SUMMARY
| On 4 December 2015, the Gauteng Division of the High Court, Johannesburg, granted an order that a company, Cemlock Cement (Pty) Ltd (“Cemlock”), be finally wound up with effect from 31 October 2013. The order was granted at the instance of one of Cemlock’s creditors, Maleth Investment Fund (Pty) Ltd (“Maleth”). At the time of the granting of the order, Cemlock had been in voluntary liquidation for just over 18 months. Subsequent to the granting of the order, the appellant, Afrisam South Africa (Pty) Ltd (“Afrisam”), also a creditor of Cemlock, launched an application in the same court seeking to intervene in the winding-up application and that the December 2015 order be rescinded. Afrisam now appeals, with the leave of the high court, against the dismissal of its application. |
| On 31 October 2013, Maleth presented an application before the high court seeking an order that Cemlock be wound up as it was unable to pay its debts. |
The opposition to the winding-up application prompted Maleth to invoke a ‘step-in-rights’ clause that it had under a cession and pledge agreement which it concluded in 2011 with Cemlock’s director, Stuart Paget. The cession and pledge agreement provided for a loan of moneys by Maleth to Cemlock’s sole shareholder, Scarab Investment Holdings (Pty) Ltd (“Scarab”).
A breach under the cession and pledge agreement, and an application by the Standard Bank of South Africa Limited for the winding-up of Cemlock, paved the way for Maleth to invoke its step-in-rights and acquire all the shares in Scarab and the shares held by Scarab in Cemlock.
On 14 November 2013 Maleth exercised the newly acquired voting rights in Scarab and Cemlock to appoint two new directors, Brendan Harmse and Rishendrie Thanthony, to Scarab’s and Cemlock’s boards. On 25 November 2013 the newly appointed directors voted to remove Paget as Scarab’s and Cemlock’s director. On 17 November 2014, under the newly installed directors, Cemlock withdrew its opposition to its compulsory winding-up as well as its application for security of costs.
On 23 January 2014, another creditor of Cemlock, Carlbank Mining Contracts (Pty) Ltd (“CMC”) brought an application in the high court for Cemlock’s compulsory winding-up. However, on 12 March 2014, the eve of the hearing of the application, an agreement was reached between CMC and Scarab. On the same day Scarab passed a special resolution that Cemlock be placed under a creditor’s voluntary winding-up in terms of s349, read with s351(1) of the Companies Act 61 of 1973 (“the Act”). The resolution was registered with the Companies and Intellectual Property Commission (“CIPC”) on the same day, thus placing Cemlock under voluntary winding-up in terms of s349 of the Act.
A year later, on 18 March 2015, Maleth filed what it termed a “conversion application” in which it sought to have the voluntary winding-up converted to a compulsory winding-up to take effect from 31 October 2013, the date on which it had presented its original winding-up application. This conversion application sought to rekindle the original winding-up application launched by Maleth and, at the same time, convert the voluntary winding-up into a revived compulsory winding-up. This conversion application led to the December 2015 order in the high court.
Pursuant to the December 2015 court order, three liquidators were appointed. Following their appointment they instituted proceedings against Afrisam, seeking to recover as impeachable dispositions, moneys paid to it by Cemlock prior to 31 October 2013. There were two sets of payments, first, those made by Cemlock between 1 May 2013 to 31 October 2013, amounting to R62, 297, 826.77, which allegedly constituted voidable preference to Afrisam in terms of s29 of Insolvency Act 24 of 1936, and secondly, amounts totalling R191, 352, 419.41 paid by Cemlock to Afrisam during the period 1 November 2012 to 31 October 2013, which were alleged to constitute undue preferences in terms of s30(1) of the Insolvency Act.
In its rescission application, Afrisam argued that the December 2015 order should never have been granted as the 2013 application was either tacitly withdrawn, abandoned or Maleth had waived its rights in relation thereto when the voluntary winding-up was effected in Match 2013. Therefore, there was no winding-up application to revive and the conversion application was, in fact, a new application for compulsory winding-up. Afrisam further argued that it was never given notice of that new (conversion) application despite being a known interested part as one of Cemlock’s creditors. Relying on this reason it thus contended that the 2015 winding-up order fell to be rescinded as it was erroneously sought and erroneously granted without it being given due notice. Alternatively, the order was liable to be set aside on the basis of either iustus error, exceeding the court’s jurisdiction, or grounds sufficient to justify restitutio in integrum.
Afrisam’s primary issue with the 2015 court order was that it disregarded the intervening voluntary winding-up when determining the commencement date for the compulsory winding-up.
Maleth argued that it had always intended to pursue its original application and preserve 31 October 2013 as the effective winding-up date. The voluntary winding-up was utilized as a strategy to avoid 24 January 2014, on which CMC presented its application for Cemlock’s winding-up, being the commencement date for the winding-up. The intention was to later convert the voluntary winding-up to a compulsory winding-up such that it would be effective from 31 October 2013.
The high court dismissed Afrisam’s application stating that the primary issue was that of waiver. The high court reasoned that in facilitating Cemlock’s voluntary winding-up in March 2014 did not entail that Maleth had waived its rights under the original application. The court found that the evidence supported Maleth’s stated intention to preserve 31 October 2013 as the effective date for the winding-up.
HELD
The first issue dealt with by the court was, although not a decisive issue in the case, the commencement date of the winding-up. In the instance of a compulsory winding-up, the commencement date would be 31 October 2013, being the date of the presentation of the application for its winding-up, in line with s348 of the Act. The commencement date would differ in the circumstance where a company is voluntarily wound-up. As per s352(1) of the Act, the winding-up will be deemed to commence on the date on which the special resolution providing for the company’s winding-up is registered with the CIPC.
