Extension of powers of liquidators

In Massyn v De Villiers NO and Others [2021] 3 All SA 578 (WCC), establishing an inquiry by liquidators into the affairs of a company in terms of s 417 of the Companies Act, is if deemed fit, acceptable and necessary for winding-up the affairs of the company and distributing its assets.

By Merilyn Rowena Kader LLB (Unisa), Legal Editor at LexisNexis South Africa.

Corporate and commercial - Extension of powers of liquidators: The applicant in Massyn v De Villiers NO and Others [2021] 3 All SA 578 (WCC) was one of two directors in a company, which was finally liquidated on 9 November 2020. The company had conducted business as a fund manager trading in foreign currencies. Three investors/creditors, who had invested more than R20m, had sought the company’s liquidation when it was unable to honour their withdrawal request – made after investigations revealed that the company’s business activities were fraudulent and in contravention of financial services legislation.

As provisional liquidators of the company, the second and third respondents had obtained an order extending their powers to include establishing an inquiry into the affairs of the company in terms of s 417 of the Companies Act 61 of 1973, appointing the first respondent (Mr de Villiers) as commissioner and authorising him to summon persons to be examined at the inquiry. The inquiry was adjourned pending the outcome of the present application for rescission of the order, which established the inquiry and extended the powers of the respondents. In the alternative, the removal of Mr de Villiers as commissioner and setting aside of the subpoenas issued by him, was sought.

In support of the application, it was contended that the liquidators had failed to establish a jurisdictional requirement, namely, that the company was unable to pay its debts in the course of being wound up. A related argument was that no s 417 inquiry could be established before the company had been placed in final liquidation, it being common cause that the impugned order was made while the company was in provisional liquidation.

The court, per Bozalek J, held that to claim that the jurisdictional fact of the company’s inability to pay its debts had not been established, the applicant had to go further and at the very least assert that the company was able to pay its debts at the material time. However, at no stage prior to the granting of either the provisional or the final liquidation order was it ever asserted on behalf of the company that it was able to pay its debts. The order could, therefore, not be set aside on that basis. The applicant also averred that the liquidators had sought and been given powers without making out a case therefor. Section 386 of the Companies Act deals with the powers of liquidators and provides for a court, if it deems fit, to grant leave to a liquidator to do anything, which the court may consider necessary for winding-up the affairs of the company and distributing its assets. The court found that the provisional liquidators had established a case that all the powers they sought were necessary for them in their role as provisional liquidators, save for the power to sell movable assets and to agree to any reasonable offer of composition.

Turning to the alternative relief, the court considered the allegations of bias levelled against Mr de Villiers. It concluded that the conduct referred to could never justify a reasonable apprehension of bias on the part of the commissioner by the applicant or someone in his position.

Apart from the two minor amendments to the impugned order, the application was dismissed with costs.

Merilyn Rowena Kader
Legal Editor at LexisNexis