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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

(1) 1REPORTABLE: NO
(2) OF INTEREST TO OTHER JUDGES: NO

(3) REVISED: YES

CASE NO:  64426/2017

1/6/2020

In the matter of:

KROONS GOURMET CHICKENS (PTY) LTD                                 First Applicant

ROBERT WILLIAM KROON                                                              Second Applicant

And

THE MASTER OF THE HIGH COURT, PRETORIA                      First Respondent

TSIU VINCENT MATSEPE N.O.                                                         Second Respondent

ZEENATH KAJEE N.O.                                                                     Third Respondent

THE COMMISSIONER FOR THE SOUTH AFRICAN                  Fourth Respondent

REVENUE SERVICES

 

JUDGMENT

BESTER AJ

[1]                   The applicants seek the review and setting aside of a decision by the first respondent, the Master of the High Court, Pretoria (“the Master”), not to uphold their objections to the second amended final liquidation and distribution account in the winding up of Tradefirm 195 (Pty) Ltd (in liquidation) (“Tradefirm”).

[2]                   In a counterapplication, Tradefirm’s liquidators seek an order that the Master be directed to confirm their third amended final liquidation and distribution account and that the applicants be directed to make payment of R6 836 986,18 upon confirmation of the account. 

[3]                   The Master delivered a notice to abide by the decision of the Court.  The fourth respondent, the Commissioner for the South African Revenue Services (“SARS”), who was the sole proven creditor in the estate of Tradefirm, does not oppose the applications.

Background to the applications

[4]                   On 12 October 2004 Tradefirm was placed in provisional liquidation, which order was made final on 12 January 2005.  On 10 May 2005, the second and third respondents were appointed as its liquidators. 

[5]                   On 26 November 2007, upon the application of the liquidators, Ramagaga AJ found that the first applicant fraudulently took over Tradefirm’s poultry farm business (“the business”), as a going concern, shortly before the provisional liquidation order was granted.  The first applicant was ordered to deliver the property comprising the business to the liquidators, and to render an accounting and enter into a debatement with the liquidators regarding its conduct of the business.  The second applicant is the sole director of both the first applicant and Tradefirm. 

[6]                   On 25 September 2008, the liquidators and the first applicant entered into a written agreement, the effect of which was that the first applicant bought the business for an amount of R5.5 million (“the settlement agreement”).  This was the amount that SARS was willing to accept as a compromise of its claim.  In terms of the settlement agreement the first applicant also agreed to pay the costs of the liquidation, including the liquidators’ fees.    

[7]                   The liquidators submitted a first and final liquidation and distribution account in 2010 and obtained the Master’s confirmation of the account.  At the instance of the applicants, the confirmation was reviewed and set aside.  

[8]                   In December 2014 the liquidators presented an amended account.  When the applicants requested sight of the supporting vouchers, with the view to formulate objections to the account, the liquidators withdrew it, and rendered their second amended first and final account in January 2016, to which the applicants objected in February 2016. The liquidators delivered a response to the objection on 7 December 2016 and the applicants, in turn, replied on 31 January 2017.  On 5 July 2017 the Master refused to sustain most of the applicants’ objections to the account but required the liquidators to amend the account in certain respects.  This led the liquidators to prepare a third amended first and final account, which forms the basis of the counterclaim.

The condonation application

[9]                   In terms of section 407 of the Companies Act, 61 of 1973[1] (“the old Companies Act”), any person having an interest in the company being wound-up may, at any time before the confirmation of a liquidation and distribution account, lodge an objection thereto with the Master, with reasons. 

[10]               The applicants are interested parties for purposes of section 407.  They were parties to the settlement agreement, and the first applicant is responsible for payment of the costs of the administration of the winding-up.  

[11]               If the Master is of the opinion that an objection ought to be sustained, she must direct the liquidators to amend the account.  However, if the Master refuses to sustain an objection, the interested party may, within 14 days from the Master’s decision, apply for an order to set it aside.  The Court may confirm the account or make an order as it deems appropriate. 

