the bar without any application for condonation made for the late filing of the replying affidavit.
[22] For the above reasons the application for postponement suffered an ill fate and was bound to fail and as aforesaid, it was dismissed with costs to be paid by applicant’s director, Mr Jela, personally.
Issues
[23] The first issue lying for determination is whether it is competent for a director of a company in liquidation to institute legal proceedings on behalf of the liquidated company. This is a vexed question that does not only relate to the issue of authority of a former director to depose to an affidavit on behalf of the liquidated company but transcends to whether the former director can validly institute legal proceedings on behalf of the liquidated company.
[24] The second issue to be determined is whether it is competent of this Court to suspend and / or stay an order of final liquidation granted by it against the applicant.
Applicant’s case
[25] The synopsis of applicant’s case is that it is a brainchild of one Simelane and Sabelo Hlumelo Jela (the deponent to the founding affidavit) together with one Vander Walt and Gardner from Fusion Office Automated (Pty) Ltd (Fusion) who at some point resigned. Its core business is the supply of photocopier rentals, sales and service to its target market which is mainly Government related institutions from whom it derives income in remuneration for such services.
[26] In due course applicant was placed under business rescue and on 15 and 29 March 2018, argument was presented before the Court for the order placing applicant under business rescue to be set aside. The application to set aside the order was dismissed with costs on 29 March 2018 and this is currently subject of an application for leave to appeal. On the same day, the Court granted an order converting applicant’s business rescue proceedings to provisional liquidation proceedings thus placing the applicant’s estate effectively in the hands of the third respondent. A rule nisi calling on the applicant to show cause on 26 April 2018 why the applicant should not be placed under final liquidation was issued. Applicant is hopeful that success of the application for leave to appeal to the full bench and subsequently the full bench appeal and ultimately the application itself, would invalidate and set aside the winding up order.
[27] The import of the above order, so contends the applicant, is that it terminated the business rescue proceedings which is confirmed by a notice filed by the business rescue practitioner with the Company & Intellectual Property Commission on 11 April 2018. According to applicant the said letter, in addition to the order of 29 march 2018, effectively terminated the business rescue proceedings and the services of the business rescue practitioner. On 4 June 2018 the third respondent appointed first and second respondents as joint liquidators and on 15 June 2018 applicant was placed under final liquidation.
[28] Disenchanted by the order of final liquidation, applicant filed an application for leave to appeal the final liquidation order to the Supreme Court of Appeal on 22 June 2018 and on leave granted by this Court, lodged an appeal to the Supreme Court of Appeal. The appeal is pending before the Supreme Court of Appeal. On applicant’s say so, ‘owing to a number of ‘indifferent decisions’ and the apprehension that in terms of section 18 (1) of the Superior Courts Act, 2013, the filing of the application for leave to appeal meant that no effect would be given to the order dismissing the setting aside of its business rescue proceedings and so the order for its final liquidation, applicant issued summons against Fusion at the east London high court under case no. E748/2018. Applicant for, inter alia, an order that:
“The franchise agreement entered into by the applicant and Fusion on march 2015 and giving rise to the loan account forming the subject matter of the business rescue order, final winding up order and the appeal to the Supreme Court of Appeal, lapsed and became void as early as 30 November 2015 in terms of clause 1.6, pursuant to fusion’s failure to fulfil the suspensive conditions as set out in its clauses 1.5 to 1.5.4”.
and other consequential reliefs.
[29] The summons was defended by Fusion which also issued a Rule 7 (1) notice, challenging the authority of the applicant’s attorneys of record to act for the applicant while it was in final winding-up without the authority of the first and second respondent. Upon its reply to the Rule 7 (1) notice, the applicant simultaneously applied for summary judgment which was subsequently dismissed by the Court on 7 August 2018. The summary judgment application was dismissed a day after applicant’s attorneys penned a letter to the first respondent, suggesting that the applicant should recommence its business operations. The letter also cautions the first respondent that should he disposes applicant’s assets and the appeal succeeds, he would be held personally liable for damages.
