THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 1123/2022

In the matter between:

EMONTIC INVESTMENTS (PTY) LTD

Appellant

and

PETER CHARLES BOTHOMLEY N.O.

First Respondent
SALIM ISMAIL GANIE N.O.

Second Respondent
ETHNE MARY VAN WYK N.O.

Third Respondent
MONTIC DAIRY (PTY) LTD (In liquidation)

Fourth Respondent
KOPANO AUCTIONEERS (PTY) LTD

Fifth Respondent
THE MASTER OF THE HIGH COURT, PRETORIA

Sixth Respondent

Neutral citation:
Emontic Investments (Pty) Ltd v Bothomley NO and Others (Case
no 1123/2022) [2024] ZASCA 1 (9 January 2024)

Coram:
NICHOLLS, MOTHLE and MEYER JJA and KATHREE-SETILOANE
and MASIPA AJJA

Heard:
9 November 2023
Delivered:
This judgment was handed down electronically by circulation to the
parties’ representatives via email, publication on the Supreme Court of Appeal website
and release to SAFLII. The date and time of hand-down is deemed to be 11:00 am on
9 January 2024.

Summary:
Company – Winding-up – s 83(10) of the Insolvency Act 24 of 1936 –
set-off – whether a creditor who has realised its security in terms of s 83(3) can claim
set-off of a post-liquidation debt owed to it against the amount of the proceeds of the
realisation of the property that it is obliged to forthwith pay to the trustee or liquidator
in terms of s 83(10).

ORDER

On appeal from: Gauteng Division of the High Court, Pretoria (Munzhelele J, sitting
as court of first instance):
The appeal is dismissed with costs, including those of two counsel.

JUDGMENT

Meyer JA (Nicholls and Mothle JJA and Kathree-Setiloane and Masipa AJJA
concurring):
[1] Can a creditor who has realised its security in terms of s 83(3) of the Insolvency
Act 24 of 1936 (the Insolvency Act) claim set-off of a post-liquidation debt owed to it
against the amount of the proceeds of the realisation of the property that it is obliged
to forthwith pay to the trustee or liquidator in terms of s 83(10) of the Insolvency Act?
The Gauteng Division of the High Court, Pretoria (the high court) said no. It, inter alia,
ordered the creditor to pay the amount of such net proceeds of the realised security to
the joint liquidators. It is that finding and order which the creditor wishes to assail in
this appeal. The appeal is with leave of the high court.

[2] First, the background facts. The appellant, Emontic Investments (Pty) Ltd
(Emontic), is the owner of an immovable property known as the farm
Tamboekiesfontein near the town of Heidelberg, south of Johannesburg (the
premises) from where the fourth respondent, Montic Dairy (Pty) Ltd (in liquidation)
(Montic), previously conducted business. The first to third respondents, Mr P C
Bothomley, Mr S I Ganie and Ms EM van Wyk NNO, are the joint liquidators of Montic
(the liquidators). Messrs Wayne van Biljon and Karl Kebert served as directors of
Montic and Emontic (the directors).

[3] Montic was founded in 1984. Its large, sophisticated milk processing and
bottling complex included laboratories. Montic operated profitably for almost twenty
years. Mr Martin Swanepoel (Mr Swanepoel), the director of Sonnendal Dairy (Pty) Ltd
(Sonnendal), wanted to expand Sonnendal’s operations into Gauteng and considered
Montic an ideal merger partner. Sonnendal was the proprietor of a sizeable dairy in
the Western Cape. On 12 February 2014, Montic and Sonnendal finalised a merger
agreement. On 25 February 2014, the Competition Commission granted approval for
the Sonnendal-Montic merger. On 1 March 2014, Mr Swanepoel was appointed
Montic’s chief executive officer.

[4] Montic retained possession of the premises and remained financially
responsible to Emontic for the monthly rent. Operating difficulties plagued it from May
2014 until January 2015. A significant number of its personnel embarked on a three-
month strike, which resulted in tremendous financial losses. The Tetra Pack filter
machine, utilised for the packaging of long-life milk, encountered technical difficulties
shortly thereafter, resulting in a significant decline in operational efficiency. Montic
failed to provide its clients with sufficient long-life milk. Pick n Pay and Mr Swanepoel
entered into an exclusivity agreement on the provision of UHT milk. Other potential
revenue-generating clients, including Makro and Shoprite, were neglected as Montic
executed the exclusivity agreement.  It prepared and transported substantial volumes
of long-life milk to Pick n Pay. Nonetheless, Montic was unable to fulfill the contractual
obligations regarding the delivery of those quantities. Their financial difficulties were
exacerbated when Pick n Pay drastically cut its orders for long-life milk.

