The Supreme Court of Appeal recently considered the matter of Botha NO and Others v Jonker and Others (1003 / 2022) [2024] ZASCA 78.
The appeal concerned the consequences of a failure to obtain the consent of the Master to summon a meeting of creditors after the expiry of the period of one month as prescribed in s 78(1) of the Close Corporations Act, 69 of 1984 (the Close Corporations Act).
The Court also provided a guideline regarding some of the differences in the administration of the liquidated estate in the case of a Closed Corporation versus a company.
The Land and Agricultural Bank of South Africa (the Land Bank) issued an urgent application to set aside a resolution adopted by Jonker Products to place it in business and by implication Jonker Products was placed under provisional liquidation on 11 September 2020. The liquidators were appointed as such on 21 October 2020.
On 29 October 2020, a final order of liquidation was granted, and the liquidators received their letters of appointment from the Master on 9 November 2020.
The liquidators summoned the first meeting of creditors of Jonker Products by publication of a notice in the Government Gazette which notice was defective and corrected by way of a notice that was published on 16 April 2021. The meeting was convened on 6 May 2021.
Witness summonses were issued calling upon the Respondents to appear at the second creditors meeting. The Respondent's attorney requested the liquidators to provide a copy of the written consent of the Master to convene the first meeting on 6 May 2021, after the one-month period provided by s 78(1) of the Close Corporations Act had lapsed.
The liquidators stated that they did not have such consent. On 5 July 2021, the Respondents wrote to the liquidators stating that the first meeting and the resolutions adopted on 6 May 2021 were invalid. They called upon the liquidators to cancel the enquiry meeting.
On 6 July 2021, subsequent to the first meeting of creditors being held, the liquidators wrote to the Master advising that a first meeting of creditors had been convened on 6 May 2021 and requested the Master to consent to the meeting.
The Master responded to the liquidator and informed the liquidators that it was not aware of any statutory provision which would permit the Master to provide such consent after the fact.
Upon receipt of the response the Respondents launched an application to declare that the first meeting of creditors held on 6 May 2021 was invalid considering the absence of the consent of the Master. The Respondents also sought orders setting aside the proof of claims and the resolutions adopted at the meeting, including the resolution authorising the issuing of witness summonses.
The Court granted a return date calling upon the liquidators to indicate why a final order for the setting aside of the meeting should not be granted.
The liquidators instituted a counter-application seeking an order that the meeting was validly convened and, in the alternative, they requested the Court to issue directives for the further conduct of the liquidation process, in terms of s 386(5) and s 387(3) of the Companies Act 61 of 1973 (the 1973 Companies Act).
The application and counter-application were heard on 7 February 2022. The Respondents contended that no provision is made in the Close Corporations Act or in the Insolvency Act 24 of 1936 (Insolvency Act), for the Master to grant consent to convene a meeting after the meeting has been held. They submitted that the consent of the Master as required by s 78(1) of the Close Corporations Act, is not a mere formality, the absence of which may be condoned.
The liquidators argued that, upon a proper business-like interpretation of s 78(1), consent may be obtained after the expiry of the one-month period and after the meeting had been held. They contended that, even if the section does not permit consent to be obtained after the meeting has been held, s 157 of the Insolvency Act permits non-compliance to be condoned.
The High Court found that the first meeting of creditors was invalid and IT WAS set aside.
The Court reasoned that s 78(1) was peremptory in requiring the consent of the Master to convene a meeting after the expiry of the period of one month from the date of final order of liquidation. It held that the Master is a creature of statute and is only entitled to exercise powers which are expressly conferred. The Court found that the section did not confer on the Master authority to consent to the holding of a meeting after it had been held. The meeting of 6 May 2021 was, therefore, vitiated by irregularity and its proceedings, invalid.
Leave to appeal granted by the high court was confined to the order confirming the rule nisi, dismissing the counter-application and its costs order. The directives issued pursuant to ss 386 and 387 of the 1973 Companies Act are not subject to appeal before this Court.
The SCA proceeded to consider the matter.
The liquidation of a close corporation is regulated by the provisions of the Close Corporations Act and the 1973 Companies,6 and by the Insolvency Act 24 of 1936.