[30] First respondent responded to the above letter by means of a letter to applicant’s attorneys dated 20 August 2018 undertaking not to dispose applicant’s assets and informing applicant that its infrastructure no longer exists for it to recommence business. On 28 August 2018 applicant discovered from banking statements from Nedbank that an amount of R2.7 million was deducted from its banking account and on further enquiries, applicant’s legal representatives were advised that the above amount was paid to Sasfin Ltd. Applicant’s attorneys penned a letter to first respondent on 29 August 2018 queering the above payment to Sasfin Ltd, contending that no creditor should be preferred over and above the other to which it never received response. Upon first respondent’s failure to respond, applicant launched the current proceedings.
[31] Applicant’s case is premised on section 18 (1) of the Superior Courts Act (the Act) as well as Rule 45 of the rules of Court as embedded in Erasmus’ Superior Court Practice[4] (the Rules). Section 18 (1) provide:
“18 (1) Subject to subsection 2 and 3, and unless the court under exceptional circumstances orders otherwise, the operation of execution of a decision which is the subject of an application for leave to appeal or of an appeal, is suspended pending the decision of the application or appeal.”
[32] Allied to the provisions of section 18 (1) above are the provisions of section 18 (3) of the Act which provide:
“(3) The court may only order otherwise as contemplated in subsection (1) or (2), if the applicant applied to the court to order otherwise, in addition proves on a balance of probabilities that he or she will suffer irreparable if the court so orders.”
[33] Hopping back to applicant’s reliance on Rule 45A, it is apposite to revisit the provisions of this rule. Rule 45A provides:
“45A The court may suspend the execution of any order for such period as it may deem fit.
[34] Further deliberation on the ramifications of Rule 45A on the current application as elucidated by the learned authors will form part of the prognosis of the legal framework that will illuminate later in this judgment. Suffice it to highlight at this stage that it does not seem to me that reliance on this rule by applicant is well measured.
[30] Applicant further contends that when applying for its final winding-up the business rescue practitioner was already functus officio and lacked the requisite legal standing after this Court granted the order placing applicant under provisional winding-up on 29 March 2018 or alternatively he filed a notice of termination of business rescue proceedings with Company and Intellectual Property Commission on 11 April 2018. This problem , so contends applicant, is compounded by first and second respondents’ appointment which resulted in Voigt unlawfully and impractically sharing office with the provisional liquidators, quite an anomaly in applicant’s view. As this issue is before the Supreme Court of Appeal for its determination, I will not make a finding relative to suitability or non-suitability of the business rescue practitioner in this judgment. It is not the applicant’s case that I should do so.
[31] In conclusion applicant further contends that it is solvent and its solvency and financial distress was informed by Fusion’s fraudulent debt which it is disputing on ‘bona fide and reasonable grounds’.
[32] On urgency, applicant avers that the matter is urgent on numerous grounds listed in the founding affidavit. It is not necessary to regurgitate all such grounds but only one in which applicant states that it became apparent to it that first respondent has started the process of unlawfully disposing its assets in contravention of section 150 of the Insolvency Act to Sasfin.
Respondents case
[33] In opposition, respondents filed an affidavit deposed to by Andrew Stuart Paterson, the first respondent, in which the respondents set out succinctly the bases for their opposition. Respondents concede, and correctly in my view, that the effect of section 18 (1) of the Act when leave to appeal or an appeal is lodged is to suspend the final order of liquidation pending the finalisation of the appeal but contends that the relief sought by applicant is ‘impermissible’. In respondents’ view the deponent to the founding affidavit in essence want that the company to be restored to the control of its directors.
[34] To bolster its above contention respondents have placed their reliance on section 150 (3) of the Insolvency Act which the first respondent avers regulates the manner of appeal against the final order of sequestration pending the finalisation of the appeal. Section 150 (3) provides:
“150 (3) When an appeal has been noted (whether under this section or under any other law) against a final order of sequestration, the provisions of this Act shall nevertheless apply as if no appeal had been noted, Provided that no property belonging to the sequestrated estate will be realised without the written consent of the insolvent concerned.