[5] The commercial relationship between Sonnendal and Montic deteriorated,
prompting Mr Swanepoel to apprise Montic of Sonnendal's decision to withdraw from
the merger. When Montic’s bankers, First National Bank, received notice that the
Montic-Sonnendal merger had ceased, it terminated its finance facilities to Montic in
an amount of more than R14 million. In the end, on the recommendation of its
attorneys, the directors of Montic resolved to initiate business rescue proceedings
voluntarily and be subject to supervision under Chapter 6 of the Companies Act 71 of
2008 (the Companies Act). Its business rescue practitioners secured R3 million and
R500 000 respectively in post-commencement loan financing. Montic continued
operating from the premises notwithstanding its non-payment of the monthly rent.

Cesare Cremona (Cesare) purchased Montic's dairy business from the business
rescue practitioners. Significant breaches of the sale agreement by Cesare thwarted
the sale. The business rescue proceedings were converted into liquidation
proceedings. On 14 June 2016, Montic was placed under final winding-up by order of
court. It was profoundly insolvent. Claims exceeding R112 million were proved against
Montic.

[6] At the time of its liquidation, Montic was substantially indebted to Emontic due
to its failure to pay rent for a prolonged period. Emontic proved a claim against Montic
in the amount of R5 675 536.19 pertaining to the lease of the premises in terms of s
44 of the Insolvency Act. It maintained that it held security for its claim as a secured
creditor by virtue of its common law landlord’s lien over all Montic’s movable property
(the property) on the premises. The property included various tanks of between 7 500
and 1 000 litres, a pasteurizer, a creamer plant, a 100 000 litre silo, a 20 000 litre
sterilising tank, an acepack six-packer, a boiler and feeder tank, a compressor, office
furniture, and various vehicles.

[7] A lease is not automatically terminated on the sequestration or liquidation of a
lessee. It is for the trustee, in terms of s 37(2) of the Insolvency Act, to notify the lessor,
within three months of his appointment ‘that he desires to continue the lease on behalf
of the estate’, otherwise ‘he shall be deemed to have determined the lease at the end
of such three months’. The liquidators did not give such notice within three months of
their appointment. Rather, they notified Emontic of the termination of the lease with
effect from the end of November 2016, which was well beyond the stipulated three-
month period.

[8] Prior to the second meeting of creditors, Emontic, in its capacity as secured
creditor for its pre-liquidation rental claim, notified the liquidators and the sixth
respondent, the Master of the High Court (the master), in accordance with s 83 of the
Insolvency Act,1 of its intention to sell the property over which it held security. On 25

1 In relevant parts s 83 of the Insolvency Act reads:
‘(1)
A creditor of an insolvent estate who holds as security for his claim any movable property shall,
before the second meeting of the creditors of that estate, give notice in writing of that fact to the
Master, and to the trustee if one has been appointed.
(2)
. . .

October 2016, Emontic’s attorneys addressed a letter to the liquidators in which they
advised, inter alia, that Emontic had engaged the services of the fourth respondent,
Kopano Auctioneers (Pty) Ltd (Kopano), to dispose of the property as its agent in terms
of s 83 of the Insolvency Act. The letter reads:
‘My client entered into a written lease agreement with Montic Dairies (Pty) Limited and an
amount of R5 674 536.19 is outstanding in respect of the rental payable up to the date of
liquidation.
My client is also owed administrative rental which we will deal separately for the period referred
to in the Insolvency Act, post liquidation.’