[12]               Although the Master’s ruling on the applicants’ objections was made on 5 July 2017, the applicants only learned of the ruling on 11 August 2017.  Mr South SC, who appeared for the applicants, contended that, as a result, the fourteen-day period stipulated in section 407(4)(a) as the time period within which the review must be brought, must be deemed to have commenced on 11 August 2017.  This was not met with much resistance from Mr Steyn, who appeared for the liquidators. 

[13]               The application was, however, only launched on 19 September 2017, thus 39 calendar days after the applicants became aware of the Master’s ruling.  Mr South SC moved for an amendment to the notice of motion, to include a prayer for the condonation of the late launching of the review, from the Bar, which amendment was granted.  

[14]               However, the condonation application was opposed by the liquidators.  The applicants did not address the reasons for the delay in launching the review in the founding affidavit.  This is in line with the original notice of motion not having contained a prayer for condonation.  This omission seems to be explained by the applicants originally having approached the application on the basis that a review in terms of section 407 also constitutes administrative action, and that they therefore had a substantially longer time period within which to launch the application.  At the hearing Mr South SC, appropriately, did not persist with the argument, with reference to Rustenburg Platinum Mines Limited (Rustenburg Section) v CCMA[2].     

[15]               In my view it is in the interests of justice[3] to hear the review despite the delay in launching it, and the failure to set out fully the cause of the delay.  In summary, I came to this conclusion principally on the basis that (i) there is no real prejudice to the liquidators in the delay, especially given the overall time that this winding up has taken; (ii) the winding up of Tradefirm is long overdue and it is in the interests of the parties and the administration of insolvent companies generally to have finality in the matter; and (iii) not hearing the review is not sensible in the light thereof that the applicant’s grounds for opposing the counter-application are the same objections forming the basis of the review.   

The grounds of review and the issues to be determined

[16]               The applicants raised several grounds of review.  However, during argument the disputes became better delineated and narrower in ambit.  The outcome of the applications depend on the following four questions: 

a)            Does the second (or third) amended account require the first applicant to pay a portion of the amount due to SARS twice, as contended by the applicants?

b)            Should the first applicant be liable for the costs of the inquiry in terms of section 417?  The applicants contend that the legal costs of the inquiry in terms of section 417 should be borne by SARS, the creditor who called for the inquiry.

c)             Are the liquidators entitled to claim a fee on sales of the business over the period from the judgment ordering the return of the business to Tradefirm, to the date of the settlement agreement?  The applicants contend that the liquidators are not, because the company in liquidation never conducted the business.  In the alternative, the applicants argue that the fee should be reduced for being excessive. 

d)            Should the liquidators in any event forfeit their fees for a failure to finalise the liquidation expeditiously?  The applicants argue that this is appropriate, claiming that the liquidators are in dereliction of their duties.

Does the account require the first applicant to pay a portion of the amount due to SARS twice?

[17]               The applicants point out that the liquidators only paid the amount of R3.1 million to SARS, even though the first applicant had paid the full R5.5 million. They complain that the liquidators, through the account, attempt to again obtain payment of the balance of R2 .4 million from the first applicant.

[18]               The applicant’s reasoning, however, fails to take into account the manner in which the free residue account reflects accounting entries. The fact that the R2 .4 million is reflected as still due to SARS, does not mean that this amount is included in the shortfall on the account sought from the first applicant.

[19]               In brief, the account is constituted as follows:

a)            It reflects receipts, consisting of the amount for the sale of the business, the interest due to SARS on the outstanding balance and an advance payment made by the first applicant.

b)            It reflects payments, consisting of the various expenses ordinarily expected in a winding up, the liquidators fees, the legal fees and the amount of the award to SARS.

[20]               The difference between these two figures, thus total amounts paid/payable less receipts, is the shortfall that the liquidators claim from the first applicant. There is thus no double counting. In basic accounting terminology, there is one debit entry and an equivalent credit entry in respect of the sale price of the business in the account.

[21]               There is thus no reason to interfere with the Master’s decision in respect of  this objection. 

Should the first applicant be liable for the costs of the enquiry?

[22]               The applicants’ objections lodged with the Master in respect of the second account did not include an objection regarding the inclusion of the costs of the inquiry in terms of section 417.  They had not seen any vouchers, and therefore could not know that the amount reflected in the account for legal costs relates, in whole or in part, to the costs of that inquiry. 