[35] Respondents view the afore quoted two sections as not being ‘mutually exclusive’ in that the vesting and control of the company in liquidation and its assets vests in the provisional liquidators under the supervision of the Master of the High Court. The only proviso is only that no assets may be realised[5]. “If the application is directed at, as it seems to be the case, divesting control of the Company and its assets from company’s Provisional Liquidators and the Master of the High Court then it is and ill-advised”, respondents further averred.
[36] It is respondents’ further contention that Jela, as a shareholder and director of a company in liquidation, has no authority to take resolutions on behalf of the company and / or cause it to institute legal proceedings. The application is misdirected and ill-conceived and falls to be dismissed with costs to be paid by Jela personally on an attorney and own client scale.
[37] Having raised the above contentious issues and before traversing the allegations contained in the founding affidavit, first respondent went on to set out a factual background relative to what he regards as a protracted litigious history of applicant at the bidding of its litigious frenzy directors. Such protracted litigious history (according to the respondents is as follows:
(a) At the instance of its creditors, the company was placed in business
rescue by an order of this Court;
(b) The directors opposed an application launched by the business rescue
practitioner to extend the period of the business rescue proceedings and
his appointment but lost when such an order was granted.
(c) The directors then filed an application for a leave to appeal the above
mentioned order, instigating the business rescue practitioner to make
application against the suspension of the above order during the
application for leave to appeal and such order was granted.
Subsequently and on appeal to the Full Bench the appeal was
dismissed.
(d) The directors then launched an application to set aside the order
placing the company in business rescue and the business rescue
practitioner launched a separate application in terms of section 141 of
the Companies Act for an order discontinuing the business rescue
proceedings and placing the company under provisional liquidation.
The application by the directors was dismissed but the application by
the business rescue practitioner was granted.
(e) The directors further opposed the granting of the final liquidation order
on the belief, albeit mistaken, that the business rescue practitioner was
not well suited to launch the application for final liquidation of the
applicant after discontinuation of the business rescue proceedings and
the placing of the applicant in provisional liquidation. Such
opposition notwithstanding, the order for applicant’s final liquidation
was granted which is currently the subject of appeal to the Supreme
Court of Appeal.
(f) The narrow issue on appeal, so continued the respondents, is the
interpretation of section 141 (2) of the Companies Act and whether it
vested the business rescue practitioner with the requisite legal standing
to move for the final liquidation order.
(g) Respondents further contend that whilst leave to appeal was pending,
the directors further illicitly caused summons to be issued for damages
against Fusion and on exception raised by Fusion that the company in
liquidation lacked the requisite legal standing to ‘itself’ institute the
action, applicant moved for a summary judgment application that was
dismissed by the Court precisely for want of locus standi. Jela was
ordered to pay the costs of the summary judgment application de bonis
propriis.
(h) “Remarkably the company has filed an application for leave to appeal
against the dismissal of the summary judgment application despite it
being well established that the dismissal of a summary judgment
application is not appelable”, so conclude the respondents’ contentions
before proceeding to traverse and proffer its answer to each and every
allegation contained in the founding affidavit.
[38] Respondents deny most of the allegations contained in the founding affidavit, regurgitating to a larger extent the denials pleaded in the background facts. The respondents contend that the provisions of Rule 45A have no application in this case as it relates to sales in execution. I agree with the respondents in this regard. A cursory look at the provisions of Rule 45A bears the respondent’s contention out. Further deliberation on this line of applicant’s defence will not serve any purpose. It has to fall by the wayside.
[39] First respondent denies that Sunlyn (Sasfin) acquired the office machinery supplied by applicant to its creditors and contends to the contrary that Sunlyn financed the purchase of such office equipment. The rentals were ceded by applicant to Sasfin and belonged to Sasfin to which they were paid over. Payments received for servicing the machines have been received and much of it is payable to Fusion as a post-liquidation expense. He is not aware of any retentions but has asked Sasfin for an explanation and for a calculation thereof.
[40] First respondent alleges that it doubts the veracity of applicant’s allegations relative to certain government Departments’ complaints regarding service of their machines and contends that the state departments continue to pay their monthly rentals and for servicing of the machines. In this regard first respondent contends that he has arranged for the servicing of the machines to be attended to as a post-liquidation expense.
[41] First respondent denies that he has disposed of any assets of applicant.