(3)
If such property does not consist of a marketable security or a bill of exchange, the trustee may,
within seven days as from the receipt of the notice mentioned in subsection (1) or within seven
days as from the date upon which the certificate of appointment issued by the Master in terms
of subsection (1) of section eighteen or subsection (2) of section fifty-six reached him,
whichever be the later, take over the property from the creditor at a value agreed upon between
the trustee and the creditor or at the full amount of the creditor’s claim, and if the trustee does
not so take over the property the creditor may, after the expiration of the said period but before
the said meeting, realize the property in the manner and on the conditions mentioned in
subsection (8).
(4)
. . .
(5)
The creditor shall, as soon as possible after he has realized such property, prove in terms of
section forty-four the claim thereby secured and he shall attach to the affidavit submitted in
proof of his claim a statement of the proceeds of the realization and of the facts on which he
relies for his preference.
(6)
. . .
(7)
. . .
(8)
The creditor may realize such property in the manner and on the conditions following, that is to
say –

(a)
. . .

(b)
. . .
(c)
. . .
(d)
if it is any other property, the creditor may sell it by public auction after affording the
trustee a reasonable opportunity to inspect it and after giving such notice of the time
and place of the sale as the trustee directed.
(9)
. . .
(10)
Whenever a creditor has realized his security as hereinbefore provided he shall forthwith pay
the net proceeds of the realization to the trustee, or if there is no trustee, to the Master and
thereafter the creditor shall be entitled to payment, out of such proceeds, of his preferent claim
if such claim was proved and admitted as provided by section forty-four and the trustee or the
Master is satisfied that the claim was in fact secured by the property so realized. If the trustee
disputes the preference, the creditor may either lay before the Master an objection under
section one hundred and eleven to the trustee’s account, or apply to court, after notice or motion
to the trustee, for an order compelling the trustee to pay him forthwith. Upon such application
the court may make such order as to it seems just.
(11)
. . .
(12)
If the claim of a secured creditor exceeds the sum payable to him in respect of his security he
shall be entitled to rank against the estate in respect of the excess, as an unsecured creditor, and if the
net proceeds of any such property exceed all claims secured thereby by the balance, after payment of
those claims, shall be added to the other free residue (if any) in the estate in question.’

[9] On 25 October 2016, Emontic’s attorneys addressed a further letter to the
liquidators, providing them with information regarding the auction’s specifics and
noting that the letter’s author had ‘advised both [his] client and the auctioneer of the
provisions of s 83(10) of the Insolvency Act.’ A public auction was held on 8 November
2016 at the premises. The net amount paid by Kopana to Emontic was R6 745 561.78.

[10] By letter dated 30 November 2016, Emontic’s attorneys informed the
liquidators, inter alia, that the company had set-off the post-liquidation rental amount
owed to it from the date of liquidation until 30 November 2016, when the liquidators
terminated the lease. The attorneys further stated that set-off was not permitted
without the consent of the liquidators. On the same day, Emontic’s attorneys paid to
the liquidators an amount of R2 420 000.05 of the net amount of R6 745 561.78 paid
by Kopana to Emontic. The liquidators’ attorney responded on 6 December 2016,
stating that set-off was not permitted and that the liquidators had not given their assent
to it. The letter emphasised Emontic’s unlawful conduct in purporting to deduct
amounts from the net proceeds of the realisation of the property. It was also noted that
the ‘administrative rental’ claimed by Emontic did not accord with the terms of the lease
agreement. The post-liquidation rental would be paid to Emontic as a portion of the
sequestration costs only if the liquidators determined that the sums sought were owed.
Emontic was placed on terms to pay the outstanding balance, without set-off or
deduction of any amount other than that provided for in s 83.

[11] The attorneys for Emontic made an additional payment of R139 536 to the
liquidators on 26 January 2017. Emontic declined to remit to the liquidators the
remaining balance of the net proceeds from its sale. As a result, the liquidators initiated
the application in the high court, which is the subject of this appeal.

[12] The liquidators sought an order compelling Emontic to pay over to them the net
proceeds of Montic’s property realised at the auction. They asserted that Emontic was
obliged, pursuant to ss 83(5) and 83(10) of the Insolvency Act, to render a statement
to them of the proceeds of the realisation and to ‘forthwith pay over the net proceeds
of the realisation’ to them. Fundamentally, Emontic opposed the application on two
grounds. First, it argued that the ’administrative rental’ ought to be classified as an
expense incurred in the realisation of the property and be subtracted from the gross

proceeds in determining the net proceeds. Second, it argued that it had the right to
set-off the ‘administrative rental’ from the debt it owed the liquidators in relation to the
property’s sale proceeds. Additionally, Emontic filed a conditional counter-application
seeking an order: (a) compelling the liquidators to remove all Montic’s remaining
assets from the premises; (b) declaring that it is entitled to administrative rental for the
period from Montic’s liquidation to 30 November 2016; and (c) that it is entitled to
deduct such rental from the proceeds of the sale.