The court concluded that this case did not fall to be decided upon the court’s interpretation of the commencement date of the company’s winding-up. The court held this position on the basis that the section governing the determination of the relevant date for the purposes of setting aside dispositions made before the winding-up commences contains a special provision for determining the relevant date. The court was thus only concerned with proceedings to set aside impeachable dispositions in terms of the Insolvency Act where such date is not the date of commencement of the winding-up of the company.
The court then dealt with s339 of the Act, which regulates the impeachment of dispositions made by a company prior to its winding-up. In its interpretation of s340, the court found that, every disposition by a company of its property may be set aside in the event of the company being wound up and unable to pay its debts and the provisions of insolvency law would be applied to such a disposition.
The issue of impeachable dispositions, as dealt with under s340(1) and s340(2)(a) of the Act, is further set out in detail in ss29 and ss30 of the Insolvency Act. Section 29 of the Act, dealing with voidable preferences, states that every disposition of property made by a debtor not more than six months before the date of the sequestration of his estate or, if the debtor is deceased and his estate is insolvent, then before his death, has had the effect of preferring one creditor over another, may be set aside by a court if immediately after making such disposition the liabilities of the debtor exceed the value of his assets, unless the person in whose favour the disposition was made proves that the disposition was made in the ordinary course of business and was not intended to prefer one creditor over another.
Section 30 of the Insolvency Act, regulating the setting aside of undue preferences, states that if a debtor makes a disposition of his property in an instance where his liabilities exceed his assets, with the intention of preferring one creditor over another, and his estate is thereafter sequestrated, then the court may set aside the disposition.
Therefore, the distinction between s29 and s30 lies in the burden of proof.
The distinction between s29 and s30 clarifies the true dispute between the parties in this case. The earlier the date of the sequestration of Cemlock, the more of the admitted dispositions would fall within s29. The later the date of the sequestration, the fewer dispositions would fall within s29 and could only be required if the liquidators satisfied their burden of proof. In this matter. Maleth’s purpose in requesting the winding-up order to take effect from 31 October 2013 was to entrench that date as the applicable date for the purposes of attack on the dispositions to Afrisam.
The court then dealt with s340(2)(a) of the Act, which provides for the replacement of a voluntary winding-up with a compulsory winding-up. In such instances, the deemed date of the commencement will be the date of registration of the special resolution for the winding-up as per s200 of the Act as opposed to the date of presentation of the application for compulsory winding-up. This therefore entails that the six- month period for impeachable transactions will be measured against the date of registration of the special resolution to wind-up the company.
In applying the provisions of s340(2)(a) of the Act to this case, the court concluded that the effective date of Cemlock’s winding-up was the date of registration of the special resolution, being 12 March 2014 and not 31 October 2013. The court came to this conclusion on the basis that it found that the December 2015 winding-up order superseded the voluntary winding-up that commenced in March 2014.
The court thereafter dealt with the submission of the appellant that a compulsory winding-up order cannot be obtained unless the voluntary winding-up has been set aside. The court, in dealing with the above issue, analysed the case of King Pie Holdings (Pty) Ltd v King Pie (Pinetown) (Pty) Ltd; King Pie Holdings (Pty) Ltd v King Pie Durban (Pty) Ltd, dealing particularly with section 354 of the Act, which provides that the court may at any time following the commencement of a winding-up, on application of any liquidator, creditor or member, and on proof to the satisfaction of the court that all winding-up proceedings be stayed or set-aside, make an order staying or setting aside the proceedings or the continuance of any voluntary winding-up on such terms and conditions deemed fit by the court.
The court in the King Pie case stated that a voluntary winding-up of a company did not constitute a bar to the launching of an application for its compulsory winding-up. The court further pointed out that it had a wide discretion to set aside a pending voluntary-winding up process.
The Act provides no basis for the position that the voluntary winding-up process extinguishes pending compulsory winding-up proceedings, as was the case in the pending court applications against Cemlock in 2014. There is no basis for an applicant who elects not to proceed with their application for compulsory winding-up pending a parallel winding-up process, to be divested if their rights under that application.
However, once the date for the purposes of setting aside dispositions has been determined and accepted and such date is equivalent to the date of sequestration, in line with s340(2)(a) of the Act, then the dispute raised by Afrisam that Maleth withdrew, abandoned or waived its rights under the original application becomes irrelevant. The commencement date for the winding-up would remain the date of registration of the voluntary winding-up resolution even in the instance that the conversion application is to be seen as a new application.
| The final issue dealt with by the court was that of the failure to give notice of the application. In terms of s346A of the Act, service of a winding-up order, including a provisional winding-up order, is only required to be served on trade unions, employees of the company, the South African Revenue Service and the company itself, unless the application was made by the company itself. The court therefore came to the following result: 1.The appeal be upheld with costs, including that of two counsel; 2.The order of the high court be set aside and replaced by the following: a. Leave granted to appellant to intervene; b.The order dated 4 December 2015 be varied by the deletion of the words “with effect from 31 October 2013”; c. The costs of the application be paid by the respondent. |
VALUE
The case highlights principles relating to court applications for winding-up of a company with specific significance on the principle that intervening in voluntary winding-up applications does not extinguish a pending application for the compulsory winding-up of a company.
Written by Sean Buskin Checked by Stefan Bezuidenhout