[23]               Only in the answering affidavit in the review application, did the liquidators state that the costs of the inquiry are included in the account. The applicants objected thereto.  

[24]               The liquidators’ claim for the costs of the enquiry is premised on it forming part of the administration costs. The liquidators claimed, with reference to an extract from the answering affidavit in the liquidators’ application for the return of the business, deposed to by the second applicant, that the applicants had admitted that those costs form part of the administration costs.  However, the extract does not contain or imply such an admission.

[25]               During argument, Mr Steyn, for the liquidators, conceded that costs of an inquiry in terms of section 417 does not ordinarily form part of the administration costs in a winding up. Section 417(6) expressly deals with this:

“Any person who applies for an examination or enquiry in terms of this section or section 418 shall be liable for the payment of the costs and expenses incidental thereto, unless the Master or the Court directs that the whole or any part of such costs and expenses shall be paid out the assets of the company concerned.”

[26]               There was no request to the Master or this Court to give such a direction.

[27]               In terms of the settlement agreement, the first applicant agreed to pay the following: 

a)            The amount of R5.5 million as purchase price for the business and in full and final settlement of all current claims against Tradefirm (which was the amount that the only proven creditor, SARS, would accept);

b)            the administration costs in the winding-up of Tradefirm;

c)             an amount equal to the taxed or agreed upon legal costs of the liquidators regarding the litigation instituted by the liquidators under case numbers 4945/2007 and 120/2008; and

d)            the costs of a Mr Barrett for his services rendered to the liquidators in respect of Tradefirm’s winding-up.

[28]               None of these items include the costs of the enquiry. The parties went to some lengths to be clear in the settlement agreement: they expressly stipulated what legal fees had to be paid, separately from the clause obliging the first applicant to pay the administration costs; and they expressly stipulated that the costs of Mr Barrett had to be paid, even though the parties recorded that it forms part of the administration costs in the winding up of Tradefirm. 

[29]               In my view, there is no room for a conclusion that the first applicant is liable for payment of the costs incurred in respect of the inquiry.

[30]               Because the vouchers in respect of the charge for legal fees in the account do not appear in the papers, it is not possible to determine whether the entire amount or a specified portion thereof ought to be excluded.  The liquidators should prepare a further amended account, with supporting vouchers, to remove the costs of the enquiry from the account and reflect the nature of any amount that may remain in the account as legal costs.

Are the liquidators entitled to a trading fee?

[31]               Section 384 of the Old Companies Act provides as follows in relevant parts: 

“(1)  In any winding-up a liquidator shall be entitled to a reasonable remuneration for his services to be taxed by the Master in accordance with the prescribed tariff of remuneration: Provided that, in the case of a members’ voluntary winding-up, the liquidator’s remuneration may be determined by the company in general meeting. 

(2)    The Master may reduce or increase such remuneration if in his opinion there is good cause for doing so, and may disallow such remuneration either wholly or in part on account of any failure or delay by the liquidator in the discharge of his duties.”

[32]               In terms of Regulation 23 of the Old Companies Act, every liquidator shall be entitled to the remuneration set out in annexure CM104 to the Regulations for the winding-up and judicial management of companies.  That annexure, in turn, provides that, where the liquidator is appointed to liquidate a company, the tariff of remuneration for trustees of insolvent estates shall be applied. 

[33]               Section 63 of the Insolvency Act, Act 24 of 1936, provides that every trustee of an insolvent estate shall be entitled to a reasonable remuneration for his services, to be taxed by the Master according to Tariff B in the second schedule to that Act.

[34]               Item 4 of Tariff B provides that the Trustee, and therefore also a liquidator, is entitled to remuneration equal to 6% “on sales by the [liquidator] in carrying on the business of the [company in liquidation], or any part thereof, in terms of section 80”.

[35]               The liquidators consider themselves entitled to such a fee on sales of the business over the period from the order to return the business to Tradefirm to date of the settlement agreement. The applicants disagree, and further argue that, even if the liquidators are entitled to a fee, 6% is excessive in the circumstances and ought to be reduced.  