[13] The high court granted the relief sought by the liquidators and issued the
following order in the conditional counter-application:
‘6. The [liquidators] are ordered to take steps necessary to remove their movable assets,
records and books belonging to Montic Dairy (Pty) Ltd from the property known as
Tamboekiesfontein within 390 calendar days from the date of the order.
7. The claim for administrative rental for the period between the date of Montic Dairy’s
liquidation and 30 November 2016 is dismissed.
8. [Emontic’s] counter application has partly succeeded and therefore each party will pay its
own costs on [Emontic’s] counter application.’

[14] It is expedient to conclude the appeal against the high court’s dismissal of the
declaratory relief sought by Emontic. There exists an irresolvable dispute of fact on
the papers in respect of whether any post-liquidation rental is payable to Emontic.
Generally, an application to hear oral evidence or be referred to trial must be made in
limine.2 However, this requirement was not adhered to. Therefore, the high court’s
refusal to grant the declaratory relief is above reproach.

[15] In argument before us, Emontic’s counsel, in my opinion, correctly and
appropriately, conceded that its set-off defence determines the appeal. This is so
because, albeit within the framework of a divorce order-incorporated settlement
agreement, the meaning ascribed to the phrase ‘net proceeds generated’ from the
sale of a property ‘are those costs that flow directly from the sale of the property’.3 An
identical result is derived from an interpretative analysis of the phrase ‘net proceeds
of the realization’ as it appears in s 83(10) of the Insolvency Act, in accordance with

2 Nel v Ramwell t/a Ramwell Attorneys [2019] ZAGPJHC 28, paras 10-13.
3 Swart v Swart and Others [2022] JOL 53996 (GJ), paras 26-28.

the well-established trinity of language, context and purpose.4 Merely having the
goods sold at an auction situated in the location where the auction took place, does
not establish a sufficient link to the expenses incurred in the sale of the property. The
post-liquidation rental claim is not a claim ‘flowing directly from the sale of the property’.
In other words, the post-liquidation claim does not originate from the sale of the
property. Post-liquidation rental is a cost of sequestration/liquidation to be paid, not
from the proceeds of the realisation, but from the free residue at the end.

[16] It is to Emontic’s set-off defence that I now turn. The four conditions for set-off
to operate are that both debts must be: (a) of the same nature; (b) liquidated; (c) fully
due; and (d) payable by and to the same persons.5

[17] A concursus creditorum is established with a trustee or liquidator who is
entrusted with the estate’s assets, including the property rights and obligations of the
insolvent or company. The liquidator is obliged to hold and administer the estate and
distribute the proceeds among the competing creditors in the manner and order of
preference specified in the Insolvency Act. This procedure is followed after an estate
is sequestrated or a company is liquidated. The hand of the law is laid upon the estate
and no transaction can thereafter be entered into regarding estate matters by a single
creditor to the prejudice of the general body of creditors. The claim of each creditor
must be dealt with as it existed at the issue of the order.6 That is the fundamental
purpose of insolvency legislation.7

[18] The Insolvency Act contains numerous provisions relating to inter alia the proof
of claims, the realisation of securities, the distribution of realisation and the costs of
sequestration. Regarding the proof of claims, s 44 stipulates that a claim shall be

4 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; [2012] 2 All SA 262
(SCA); 2012 (4) SA 593 (SCA) para 25; Commissioner for the South African Revenue Service v United
Manganese of Kalahari (Pty) Ltd ZASCA 16; 2020 (4) SA 428 (SCA), para 8; Capitec Bank Holdings
Limited and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others [2021] ZASCA 99; [2021] 3
All SA 647 (SCA); 2022 (1) SA 100 (SCA).
5 François du Bois et al Wille’s Principles of Sout African Law (9 ed) at 832.
6 See cases such as Walker v Syfret, N.O. 1911 AD 141 at 16; Ward v Barrett, N.O. and Another, N.O.
1963 (2) SA 546 (AD) at 552; Thorne and Another, NNO v Receiver of Revenue [1976] 2 All SA 393
(C) at 396.
7 Minister of Justice and Another v South African Restructuring and Insolvency Practitioners Association
and Others [2016] ZASCA 196; [2017] All SA 331 (SCA); 2017 (3) 95 (SCA) para 55.

proved at a meeting of creditors to the satisfaction of the officer presiding. He or she
is not required to examine a claim too critically and only has to be satisfied that the
claim is prima facie proved.8 The admission of a claim is provisional only, as the
appropriate stage to determine the validity of the claim is when the trustee examines
the claims proved against the estate in terms of s 44.

