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REPORTABLE

IN THE KWAZULU-NATAL HIGH COURT, PIETERMARITZBURG

REPUBLIC OF SOUTH AFRICA

CASE NO: 9064/2010

In the matter between:

ANTHONY JOHN GEORGE SKYE. ......................................................................................Applicant

and

KURT ROBERT KNOOP N.O..................................................................................... First Respondent

MAHMOOD ESSOP KAJEE N.O............................................................................Second Respondent

SHAUKAT MOOSA N.O............................................................................................Third Respondent

THE MASTER OF THE HIGH COURT

PIETERMARITZBURG

(MASTERS REFERENCE: N480/00)........................................................................Fourth Respondent

GOOLAM HOOSEN MOOSA N.O..............................................................................Fifth Respondent

SALIM MAHOMED MOOSA N.O............................................................................ Sixth Respondent

HARRY JOHN RICHARD FOUCHE N.O............................................................. Seventh Respondent

ORDER

The application is dismissed with costs, such costs to be paid on a party and party scale and is to include the costs of two counsel where two counsel were employed.

JUDGMENT

SEEGOBIN J:

INTRODUCTION

[1] This matter came before me on 12 May 2014 for the purpose of hearing oral evidence on certain defined issues in terms of an order granted by this Court on 2 September 2013. While the order itself was silent on whether the parties were required to hold a pre-trial conference, in discussions with counsel in my chambers that morning, it was agreed that such a conference was indeed necessary particularly in light of certain preliminary points that were raised by the respondents in their answering affidavits and to give effect to the practice directives which apply in this Division. For this purpose it was agreed that the matter should stand down until 10am on 13 May 2014. On the latter occasion I was informed that the parties were now in agreement that the two issues set out hereunder were to be separated and determined separately and in limine from all the other issues that arise in this matter. These two issues are the following:

(a) whether the application should be dismissed for failure by the applicant to have joined the remaining trustee in the sequestrated estate of the applicant; and

(b) whether the applicant has locus standi to pursue the order sought in the amended notice of motion.^[1]

THE PARTIES

[2] The applicant is a rehabilitated insolvent. At some stage he held shares in a company known as Skyeprops 101 (Pty) Ltd (‘Skyeprops’) which is currently in liquidation. The first and second respondents, who will hereafter be collectively referred to as “the liquidators”, are the duly appointed liquidators of Skyeprops. The third, fifth and sixth respondents are the trustees of the Mahomedsons Family Trust (‘the trust’). The fourth respondent is the Master of the High Court, Pietermaritzburg. The seventh respondent is the trustee of the RK Trust which at all material times was a secured creditor of Skyeprops. In the proceedings before me the applicant was represented by Mr Vetten, the liquidators by Hartzenberg SC, the third, fifth and sixth respondents by Potgieter SC (assisted by Mr Pretorius) and the seventh respondent by Mr Tobias. I am indebted to counsel for their assistance in this matter.

THE RELIEF SOUGHT BY THE APPLICANT

[3] On 23 August 2013 the applicant gave notice of his intention to amend his notice of motion initially lodged by him on 11 November 2010. The relief sought in the amended notice of motion is in the following terms:

“1. Declaring the applicant to be the beneficial holder of the entire issue ordinary shares (“the shares”) in Skyeprops 101 (Pty) Limited (“the company”); alternatively, to the extent that the Mahomedsons Family Trust (“the Trust”) claims to be the shareholder of the shares in the company, directing that the trustees of the being Shauket AN Moosa, Joolam Hoosen and Salim Mahomed Moosa NNO re-transfer the shares to the applicant; and authorizing the rectifying of the company’s share register, as and if necessary;

2. Declaring void ab initio, alternatively setting aside, the special resolution placing the company into a creditors’ voluntary winding up and signed by the third respondent on 10 July 2000;