[36]               Section 80(1) of the Insolvency Act requires that the trustee/liquidator must be authorised to carry on the business of the insolvent by the creditors or in the absence thereof by the Master.  Although a lack of authority was initially raised by the applicants, the liquidators’ certificate of appointment was handed up by agreement, which expressly provided the liquidators with the powers set out in section 386(4)(f), which allows for the carrying on of any part of the business of Tradefirm, “insofar as may be necessary for the beneficial winding-up thereof”.

[37]               In the second account the liquidators record that trading income of R67 052 534,14 had been retained by the first applicant. Thus the account reflects a nil entry.  However, the liquidators claim a fee of 6% on the turnover amount. 

[38]               The Master ruled that the liquidators are entitled to a fee of 6% on sales from the date of their appointment to 30 September 2008.  The ruling that the liquidators are entitled to the trading fee as from the date of liquidation of the company until the order of 26 November 2007, was not sought by them, and cannot be sustained. It may have been brought about by the note in the account explaining the trading income:

“The income below was generated by KROONS GOURMET CHICKENS (PTY) LTD since date of liquidation of TRADEFIRM 195 (PTY) LTD (IN LIQUIDATION) until date of settlement of all claims in TRADEFIRM 195 (PTY) LTD (IN LIQUIDATION), with the assets of same.”

[39]               The date of 15 October 2008 was changed to 30 September 2008, to align with the date of the settlement agreement.  However, the settlement agreement was effective from 25 September 2008. 

[40]               In their third account, the liquidators calculated the turnover from 26 November 2007 to 30 September 2008, thereby slightly reducing the trading income and thus the fee.

[41]               The parties agree that the first applicant conducted the business until 26 November 2007, when the order to return the business was obtained, and since 25 September 2008, when the settlement agreement was concluded.  They disagree, however, as to who traded between those two dates. 

[42]               Whether the liquidators traded or not, is a factual question.[4]

[43]               The order of 26 November 2007 required the first applicant to deliver the business to the liquidators; to render a full accounting within thirty days; to debate the account; and to pay what was owing to Tradefirm.

[44]               The liquidators contend that they took control of the business after the order for the return of the business, and they continued its trading. This they supposedly did through Mr. Barrett, who was the liquidators’ fully authorized representative and in control of the business, according to the liquidators. The applicants, they say, assisted in the trading at their (the applicants’) insistence, and as the liquidators’ agents.

[45]               The liquidators refer to a report by a Ms. McQuarrie, who, according to her confirmatory affidavit, is a liquidations manager employed by a firm of attorneys. She rendered a report on behalf of the liquidators to SARS in December 2007. According to the report, the liquidators appointed security guards on the premises and arranged for short-term insurance of the business.

[46]               The report explains that it was not in the interest of creditors to shut down the farming operations. It provided several reasons, which are not necessary to repeat here. The following recordal is included in the report:

“An agreement was reached with Mr. and Mrs. Kroon that the following documents will be forwarded to the offices of the liquidators on a daily basis:

1        Bank statements;

2        Delivery notes i.e. invoices or daily accounts receivable;

3                 The security guards’ full report specifying which vehicles enter and leave the premises and what was either delivered or collected;

4        details of the deliveries;

5        entrance control;

6        accounts payable age analysis.

The Kroons also undertook to forward as a copy of the Asset Register, a schedule of the contract growers and the contract with them.

The Liquidators will attend at the premises on a weekly basis to meet with the management, do a cheque reconciliation and authorise payments and future purchases.”

[47]               None of the abovementioned happened, and there is no suggestion by the liquidators that they ever attempted to enforce this agreement.

[48]               The applicants claim that, because their application for leave to appeal was only dismissed in March 2008, and the order was therefore suspended until then, the liquidators did not take control of the business. They contend that the negotiations to settle the matter commenced immediately upon the dismissal of the application for leave to appeal and culminated in the settlement agreement concluded in September of the same year.

[49]               According to the applicants, a Mr. Senekal attended at the business premises on behalf of the liquidators shortly after the application for leave to appeal was dismissed. He orally agreed with the second applicant that the first applicant may continue to conduct the business, on condition that it indemnifies the liquidators against any losses. Mr. Barrett thereafter attended at the premises from time to time, and only to ensure that the movable assets were not removed from the premises.