[19] In regard to the realisation of securities, the starting point is found in s 82 which
stipulates that, subject to the provisions of ss 83 and 90, the trustee of an insolvent
estate shall sell all the property in that estate as directed by the creditors. The
Insolvency Act contains detailed provisions prescribing the costs to which securities
are subject (s 89, often referred to as ‘the s 89 costs’); the manner in which the
proceeds of securities are to be applied (s 95); how the costs of sequestration are to
be defrayed (ss 97 and 106); when and how liquidation and distribution or contribution
accounts are to be framed (ss 91 and 92); the ranking of preferent and concurrent
claims (ss 98A to 103); the lodging of accounts with the Master; and, the inspection
and confirmation thereof and the distribution of dividends (ss 107 to 116).

[20] Emontic’s set-off defence is legally unsustainable. First, the explicit and
unambiguous language of s 83(10), which states that ‘[w]henever a creditor has
realized his security . . . he shall promptly pay the trustee the net proceeds of the
realization to the trustee’, does not permit for set-off to operate against a liquidator’s s
83(10) claim for payment of the net proceeds of the realisation of his security by a
creditor. According to subsection 124(4), a secured creditor of an insolvent estate who
has realised his security in accordance with s 83 and has not remitted the proceeds of
the realisation in accordance with the provisions of s 83(1) despite written demand
shall be guilty of an offence and subject to the penalties specified in ss (2), in addition
to any other offence he may have committed in relation to those proceeds.9

[21] The obligation imposed on a creditor under section 83(10) to pay over the net
proceeds of his realised security and the obligation of the trustee to pay the creditor

8 See Breda NO v Master of the High Court, Kimberley [2015] ZASCA 166 and Mars The Law of
Insolvency in South Africa (10th Ed), para 18.6 at 441.
9 These penalties include a fine not exceeding R1 000 or imprisonment without the option of a fine for
a period not exceeding one year.

his preferent claim out of such proceeds, are not reciprocal obligations. The section
imposes on the creditor an obligation to pay the trustee the proceeds forthwith
whenever he has realised his security. The creditor is entitled to receive payment out
of the proceeds only ‘thereafter’, and only if certain requirements have been met. It is
not permissible for the creditor to require the trustee to first offer payment of his claim.10

[22] The liquidators were, and remain, obliged to recover the proceeds from the sale
of the property from Emontic. It is legally impermissible for the liquidators to agree that
Emontic retain any portion of the proceeds of its realised security, on any basis. In
Townsend11 it was held:
‘The statute imposes a peremptory and unequivocal duty upon a creditor who disposes of his
security. The liquidator is likewise not a free agent in the matter. His duty is to realise the
property in the estate as soon as possible and pay the creditors promptly or, at least, within a
reasonable time. He does not have a power (without a direction from the creditors) to
speculate with the assets, whether by delaying realisation or by expending money on them.
No more may a liquidator properly rely on his judgment of whether a creditor is “good for the
money” to avoid or delay compliance with the duty to pay over under s 83(10). To recognise
such a discretion would be to countenance speculation of a different kind which might, in the
result, be just as damaging to the estate (for example, should the creditor abscond or fail to
live up to the liquidator’s expectations). The passivity of the liquidator in spite of his duty in this
case cannot therefore redound to a benefit to the plaintiff. The hard fact is that, by ignoring the
liquidators demand, it failed to comply with the terms of s 83(10). Fundamental to the plaintiff’s
reliance upon the proceeds of the securities and the proof of its preferred claim was
possession of the estate of the proceeds.’

[23] And, in Commissioner, SARS v Stand Two Nine Nought Wynberg,12 this Court
said:
‘The proposition that a debtor of an insolvent estate might arrange with its trustee or liquidator
to pay the claim of a particular estate creditor is an unusual one. Giving effect to such an
arrangement would enable the parties to subvert the scheme of distribution laid down by the
Insolvency Act 24 of 1936.