3. Ordering that a Rule Nisi do issue on the terms set out in the subparagraphs below, returnable on a date to be determined by this Honourable Court, and on which date any interested party is to show case why the Order should not be made final:

a. Setting aside the liquidation of the company in terms of section 354 of the Companies Act, 1973, read together with item 9 of schedule 5 to the Companies Act, 71 of 2008, alternatively in terms of the common law;

b. Ordering the first and second respondents to fully account to the member of the company for their administration of the company during the period that the company was under liquidation;

4. Ordering such respondents as oppose this application to pay the costs of the application, jointly and severally, the one paying the other to be absolved;

5. Granting the applicant further and/or alternative relief.”

BACKGROUND FACTS

[4] Most of the facts and circumstances set out hereunder appear from the papers as well as from certain admissions recorded and information obtained at the pre-trial conference held by the parties on 12 May 2014. These facts and circumstances are either common cause or no longer disputed.

[5] It is common cause that the trust had loaned monies to the applicant in an amount of R3million[2]. As security for this loan the applicant bound himself as surety and co-principal debtor for the due repayment of the loan. The applicant thereafter signed a cession and pledge of his shareholding in Skyeprops to and in favour of the trust^[3]. Skyeprops executed a mortgage bond over certain immovable property in favour of the trust for the amount of the loan.

[6] The applicant’s estate was provisionally sequestrated on 21 October 1999^[4]. That order was made final on 25 November 1999. On 2 November 1999 attorneys, Mr PJ Schoerie and Mr TK Morris, were appointed as provisional trustees of the applicant’s estate. Their appointment was made final on 2 February 2000^[5]. Schoerie died on 10 March 2013. The applicant’s Statement of Affairs was lodged with the Master on 12 April 2000^[6].

[7] Skyeprops was thereafter liquidated in terms of a special creditors’ resolution adopted in terms of section 351 of the Companies Act 61 of 1973 (the old Companies Act) on 10 July 2000 and registered in the Registrar’s office on 13 July 2000. It reached the Master’s office on 18 July 2000 and pursuant to this resolution and its registration, the first and second respondents were appointed liquidators of the company on 20 July 2000^[7]. It should be pointed out that the validity of this resolution is in dispute. The applicant on the one hand contends that the resolution was void, alternatively that it should be set aside. The trustees of the trust on the other hand contend the opposite.

[8] Whilst there is a strong dispute on the papers as to whether the applicant had voluntarily relinquished his shares in Skyeprops to the trust prior to the date when his estate was provisionally sequestrated, in paragraph 25.1 of the minutes of the pre­trial conference held on 12 May 2014, his version, as clarified in his response therein, is that he now denies that his shares were lawfully transferred to MFT (the trust) or at all^[8] (my emphasis). In paragraph 26.1 of the said minutes the applicant goes on to deny that he signed a CM42 securities transfer form for the transfer of the disputed shares^[9].

[9] It is common cause that the applicant lodged an application for his rehabilitation on 13 April 2007 under case no. 434/2007^[10]. This application was abandoned and he was thereafter, by effluxion of time, rehabilitated with effect from 21 October 2009^[11]. As already mentioned, the present application was instituted on 11 November 2011.

[10] The applicant’s complaints as far as the trustees of his insolvent estate are concerned are that they have completely ignored the company as an asset in his insolvent estate when completing the Liquidation and Distribution Account in respect of his estate. They have also neglected to deal with all issues relating to his shareholding in the company. He contends that he stands to benefit a great deal and as such he does not want the liquidators to continue with the liquidation by selling off the last remaining immovable property. He asserts that he is the sole director and shareholder of the company and that he never signed any share transfer forms transferring the shares. He contends that the trustees should have taken steps to have themselves registered as shareholders in the share registers of the various companies in terms of section 103 of the old Companies Act. He avers that the shares in Skyeprops had only been pledged and ceded in securitatem debiti and that ownership thereof had not passed to the trust^[12].

