During July 2003, the first appellant, Motala, being one of the joint liquidators of Cement Board Industries (Pty) Ltd (“CBI”), instituted an action, along with his colleagues and fellow joint liquidators, against the fifth respondent, Boake Incorporated (“Boake”), and the sixth respondent, Mr Kevin Wiles (“Wiles”).
The action was still ongoing in August 2010 when Wiles’ attorney discovered that CBI had, unbeknown to them, been dissolved in terms of section 419 of the Companies Act 61 of 1973 (“the Act”). The above discovery prompted an application in terms of section 420 of the Act (“the Application”), to declare the dissolution of CBI void and requesting ancillary relief.
The Application sought to have the dissolution of CBI set aside in terms of section 420 of the Act in order to allow the action against Boake and Wiles to resume. The Application was opposed by Boake and Wiles and dismissed by Acting Justice Vermeulen.
The two main points put forward by opposition in defence against the Application were essentially the following:
- the order in terms of section 420 would not have the effect of reviving the action; and
- the court a quo, in the exercise of their discretion, should refuse the Application.
The court a quo upheld point one and as a result thereof refused the Application. Upon application for leave to appeal Acting Judge Vermeulen granted same. Accordingly, the appeal court needed to assess the merits of avoiding the order.
Section 420 affords a court the discretion to rule that the order to dissolve a company is void with the effect that “any proceedings may be taken against the company as might have been taken if the company had not been dissolved”. The difficulty here is that the company Motala and his fellow liquidators instituted the action, on behalf of the company, against Boake and Wiles, whilst section 420 only allows the reviving of actions against the company, as opposed to actions instituted by the company. Section 420’s predecessor, section 191(1) of the Old Companies Act 46 of 1926 and section 223(1) of the English Companies (Consolidation) Act 1908, specifically stated “any proceedings may be taken as might have been taken if the company had not been dissolved.”
The aforesaid sections made no differentiation between proceedings taken on behalf of the company and against the company, whereas section 420 specifically states that only proceedings “against the company” will be revived.
COMPARATIVE CASE LAW
In the case of Ebrahim v Evan NO 1990 (4) SA 424 (D), Justice Wallis held that “as the dissolution was declared void ab initio in terms of the court order that meant that corporate activity prior to the dissolution, including the commencement of legal proceedings were revived by the avoiding order”, despite section 420 of the Act being in force at that point. Justice Wallis further makes mention of a second case, Pyramid Freights (Pty) Ltd v Incorporated General Insurances & another 1993 (2) SA 323 (W), in which a similar conclusion is reached. The court of appeal opts not to make a ruling on the conflict between the wording of section 420 and the actual implementation of it.
However, the Appeal court in this case established the following in respect of the section 420 discussion:
- The court ought not to avoid dissolution unless there is an unforeseen event such as discovery of a new asset, fraud or concealment revealed or the dissolution has become an “instrument for injustice”
- The purpose of this section is either to enable the liquidator to distribute an overlooked asset or to allow a creditor to make a claim he had not previously made
- The court of appeal further ruled that, though the appellants put forth that the dissolution of the company was by error, it was plain that the dissolution was deliberately sought by the appellants and that litigation was continued despite this.
The court of appeal held that the application was clearly brought in order to distribute a previously overlooked asset. However, the actual existence of the asset was still in dispute. Furthermore, Boake and Wiles would suffer severe prejudice should the action resume and there are no indications that the case against them is overwhelming.
The court of appeal dismissed the appeal with costs, holding the liquidators jointly and severally liable for the costs in their personal capacity as they were discharged as liquidators when CIB was validly dissolved in 2010.
The value of this case is the direct conflict between the statutory provision and the precedent created during the time of the Act’s enforcement. Further to this the Companies Act 71 of 2008, specifically section 82 and 83, give no clarity in respect of the above situation. Thus, the Court’s decision remains a necessary aid. Although the SCA did not make a ruling in respect of which interpretation was correct, their discussion on the purpose of the section, particularly their comment on the indication of success in the action may be interpreted as to support the view taken in precedent thus possibly leading to an amendment of the section.
Written by Raeesah Thomas and Anja van Wijk