10 See Standard Bank of South Africa Limited v Townsend and Others 1997 (3) SA 41 (W) at 49C-50C
(Townsend); Venter NO v Avfin (Pty) Limited 1996 (1) SA 826 (A) at 835-836; Barlows Tractor Co. (Pty)
Limited v Townsend 1996 (2) SA 869 (A).
11 At 52.
12 Commissioner, SARS v Stand Two Nine Nought Wynberg [2005] ZASCA 55; [2006] 4 All SA 11
(SCA); 2005 (5) SA 583 (SCA) paras 8-9.

In terms of s 391 read with s 342 of the Companies Act 61 of 1973 it is a liquidator’s duty to
recover and reduce into possession all of the assets and property of the company to realise
them and apply the proceeds in satisfaction of the costs of winding-up; and, if there is a
residue, to distribute it to creditors entitled thereto in the order of preference and manner set
out in ss 95-104 of the Insolvency Act.’

[24] Second, common law set-off can, in any event, not operate in casu because its
condition that both debts must be payable by and to the same persons,13 is absent.
According to s 37(3), the rent owed under the lease from the date the lessee’s estate
is sequestrated until its determination or cession by the trustee ‘shall be included in
the costs of sequestration’. The costs of sequestration are, in terms of s 97, to be
defrayed from the free residue after the payment of any death bed expenses. If the
free residue is insufficient to cover the costs of sequestration, all creditors who have
proved claims against the insolvent estate or company in liquidation, shall be obliged
to pay for any shortfall in accordance with s 106.

[25] In the result, the appeal is dismissed with costs, including those of two counsel.

________________________
P A MEYER
JUDGE OF APPEAL

13 See para 16 supra.

Appearances

For the appellant:
J Vorster with JA Booyse
Instructed by:
Strydom & Bredenkamp Inc, Pretoria

Hendre Conradie Inc, Bloemfontein

For the first to fourth respondents:
BJ Manca SC with M Maddison
Instructed by:
Reitz Attorneys, Johannesburg
Phatshoane Henney Attorneys,
Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:

9 January 2024
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgments of the Supreme Court of Appeal
Emontic Investments (Pty) Ltd v Bothomley NO and Others (Case no 1123/2022) [2024] ZASCA 1 (9
January 2024)
Today the Supreme Court of Appeal (SCA) dismissed an appeal with costs including those of two
counsel. The appellant, Emontic Investments (Pty) Ltd (Emontic), had appealed against the order of
The Gauteng Division of the High Court, Pretoria, per Munzhelele J (the high court).
The appellant is the owner of an immovable property known as the farm Tamboekiesfontein near the
town of Heidelberg, south of Johannesburg (the premises) from where the fourth respondent, Montic
Dairy (Pty) Ltd (in liquidation) (Montic), previously conducted business. The first to third respondents,
Mr P C Bothomley, Mr S I Ganie and Ms E M van Wyk NNO, are the joint liquidators of Montic (the
liquidators). Montic was founded in 1984. Its large, sophisticated milk processing and bottling complex
included laboratories. Montic operated profitably for almost twenty years. Mr Martin Swanepoel (Mr
Swanepoel), the director of Sonnendal Dairy (Pty) Ltd (Sonnendal), wanted to expand Sonnendal’s
operations into Gauteng and considered Montic an ideal merger partner. Sonnendal was the proprietor
of a sizeable dairy in the Western Cape. On 12 February 2014, Montic and Sonnendal finalised a merger
agreement. On 25 February 2014, the Competition Commission granted approval for the Sonnendal-
Montic merger. On 1 March 2014, Mr Swanepoel was appointed Montic’s chief executive officer.
Montic retained possession of the premises and remained financially responsible to Emontic for the
monthly rent. Operating difficulties plagued it from May 2014 until January 2015. A significant number
of its personnel embarked on a three-month strike, which resulted in tremendous financial losses. The
commercial relationship between Sonnendal and Montic deteriorated, prompting Mr Swanepoel to
apprise Montic of Sonnendal’s decision to withdraw from the merger. When Montic’s bankers, First
National Bank, received notice that the Montic-Sonnendal merger had ceased, it resulted in the
termination of finance facilities to Montic in an amount of more than R14 million.
In the end, on the recommendation of its attorneys, the directors of Montic resolved to initiate business
rescue proceedings voluntarily and be subject to supervision under Chapter 6 of the Companies Act 71
of 2008 (the Companies Act). Its business rescue practitioners secured R3 million and R500 000.00
respectively in post-commencement loan financing. Montic continued operating from the premises
notwithstanding its non-payment of the monthly rent. Cesare Cremona (Cesare) purchased Montic’s
dairy business from the business rescue practitioners. Significant breaches of the sale agreement by
Cesare thwarted the sale. The business rescue proceedings were converted into liquidation