[11] The case made out by the trust on the papers is that even if the shares were held in securitatem debiti, such shares would have vested in the applicant’s trustees upon their appointment and the applicant would not be entitled to the same, even after his rehabilitation. From the outset, the applicant should have joined his trustees in this application as they would have had a material and substantial interest in the outcome thereof.

[12] With the above background in mind I turn to consider the two I ssues which require determination at this stage. I intend dealing with these issues in reverse order.

APPLICANT’S LOCUS STANDI

[13] The applicant bases both his locus standi and his substantive cause of action for the relief claimed on his alleged ownership of the shares in Skyeprops^[13] Having regard to the relief claimed by the applicant in terms of section 354 of the old Companies Act, it would seem to me that the applicant is forced to rely on the fact that he is still a member of Skyeprops. Section 354 provides as follows:

“(1) The Court may at any time after the commencement of a winding-up, on the application of any liquidator, creditor or member, and on proof to the satisfaction of the Court that all proceedings in relation to the winding-up ought to be stayed or set aside, make an order staying or setting aside the proceedings or for the continuance of any voluntary winding-up on such terms and conditions as the Court may deem fit.

(2) The Court may, as to all matters relating to a winding-up, have regard to the wishes of the creditors or members as proved to it by sufficient evidence.” [my emphasis]

[14] Insofar as the applicant’s relationship with and his interest in Skyeprops are concerned, the provisions of section 103 are also relevant. This section provides as follows:

“(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company upon its incorporation, and shall forthwith be entered as members in its register of members.

(2) Every other person who agrees to become a member of a company and whose name is entered in its register of members, shall be a member of the company.

(3) A company shall, subject to the provisions of its articles, enter in the register as a member, nomine officii, of the company, the name of any person who submits proof of his appointment as the executor, administrator, trustee, curator or guardian in respect of the estate of the deceased member of the company or of a member whose estate has been sequestrated or of a member who is otherwise under disability or as the liquidator of any body corporate in the course of being wound up which is a member of the company, and any person whose name has been so entered in the register shall for the purposes of this Act be deemed to be a member of the company.” [my emphasis]

[15] In this regard, Meskin, on the Companies Act, Vol 1, in commenting on the provisions of section 103 says, inter alia, the following:

“And a membership is not synonymous with beneficial ownership of shares; for the member may hold the shares as trustee for the benefit of another or as nominee on behalf of another... The registered shareholder may hold the shares as the nominee i.e. agent, of another, generally described as the ‘owner’ or ‘beneficial owner’ of the shares. This fact does not appear on the company’s register, as it is the policy of the law that a company should concern itself only with the registered owner of the shares.”

[16] In light of the above I fail to see the basis on which the applicant can claim to have an ‘interest’ in Skyeprops. In this regard it must be borne in mind that Skyeprops was placed in liquidation about one year after the applicant’s estate had already been sequestrated. In considering the meaning of the word ‘interest’ in the matter of Niuwoudt v The Master and Others NNO 1988(4) SA 513 (AD), Nicholas AJA found as follows:

“The word ‘interest’ is capable of a number of different meanings. In the context of s 407(1) of the Act, it bears the first of the meanings given in the Shorter Oxford English Dictionary, sv ‘interest’, namely:

‘1.1 The relation of being objectively concerned in something, by having a right or title to, claim upon, or share in.

a. Legal concern in a thing; especially right or title to property, etc.’

Compare the meaning given in Black’s Law Dictionary 5^th ed at 729:

‘Interest is the most general term that can be employed to denote a right, claim, title, or legal share in something.’