[42] During the hearing Mr Wolmarans, for the applicant, could not make any submissions on merits after the application for postponement was dismissed. Complicating the matter further is that applicant did not file any replying affidavit and therefore the defendant’s version is not disputed.
[43] Ms Beard, for the respondent, submitted that the application was hopeless from the beginning as Jele had no authority to institute legal proceedings on behalf of a company in liquidation. In her submission, she argued, and correctly in my view, that reliance by applicant on the provisions of section 45A is misdirected and ill-conceived as section 45A deals with suspension of warrants of execution and not with court orders. She further submitted that whilst section 18 (1) of the Superior Courts Act deals with suspension of court orders pending appeal, however, section 150 (3) of the Insolvency Act is more applicable. In terms of the provisions of section 150 (3) the company remains in liquidation and cannot recommence its operations.
Discussion
[44] The first contentious issue requiring a concerted debate is whether Jele has the authority to institute legal proceedings on behalf of the company in liquidation. A jurisprudence developed by our courts around this issue over a long period of time is that there is a distinction between authority to depose to an affidavit and authority to institute legal proceedings[6]. This distinction is born by the fact that there is no requirement in law for a deponent to be authorised to depose to an affidavit, it is the institution of legal proceedings that require authority. This issue is no more clear than from the words of Streicher JA in Ganes and Another v Telecom Namibia Ltd[7] when the learned Judge of Appeal said:
“There is no merit in the contention that Oosthuizen AJ erred in finding that the proceedings were duly authorised. In the founding affidavit filed on behalf of the respondent Hanke said that he was duly authorised to depose to the affidavit. In his answering affidavit the first appellant stated that he had no knowledge as to whether Hanke was duly authorised to depose to the founding affidavit on behalf of the respondent, that he did not admit that Hanke was so authorised and that he put the respondent to the proof thereof. In my view, it is irrelevant whether Hanke had been authorised to depose to the founding affidavit. The deponent to an affidavit in motion proceedings need not be authorised by the party concerned to depose to the affidavit. It is the institution of the proceedings and the prosecution thereof which must be authorised.”[8]
[45] The above reasoning has been followed in a number of cases and it is now trite that a deponent to motion proceedings need not be authorised to depose to the affidavit but only in instituting the proceedings in question[9]. The first question to be asked therefore is whether Jela was authorised to institute the current proceedings. To find an answer to this question the Court must have recourse to what Jela himself avers in his founding affidavit. As paraphrased above, nowhere in Jela’s affidavit does he seem to suggest that he was so authorised. All that Jela says in his founding affidavit is that he has been “duly authorised to represent the applicant and depose to this affidavit”. Most importantly, Jela does not state by whom is he so authorised. Even “SAB1” to the founding affidavit does not specifically state this fact but only that he is authorised “to sign all affidavits and take all steps that are generally required and to sign all affidavits necessary to…”. Knowing it very well that he was deposing to an affidavit to launch an application on behalf of a company in liquidation, it was imperative for Jela to disclose his source of authority.
[46] Unfortunately and to applicant’s own peril no minutes are attached to the founding affidavit from which the Court could infer from what was discussed in that meeting that there was an intention to authorise Jela to institute legal proceedings on behalf of applicant.
[47] The second question arising from the first is whether, even if Jela was so authorised, it is competent for the directors of a company in liquidation to validly take a resolution authorising one of their numbers to institute legal proceedings on its behalf without the authority of the liquidators. In my view it seems this is not possible, the simple reason being that in terms of section 20 (1) of the Insolvency Act a sequestration order divests the insolvent of his estate and vests it in the hands of the Master until a trustee is appointed and upon the appointment of the trustee, in the trustee.
[48] For the sake of completeness and better understanding of the above issue, it is apposite to quote verbatim the provisions of section 20 (1) of the Insolvency Act. Section 20 (1) provides:
“The effect of the sequestration of the estate of an insolvent shall be—
(a) to divest the insolvent of his estate and to vest it in the Master until a trustee has been appointed, and, upon the appointment of a trustee, to vest the estate in him.”