In the case of a company, the appointment of a liquidator is a matter addressed at the first meeting of creditors. In terms of s 364 of the 1973 Companies Act, the Master must summon the first meeting of creditors to consider, inter alia, the statement of affairs of the company prepared by the directors; the proof of claims against the company; and nominations for the appointment of a suitable liquidator. The appointment is made by the Master in terms of s 367. The Master may, if necessary, appoint a provisional liquidator pending the appointment of a final liquidator.
In the case of a close corporation, the appointment of a liquidator follows a different course. The Master appoints a liquidator in terms of s 74 of the Close Corporations Act. The section, however, imposes an obligation upon the Master to appoint a liquidator 'as soon as practicable after receipt of a provisional winding up order'. The appointment therefore occurs prior to final liquidation and prior to the first meeting of creditors and members of the corporation. It is for this reason, no doubt, that s 78 requires the liquidator to summon the first meeting of creditors and members of the corporation.
Section 381 of the 1973 Companies Act provides authority to the Master to control the administration of the liquidation process.
The principal objectives of liquidation includes:
- to realise the assets of the corporation
- to cover the costs of the liquidation process
- to distribute the proceeds of liquidation to proven creditors in accordance with the ranking of their claims.
Liquidators are given a wide range of authority to conduct this task which includes:
- authority to execute deeds or documents in the name of and on behalf of the corporation;
- to prove claims in the estate of a debtor;
- the power to summon general meetings of the creditors or members of the corporation to obtain authorisation for the conduct of the liquidation process.
A liquidator may also sell property belonging to the liquidated estate with the consent of the Master.
A liquidator may also perform a wide range of functions on the authority of a resolution of creditors or members in a general meeting. If such authority is not granted it may be obtained from the Master and if that authority is not granted it may also be obtained from a Court by way of application.
Section 78 regulates a portion of the administrative function of an appointed liquidator.
Section 78(1) reads as follows:
(1) A liquidator shall as soon as may be and, except with the consent of the Master, not later than one month after a final winding-up order has been made by a Court or a resolution of a creditors' voluntary winding-up has been registered—
(a) summon a meeting of the creditors of the corporation for the purpose of-
(i) considering the statement as to the affairs of the corporation lodged with the Master;
(ii) the proving of claims against the corporation;
(iii) deciding whether a co-liquidator should be appointed and, if so, nominating a person for appointment; and
(iv) receiving or obtaining, in a winding-up by the Court or a creditors' voluntary winding-up, directions or authorization in respect of any matter regarding the liquidation; and
(b) summon a meeting of members of the corporation for the purpose of—
(i) considering the said statement as to the affairs of the corporation, unless the meeting of members when passing a resolution for the voluntary winding-up of the corporation has already considered the said statement; and
(ii) receiving or obtaining directions or authorization in respect of any matter regarding the liquidation.'
The SCA ultimately considered the question: "when may the required consent be obtained?"
The Court held that Section 78 (1) gives to the liquidator the authority to make the determinations necessary to summon the first meeting of creditors and members. The authority is unrestricted for the period of one-month after the date of final liquidation. Thus, if the liquidator decides to issue a notice summoning the meeting before the expiry of one month, then the liquidator alone decides when and where the meeting is to be held and what business is to be conducted. If, however, the liquidator exercises the authority to summon the meeting, after the expiry of the one-month period, it can only be exercised with the consent of the Master.
The SCA ultimately found that the High Court was correct in finding that the absence of consent by the Master rendered the proceedings of the meeting held on 6 May 2021, invalid. It was, however, not correct in concluding that the consent could not be obtained after the meeting had been summoned by the liquidators. In my view, the consent of the Master may be obtained after a meeting has been summoned but before the meeting is held. In this case the Master was asked to consent after the meeting had been held. The Master formed the view that there was no statutory provision permitting her to give consent after the meeting. She was correct. It is nevertheless appropriate to clarify, in an order, when the consent required by s 78(1) of the Close Corporations Act may be obtained.
In the circumstances the SCA found that the high court was correct to declare the meeting of 6 May 2021 invalid and to set aside the resolutions adopted at the meeting. The SCA held that the counter-application was also correctly refused.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.