‘Interest’ as used in s 407(1) is therefore a legal interest, and not merely a social or ethical interest. Cf Pretoria Bill Posting Co v Hess 1911 TPD 360 at 363. It connotes a relation between the subject and the object of the interest. Under s 407(1), the required relation is that between an ‘objector’ and the company. (Under s 111(1) of the Insolvency Act and s 35(7) of the Administration of Estates Act, the object of the ‘interest’ is the insolvent estate, or the deceased estate, as the case may be.) As used in s 407(1), interest includes a proprietary or financial interest. Cf National Trading Co Ltd v Commissioner for Inland Revenue 1943 AD 496 at 504 in fin, per Centlivres JA:

‘If members of the general public have a proprietary and pecuniary interest in a company, they are in my opinion “interested in the company” within the meaning of s 33(2)(b) (sc of Act 31 of 1941). See Smith v Hancock ([1894] 2 Ch at 386) and Pretoria Bill Posting Co v Hess (1911 TPD at 363).’”

[17] Although Niewoudt’s case dealt more with an objection lodged in terms of section 407 of the old Act, I consider that the meaning of the word “interest” as it was found to apply within the context of section 407(1), is of equal application herein.

[18] The difficulty that I have with the applicant’s standing is that he ceased to be a member of Skyeprops. Upon his own sequestration in October 1999, he was divested of his estate (including the shares he held in Skyeprops) which vested first in the Master and subsequently in his trustees. Even by virtue of the provisions of section 103, supra, the applicant cannot now claim, after all these years, that he is still registered as a member of the company. For all intents and purposes he is now, as put by Nicholas AJA in Niewoudt, supra, “a stranger to the company’ These obstacles, in my view, preclude the applicant from seeking any of the relief set out in paragraphs 1, 2 and 3 of his amended notice of motion.

[19] Mr Vetton, on behalf of the applicant, sought to argue that the applicant has a residual interest in Skyeprops by virtue of the fact that he had pledged and ceded his shares in the company in securitatem debiti in which event he would have retained his dominium in the right ceded. As support for his submissions in this regard he placed reliance on certain general principles outlined by Van Rensberg J in Van Zyl NO v Look Good Clothing CC^[14] where at page 526 the learned Judge says the following:

“It is clear from the provisions of s 66(1) of Act 69 of 1984 read with the provisions of s 346(1)(Jb) of the Companies Act 61 of 1973 that unless it is established that the close corporation is a creditor of the respondent, the applicant will not have locus standi in the present application.

The decision of the question of whether or not the close corporation is a creditor of the respondent involves a consideration of the legal consequences attaching to a cession in securitatem debiti in circumstances such as the present where the close corporation, being the cedent, has been placed in liquidation.

In considering this aspect it is important to bear in mind that, in the present matter, I am faced with a cession in securitatem debiti as opposed to an out-and-out cession.

In the case of an out-and-out cession it is intended that the cessionary will step into the shoes of the cedent for all purposes. In such a case the cessionary acquires all the cedent's rights against the debtor in respect of the obligation ceded and the cedent no longer has any rights which he can enforce against the debtor. A cession in securitatem debiti, on the other hand, is more aptly described as a pledge to secure a debt owing by the cedent to the cessionary. In the case of a cession of this nature the cedent retains a reversionary interest in the ceded right, which entitles him to recover it when the secured debt is paid and gives him the right to recover from the cessionary any excess received by the cessionary from the debtor. So long as the cession remains in force its effect is as complete as an out- and-out cession and the cedent retains no enforceable rights against the debtor. Land- en Landboubank van Suid-Afrika v Die Meester en Andere 1991 (2) SA 761 (A) at 771D-F; Trust Bank of Africa Ltd v Standard Bank of South Africa Ltdl 968 (3) SA 166 (A) at 173E-H.

The major distinction between an out-and-out cession and a cession in securitatem debiti is that in the case of the latter the cedent retains the dominium in the right which has been pledged, whereas where the former is concerned, this is not the case. Leyds NO v Noord-Westeiike Koópe-ratiewe Landboumaatskappy Bpk en Andere 1985 (2) SA 769 (A) at 780C-D; Bank of Lisbon and South Africa Ltd v The Master and Others 1987 (1) SA 276 (A) at 291I-292B and 293C-294E.