[49] In the previous dispensation the position was regulated by section 361 of the previous Companies Act[10]. In terms of section 361 all the property of the company in respect of which a winding-up order is made is deemed to be in the custody and under control of the Master until a provisional liquidator is appointed and has assumed office. Upon assumption of office by the liquidator then the property is in the custody and under the control of the liquidator[11].
[50] In Foley v Hogg’s Trustee[12], the court held that the effect of a sequestration order is to divest an insolvent of his estate in favour, first, of the Master and, then, of the trustee. The proposition laid down in Foley’s case above was followed by the Court in De Villiers v Miller and Co[13] where the Court reiterated that a sequestration order divested the insolvent of his estate in favour of the Master until a trustee was appointed. Harping on the same string, Jafta J in Swart v Starbuck and Others[14] reaffirmed the above principle. Delivering a minority judgment in the above case the learned Judge of the Constitutional Court reasoned:
“Upon sequestration, the estate of the insolvent vests in the Master until a trustee is appointed. The appointment of a trustee has the legal effect of vesting that estate in the trustee.”
[51] Once the liquidators are appointed, it becomes their primary responsibility to take charge of all property in the insolvent estate, keep an eye over its assets for the benefit of the general body of creditors under the watchful eye of the Master who retains overall supervisory powers. In Jansen Van Rensburg NO v Cardio-Fitness Properties (Pty) Ltd[15], Kgomo J said:
“… the applicants (liquidators) are not strickly speaking dealing with the liquidation of the insolvent company but merely acting as night watchman looking after the assets and the affairs of the insolvent company. The directors of the company have ceased to be directors functionally, officially and nominally when the provisional winding-up was granted and have been deprived of the company property. The winding-up order automatically terminated their employment as directors and have operated to dismiss them. They are the people who brought the property where it is today.”
The directors of the insolvent company, or so to speak its former directors, have no role to play in the administration of the insolvent estate, including acting for it or on its behalf for its own protection save in exceptional cases where, for example, they have been authorised to do so by the liquidator.
[52] The above is in keeping with the legal consequences of the liquidation as, consequent upon the granting of a winding-up order, the powers and duties of the directors of the company terminate and the directors are deprived of all control of the company’s property[16].
[53] Having regard to the above salutary provisions of section 20 (1) as well as the authorities cited above, it is unavailing of the directors of the company in liquidation to simply launch legal proceedings without authority of the liquidators. In my view such authority is vested on the liquidators and the directors may only launch legal proceedings upon being so authorised by the liquidators.
[54] I am alive to the dicta made by Brand JA in Unlawful Occupiers, School Site v City of Johannesburg[17] cited from by Fleming DJP in Eskom v Soweto City Council[18] relative to the use of Rule 7 procedure in motion proceedings as well as in actions. However, this case is distinguishable from the authorities cited above in that the deponent in this case purports to represent a company in liquidation the property whereof vests in the liquidators and in circumstances where such proceedings would have been authorised by the liquidators. The directors lack the requisite legal standing. In Mars Incorporated v Candy World (Pty) Ltd[19] it was held that the general rule is for the party instituting proceedings to allege and prove that he or she has locus standi, the onus of establishing that issue resting upon the applicant. The deponent has failed to prove that he is possessed of the requisite authority.
[55] In consequence I find that Jele did not have authority to depose to the founding affidavit initiating this application. The application should fail on this ground.
[56] Even if I would be wrong in my above finding, it is my view that this application should fail in any event. This takes us to applicant’s second ground of attack, namely; its reliance on section 18 (1) of the Act. Relying on section 18 (1) applicant prayed for the suspension of the winding-up order pending the outcome of its appeal to the Supreme Court of Appeal. This is a common law position which owes its existence from the Roman Dutch law authorities[20].
[57] It, therefore, becomes imperative to interrogate the provisions of section 18 (1). Whilst it was correctly conceded by the respondents in their answering affidavit that it is indeed correct that section 18 (1) does suspend the operation of the judgment pending appeal, Ms Beard was quick, and also apt in my view, to point it out during her argument that the said provision is inapplicable in respect of an appeal by the company in liquidation. She submitted that once the company is in liquidation, Rule 150 (3) of the Insolvency Act kicks in. I cannot agree more with Ms Beard on this point. She is just spot on.