[50]               The liquidators deny the applicants’ version of an agreement with Mr Senekal, but admit that he was their agent in the winding-up of Tradefirm. Despite the important roles played by Mr. Senekal and Mr. Barrett, neither of them deposed to an affidavit in these proceedings. The deponent to the liquidators affidavits, Mr. van den Heever, does not explain on what basis he has knowledge of the events to which he testifies.

[51]               What is clear, though, is that the liquidators’ involvement with the business over the relevant period was limited to periodic visits to the business by Mr Barrett.

[52]               The income and expenses of the business were recorded in the books of the first applicant, and not in the books of Tradefirm.  This included VAT returns rendered to SARS.

[53]               The liquidators had no knowledge or insight into the affairs of the business over the period, and they did not ask for details, despite the agreement of December 2007.  The liquidators knew so little of the affairs of the business, that they obtained the first applicant’s VAT records from SARS to calculate the turnover.   There is no evidence of them overseeing the business.

[54]               Although it is not unknown for an agent’s remuneration to take the form of profits accruing form the transaction conducted on behalf of the principal,[5] the liquidators required no accounting from the applicants.

[55]               The liquidators did not comply with section 93 of the Insolvency Act, which requires the liquidators, if they have carried on any business on behalf of the company in liquidation, to submit to the Master a trading account containing a record of the value of the stock on hand at the date of liquidation, a record of the value of the stock on hand on the date upon which the account is made, the daily totals of receipts and payments in connection with the business, and the result of their conduct of the business.  The liquidators offered no reason for not complying with section 93. The logical reason why they did not do so, is because they did not trade.

[56]               The liquidators did not pursue an accounting from the applicants, either in respect of the period until 26 November 2007 or thereafter, and have agreed to settle all disputes in terms of the settlement agreement.

[57]               According to the liquidators, the settlement agreement was entered into pursuant to the judgment and the order in terms thereof. The settlement agreement stipulated as follows: 

“4.1     The parties further agree that upon signature hereof the liquidators will terminate the services of Charles Barrett and that effective control over the business activities of Kroons Gourmet Chickens (Pty) Ltd be returned to Kroons. 

4.2       The parties further confirm that the Kroons, upon the insistence of the liquidators, paid the costs of Charles Barrett for services rendered by him to the liquidators and which form part of the administration costs in the winding-up of Tradefirm.

4.3      The parties further agree that the day-to-day running of the business was conducted by the Kroons with the liquidators’ representative Charles Barrett attending the business premises of Kroons on a daily basis.  The Kroons had to indemnify the liquidators against any claims and losses from the trading activities of Kroons Gourmet Chickens (Pty) Ltd.”

          (emphasis added)

[58]               It is common cause on the papers that Barrett did in fact not attend at the premises daily. Although the settlement agreement creates the impression that the applicants did not have effective control over the business until the settlement agreement was reached, the facts sketch a different picture.

[59]               Having regard to the facts placed before Court, I am of the view that the liquidators did not conduct the business, and they did not appoint the first or second respondents as their agent to do so. They were content to leave the first applicant in control of the business whilst they negotiated a settlement that would satisfy the only creditor, SARS – something which they succeeded in doing within a few months of the order to return the business.

[60]               In the result, I conclude that the liquidators were not entitled to charge a fee on the sales of the business.

[61]               It is therefore not necessary to consider the reasonableness of a 6% fee on sales. However, I should mention that I find it difficult to see how, on the facts, a substantial or full reduction of the fee would not in any event have been warranted.[6]

Should the liquidators forfeit their fees?

[62]               The liquidators raised a 10% fee on the R5.5 million paid by the first applicant for Tradefirm’s business, in terms of item 1 of Tariff B. 

[63]               In the second account they also raised a 10% fee on the interest payable to SARS, because only R3.1 million of the R5.5 million was paid to SARS upon receipt thereof, and the balance attracted interest.   In her ruling, the Master required the liquidators to provide reasons why they ought not to pay the interest themselves, having delayed the payment to SARS.  Instead of providing reasons to the Master, the liquidators have elected to rather deduct this amount from their fees in the third account. This was an appropriate concession on their part.