The effect of the cedent retaining dominium in the right ceded in the case of a cession in securitatem debiti is that, in the event of the sequestration or liquidation of the cedent during the currency of the cession, the trustee or liquidator in the insolvent estate has the right to recover and administer the claim which has been ceded on the basis of it being an asset in the estate being administered by him. Authority for this proposition is to be found in National Bank of South Africa Ltd v Cohen's Trustee 1911 AD 235.”

[20] In my view, Mr Vetton’s submissions are all fine as far as general principles are concerned, however the difficulty I have with the applicant’s position is that nowhere in the statement of affairs^[15] lodged by him with the Master on 12 April 2000 does he mention his interest and shareholding in Skyeprops. In fact, if one has regard to his own evidence given at his insolvency enquiry, he left his trustees in no doubt that he had relinquished his shareholding in Skyeprops to the trust^[16]. Furthermore, in the founding affidavit deposed to by him in his application for rehabilitation before this court in 2007, he states that he made a complete surrender of his estate and made a full and frank disclosure of all his assets and liabilities which he had as at date of sequestration. He goes on to aver that there are no further assets which were in existence at that time which have not been disclosed or made available to his joint trustees. No reference whatsoever is made here of the applicant’s shareholding in the company^[17].

[21] The applicant, on his version, has now categorically stated and admitted that he is a shareholder in Skyeprops and was so as at the time of his sequestration. The result of all this is that the shares did not vest in him but in his trustees. Given this fact, on the applicants own version that there is a shortfall in his estate of at least R1 452 339.11, these shares must be dealt with by his trustees as an asset in his insolvent estate and not by him. An entitlement to any residue in these circumstances can only be claimed once the estate has been wound up. These factors, in my view, divest the applicant of locus standi to seek any of the relief sought in his amended notice of motion.

NON-JOINDER

[22] On the applicant’s present version as made clear by him at the pre-trial conference of the 12 May 2014, the Skyeprops shares were never transferred by him to the trust. The effect of this is that these shares and particularly the dominium therein, remained his property at all material times. Such dominium vested in the trustees in his insolvent estate who, under the common law, are entitled to administer it in the interests of creditors with due guard to the special permission of the pledgee, in this case the trust.

[23] It is well established that a trustee of an insolvent estate, despite the confirmation of an account by the Master, retains the locus standi and duty to collect debts and recover properties which belong to the estate^[18]. The following provisions of the Insolvency Act are relevant in this regard:

Section 20 (1)(a) provides as follows:

“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;”

and section 25 (1) is to the following effect:

“The estate of an insolvent shall remain vested in the trustee until the insolvent is reinvested therewith pursuant to a composition as in section 119 provided, or until the rehabilitation of the insolvent in terms of section 127 or 127A: Provided that, subject to the provisions of subsection (3), any property which immediately before the rehabilitation is vested in the trustee shall remain vested in him after the rehabilitation for the purposes of realization and distribution.”

Section 129 provides as follows:

“(1) Subject to the provisions of subsection (3) and subject to such conditions as the Court may have imposed in granting a rehabilitation, the rehabilitation of an insolvent shall have the effect-

(a) of putting an end to the sequestration;

(b) of discharging all debts of the insolvent, which were due, or the cause of which had arisen, before the sequestration, and which did not arise out of any fraud on his part;

(c) of relieving the insolvent of every disability resulting from the sequestration.

(2) A rehabilitation granted on an application made in circumstances described in subsection (3) of section one hundred and twenty four shall have the effect of reinvesting the insolvent with his estate.

(3) A rehabilitation shall not affect-

(c) the rights of the trustee or creditors to any p art of the insolvent’s estate which is vested in but has not yet been distributed by the trustee, but subject to the provisions of subsection (2).”