[58] The situation is somewhat different on appeals against sequestration orders. An appeal against a sequestration order does not suspend the operation of such order. Section 150 (3) specifically provides that when an appeal has been noted (whether under this section or under any other law) against a final order of sequestration, the provisions of this Act shall nevertheless apply as if no appeal had been noted, the proviso being only that no property belonging to the sequestrated estate will be realised without the written consent of the insolvent concerned. Section 150 (3), therefore, afforded more protection to the creditors.
[59] What is clear from the provisions of section 150 above is that sequestration orders are an exception to the general rule. In Foley’s case[21] above, the court held that if the general rule were applicable to sequestration orders, certain very remarkable results would follow and great confusion would result. The court pointed out that the effect of a sequestration order is to divest an insolvent of his estate in favour first of the Master and then of the trustee and that the effect of an appeal did not reverse the situation.
[60] Were the general rule laid down in section 18 (1) of the Act to be allowed to apply to sequestration orders an undesirable situation would arise where the estate of the company in liquidation would revert to the hands of the same directors against whom it was sought to be protected. This situation should not be countenanced as it would expose the creditors of the insolvent company to a greater risk as the directors would deal with the estate as they deem fit. Needles to mention that the consequences thereof would be dire. It is clear from its wording that section 150 (3) was enacted to regulate appeals against sequestration orders in order to avoid such undesirable and calamitous situations.
[61] Having considered the above authorities, I am not convinced that applicant has made a proper case for the granting of the relief sought in this application. Even on this leg, the application is doomed to fail.
[62] Having made the above finding, it is not necessary for me to walk an extra mile and consider whether there have been, within the meaning and contemplation of section 150 (3) of the Insolvency Act, realisation of the applicant’s properties by the liquidators. On its own version, the applicant has not made a case in this regard. All that the applicant is skittish about is payment made to Sasfin by the liquidators. This payment is not denied by the respondents as the first respondent has explained that it is payment due to Sasfin in respect of the applicant’s previous rental obligations. The respondents’ version has not been disputed by applicant nor is it applicant’s case that this payment constituted realisation of its assets.
Costs
[62] Ms Beard urged the court to grant a punitive attorney and client costs order against Jele personally as a mark of displeasure against his intractable conduct. Unfortunately no contrary submission was made on behalf of applicant. The court has to consider whether such a punitive costs order is appropriate in the circumstances. To arrive at a just determination of this issue, the court must have regard to Jele’s conduct in instituting this application. This has more to do with, inter alia, whether the application itself was well intentioned or was mala fide or unreasonable.
[62] Whilst the award of any costs order is a discretionary issue that lies solely within the discretion of the court awarding them, in awarding costs the court takes into account a number of considerations. Summing up the principle of awarding costs de bonis propriis, Innes CJ in Vermaak's Executor v Vermaak's Heirs[22] remarked as follows:
“The whole question was very carefully considered by this Court in Potgieter's case (1908 TS 982), and a general rule was formulated to the effect that in order to justify a personal order for costs against a litigant occupying a fiduciary capacity his conduct in connection with the litigation in question must have been mala fide, negligent or unreasonable.”
[63] Restating the above principle in January v Standard Bank of South Africa Ltd[23] the court stated that the general principle at common law is that a party who litigates in a representative capacity (such as a trustee) cannot be ordered to pay the costs de bonis propriis save in instances of improper conduct[24] or where he or she acted with manifest mala fides or with gross negligence[25].
[64] The idea of awarding a punitive costs order is not to discourage a particular litigant from accessing justice but purely to discourage manifest mala fides or unreasonable conduct on the part of that particular litigant. If a particular litigant has instituted proceedings that are pathetically hopeless, the court should not hesitate to award a punitive costs order against such litigant, sometime and in deserving cases against the person instituting such proceedings in his or her personal capacity.