proceedings. On 14 June 2016, Montic was placed under final winding-up by order of court. It was
profoundly insolvent. Claims exceeding R112 million were proved against Montic.
At the time of its liquidation, Montic was substantially indebted to Emontic due to its failure to pay rent
for a prolonged period. Emontic proved a claim against Montic in the amount of R5 675 536.19
pertaining to the lease of the premises in terms of s 44 of the Insolvency Act 24 of 1936 (the Insolvency
Act). It maintained that it held security for its claim as a secured creditor by virtue of its common law
‘landlord’s lien’ over all Montic’s movable property (the property) on the premises. Prior to the second
meeting of creditors, Emontic, in its capacity as secured creditor for its pre-liquidation rental claim,
notified the liquidators and the sixth respondent, the Master of the High Court (the Master), in
accordance with s 83 of the Insolvency Act, of its intention to sell the property over which it held security.
On 25 October 2016, Emontic’s attorneys addressed a letter to the liquidators in which they advised,
inter alia, that Emontic had engaged the services of the fourth respondent, Kopano Auctioneers (Pty)
Ltd (Kopano), to dispose of the property as its agent in terms of s 83 of the Insolvency Act.
On 25 October 2016, Emontic’s attorneys addressed a further letter to the liquidators, providing them
with information regarding the auction’s specifics and noting that the letter’s author had ‘advised both
[his] client and the auctioneer of the provisions of s 83(10) of the Insolvency Act.’ A public auction was
held on 8 November 2016 at the premises. The net amount paid by Kopano to Emontic was R6 745
561.78.
By letter dated 30 November 2016, Emontic’s attorneys informed the liquidators, inter alia, that the
company had applied set-off of the post-liquidation rental amount owed to it from the date of liquidation
until 30 November 2016, when the liquidators terminated the lease. The attorneys further stated that
set-off was not permitted without the consent of the liquidators. On the same day, Emontic’s attorneys
paid to the liquidators an amount of R2 420 000.05 of the net amount of R6 745 561.78 paid by Kopano
to Emontic. The liquidators’ attorney responded on 6 December 2016, stating that set-off was not
permitted and that the liquidators had not given their assent to it.
The attorneys for Emontic made an additional payment of R139 536.00 to the liquidators on 26 January
2017. Emontic declined to remit to the liquidators the remaining balance of the entire total net proceeds
from its sale. As a result, the liquidators initiated the application in the high court which was the subject
of the appeal before the SCA.
The issue before the SCA was whether a creditor who has realised its security in terms of s 83(3) of the
Insolvency Act is legally permitted to set-off of a post-liquidation debt owed to it against the amount of
the proceeds of the realisation of the property that it is obliged to forthwith pay to the trustee or liquidator
in terms of s 83(10) of the Insolvency Act.
In addressing the issue, the SCA held that Emontic’s set-off defence is legally unsustainable as the
explicit and unambiguous language of s 83(10) of the Insolvency Act does not permit for set-off to
operate against a liquidator’s s 83(10) claim for payment of the net proceeds of the realisation of his or
her security by a creditor. It further reasoned that the liquidators were and remain obliged to recover
the proceeds from the sale of the property from Emontic, holding that it was legally impermissible for
the liquidators to agree that Emontic retain any portion of the proceeds of its realised security, on any
basis.
Secondly, the SCA reasoned that common law set-off cannot operate in casu because its condition that
both debts must be payable by and to the same persons, was absent. Post-liquidation rental expenses
are included in the costs of sequestration and according to s 37(3) of the Insolvency Act, the rent owed
under the lease from the date the lessee’s estate is sequestrated until its determination or cession by
the trustee shall be included in the costs of sequestration.
In the result, the SCA dismissed the appeal with costs, including those of two counsel.
~~~~~~~the end~~~~~~~