[64]               The applicants contend that the liquidators should forfeit their total fee as contemplated in section 384(2) of the Old Companies Act, for their delay in finalising the winding up of Tradefirm.

[65]               The liquidators were appointed as liquidators more than twelve years before the current review application had been launched.  The settlement agreement, which disposed of Tradefirm’s assets and insured that the only approved creditor will be paid an amount that it had agreed to, was concluded nine years before the review application was launched. 

[66]               The liquidators have provided no explanation for these delays.  They focused on the applicants’ wrongdoing in having taken over Tradefirm’s business unlawfully. However, that issue had long been resolved and plays no role in the liquidators’ conduct after September 2008.

[67]               It must be considered that challenges to the accounts, including an application to have an account set aside, accounts for some of the elapsed time.  However, the period is still inordinate in respect of a winding up that effectively required very little after the settlement had been concluded and the purchase price had been paid.

[68]               It should not be lost sight of that the first applicant has an interest in having the liquidators forfeit their fee.  It is, after all, contractually bound to pay those costs.  On scrutiny of the account, there is no indication that any additional costs were incurred because of these delays, and the first applicant is not called upon to pay interest on any amounts.  It is certainly in no worse a position due to the delay.

[69]               Although there is much reason to disapprove of the substantial delay, in my view it is not a sufficient basis to have the liquidators forfeit their fees. 

The counterapplication

[70]               In the counterapplication the liquidators seek that the Master be directed to confirm the third liquidation and distribution account. In the light of what has been said above, the account requires amendment. This relief can therefore not be granted. In the circumstances, the counterapplication cannot succeed.

The order

[71]               In the light of the long delays in this winding up, and the fact that there have been several attempts to finalise the accounts with no success, I am of the view that it would be appropriate in the circumstances to decide the issues rather than referring them back to the Master.

[72]               There is no reason why the costs should not follow the result. The applicants contend that the liquidators ought to pay the costs of the application and the counterapplication de bonis propriis.  I agree.  At the heart of both the application and the counterapplication is the issue of the liquidators’ fees.  Furthermore, the first applicant is obliged to pay the administration costs in the winding up of Tradefirm.  It would be a hollow costs order if the liquidators could burden the first applicant with the costs in the winding-up of Tradefirm. 

[73]               The following order is made:

1.           The applicants’ failure to launch this review application within the period prescribed in section 407 of the Companies Act, 61 of 1973, is condoned. 

2.            The first respondent’s decisions of 5 July 2017 in the winding up of Tradefirm 195 (Pty) Ltd (in liquidation), to dismiss the applicants’ objections, are reviewed and set aside. 

3.           It is declared that the first applicant is not liable for the costs of the inquiry in terms of section 417 of the Companies Act, 61 of 1973, held in the winding up of Tradefirm 195 (Pty) Ltd (in liquidation). 

4.            It is declared that the second and third respondents are not entitled to charge any fee on sales by the poultry business sold by Tradefirm 195 (Pty) Ltd (in liquidation) to the first applicant. 

5.           It is declared that the second and third respondents are entitled to a fee of 10% on the amount of R5.5 million, less any amount due to SARS for interest on the amount of R2.4 million.

6.            The second and third respondents are directed to render an amended liquidation and distribution account in the winding up of Tradefirm 195 (Pty) Ltd in accordance with this order within 30 days from date of this order. 

7.          The second and third respondents’ counterclaim is dismissed. 

8.          The second and third respondents are jointly and severally liable for the costs of the application and the counterapplication de bonis propriis.

 

 

 

 

 

A Bester

Acting Judge of the High Court of South Africa

Gauteng Division, Pretoria

 

                                                   

 

Heard:                                                            28 February 2019

Judgment:                                                      1 June 2020

 

 

 

Counsel for the Applicants:                      Adv A South SC

(The heads of argument were prepared by Adv MP van der Merwe SC)

Instructed by:                                             Vezi & De Beer Incorporated

 

 

 

Counsel for the Second and

Third Respondent:                            Adv JW Steyn

Instructed by:                                    De Vries Incorporated

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