[65] In this case Jele instituted an application that was pathetically hopeless from the beginning and without authority, thus plunging the insolvent company to further financial abyss. The institution of these proceedings was a farce and an unnecessary waste of money that can only serve to further saddle the already insolvent company with unwarranted and colossal expenditure. It is only fair and just to the insolvent company and the general body of creditors that Jele be mulcted with a punitive costs order in his personal capacity.
[66] In relation to urgency it is my view that this application is not urgent. The applicant has not satisfied the barest of the requirements for granting an urgent relief. The applicant has failed to satisfy the court that it has a prima facie right worthy of being protected by way of an urgent interdict and state the reason why it cannot be afforded a hearing in due course.
[67] In the result, I make the following order.
1. The application is dismissed.
2. The deponent to the founding affidavit, Sabelo Hlumelo Jele, is ordered to pay the costs of this application in his personal capacity and on a scale as between attorney and his own client.
___________________________________
H. S. TONI
ACTING JUDGE OF THE HIGH COURT
Appearances:
Counsel for the plaintiff : Mr M. Wolmarans
Instructed by : Majeke Mjali Attorneys
c/o Dullabh attorney
GRAHAMSTOWN
Counsel for the defendant : Ms M. L. Beard
Instructed by : Drake Flemmer & Orsmond
c/o Nettelton Attorneys
GRAHAMSTOWN
HEARD ON : 11 SEPTEMBER 2018
DELIVERED ON : 30 OCTOBER 2018
[1]See Isaacs v University of Western Cape 1974 (2) SA 409 (C) at 411 H; Also Grootboom v National Prosecuting Authority 2014 (2) SA 68 CC at 76 C-D;
[2] National Police Service Union and Others v Minister of Safety and Security and Other [2000] (4) SA 1110 (CC) at 1112 C-F; Also see Shilubana v Nwamitwa (National Movement of Rural Women and Commission for Gender Equality) as Amicus Curiae [2007] ZACC 14; 2007 (5) SA 620 CC at 624B-C;
[3] CCT 226/2016 [ZACC/2016/48] in par 31
[4] Farlam et al; Revision Service 43, 2013, B1-330
[5] Emphasis added
[6] Firstrand Bank Limited v Carl Beck Estates (Pty) Ltd and Another 2009 (3) SA 384 (E) at page 391 F to 392. Firstrand Bank Limited v Fillis and Another 2010 (6) SA 565 (ECB) at page 569 paragraph [13]. Dean Gillian Rees v Investec Bank Limited [330/13] ZASCA 38 [20 March 2012].
[7] 2004 (3) SA 615(SCA)
[8] At 624 F-H
[9] See Unlawful Occupiers, School Site v City of Johannesburg 2005 (4) SA 199 (SCA) para [14]-[16]; Eskom v Soweto City Council 1992 (2) SA 703 (W) at 705C-J; ANC Umvoti Council Caucus and Others v Umvoti Municipality 2010 (3) SA 31 (KZP) para [27]-[28] and FirstRand Bank Ltd v Fillis 2010 (6) SA 565 (ECP) para [12] - [13].
[10] Act 61 of 1973
[11] See Ex parte Nell and Others 2014 (6) SA 545 GP at para 23. In this case the learned Judge went on to say that unless the court so orders under s 361 (3) of the previous Companies Act, the property of the company does not vest in the liquidator.
[12] 1907 TS 791 at 793
[13] 1931 CPD 83 at 88.
[15] 2014 JDR 0406 GSJ at para 49
[16] Attorney-General v Blumenthal 1961 (4) SA 313 T at 313 - 314
[17] 2005 (4) SA 199 (SCA) at para 14
[18] 1992 (2) SA 703 (W)
[20] See Reid and Another v Godart and Another 1938 AD 511 at 513 and 514
[21] See foot note 12 supra
[22] 1909 TS 679 at 691
[23] (2235/2008) [2010] ZAECGHC 6 (28 January 2010) at paragraphs [35] to [70]
[24] Cooper NO v First National Bank of South Africa Limited 2001 (3) SA 705 (SCA).
[25] Blou v Lampert and Chipkin NNO and Others 1973 (1) SA 1 (A). See also South African Liquor Traders Association and Others v Chairperson Gauteng Liquor Board and Others 2009 (1) SA 565 (CC) at paragraph [54]