[24] It would seem to me that the applicant’s rehabilitation has not affected the rights of his trustees to the Skyeprops shares, which on the applicant’s version, were his at the time of sequestration and therefore vested in his trustees at the time. In these circumstances, it would seem to me, that the applicant’s remaining trustee, Mr Morris, has a direct and substantial interest in the relief being claimed by the applicant and as such ought to have been joined in these proceedings.

[25] It is well established that the term “direct and substantive interest’ means an interest in the right which is the subject matter of the litigation and not merely an indirect financial interest in the litigation^[19]. There are in fact two salutary reasons why joinder of parties in proceedings which are already pending is important. These are:

a. to ensure that the person interested in the subject matter of the dispute and his rights may be affected by the judgment of the court, will be before the court;

b. brings about a reduction in the number of actions and consequently a decrease in the costs^[20].

[26] The issue of non-joinder of the applicant’s trustees was raised pertinently by the third respondent as far back as July 2013 in his answering affidavit. The applicant simply failed to take any steps to join his trustee in these proceedings. The applicant’s belated attempt to remedy the issue of non-joinder of his trustee is found in the suggestion contained in paragraph 19.2 of the pre-trial minute that the applicant will seek that a copy of the order be served upon the trustees for the time being and that all the funds inclusive of interest presently held by the joint liquidators in the estate, be paid over to a stakeholder, appointed by agreement between the parties. This in my view, confirms that the applicant is fully aware that the trustee in his estate has a substantial and direct interest in the order which he seeks. In these circumstances, I consider that the applicant’s failure to join his trustee in these proceedings is fatal to the application and for this reason alone the application falls to be dismissed.

[27] In all the circumstances, and for the reasons set out herein, I consider that the issues of locus standi and non-joinder constitute insurmountable obstacles to the applicant from seeking any of the relief set out in paragraphs 1, 2 and 3 of his amended notice of motion. Having regard to the nature of the relief being sought it seems clear that the applicant wants to lay claim to the shares in Skyeprops, shares which on his version were never lawfully transferred to the trust and consequently remained an asset in his estate at all times. While the applicant claims that as a layman he did not fully appreciate the consequences of what was happening when he pledged and ceded his shares to the trust, it must be born in mind that at all times material hereto, and as correctly pointed out by Mr Hartzenberg, the applicant had the benefit of legal advice but despite all of this he chose to keep the issue of the shares away from his liquidators. Mr Vetton submitted that all that the applicant wishes to achieve by this application is to regularize the position as it existed at the time of his sequestration and the liquidation of Skyeprops. Why he never chose to do so at an earlier stage defies all logic. In my view, the entire timing of this application is rather opportunistic and designed to benefit no one else but the applicant. For all these reasons the application cannot succeed.

COSTS

[28] Mr Potgieter who appeared on behalf of the third respondent submitted that in the event of the application being dismissed on the basis of the two points raised above, the applicant should be ordered to pay the costs of the application on an attorney and client scale. Mr Hartzenberg, however, did not press for such costs. In my view, and in the exercise of my discretion, I consider that costs on a party and party scale would be adequate.

ORDER

[29] The order I make is the following:

The application is dismissed with costs, such costs are to be paid on a party and party scale and is to include the costs of two counsel where two counsel were employed.

Date of Hearing: 13 May 2014

Date of Judgment: 28 May 2014

Counsel for Applicant :Adv. DJ Vetten

Instructed by :Thomson Wilks Inc.

c/o Mornet Attorneys

Counsel for 1^st & 2^nd Respondents : Adv. CJ Hartzenberg SC

Instructed by:Schoerie & Sewgoolam

Cajee Setsubi Chetty

Counsel for 3^rd, 4^th & 6^th Respondents: Adv. AE Potgieter SC

Adv. JP Pretorius

Instructed by: Lockhart & Associates

c/o Tomlinson Mnguni James

Counsel for 7^th Respondent: Adv. DG Tobias

Bilal Malani And Associate

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