THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Reportable
Case Number  :  3 / 07

In the matter between

JOHN ALISTAIR LEGH
APPELLANT

and

NUNGU TRADING 353 (PTY) LTD
FIRST RESPONDENT

RIETFONTEIN GENERAL GALVANISERS (PTY) LTD
(in liquidation)
SECOND RESPONDENT

Coram :

HOWIE P, HEHER, PONNAN, MLAMBO JJA et MALAN AJA

Date of hearing :
12 SEPTEMBER 2007

Date of delivery : 27 SETEMBER 2007

SUMMARY

Winding up - s 20(1)(c) of the Insolvency Act 24 of 1936 not rendered applicable to a Company
in winding up by s 339 of the Companies Act 61 of 1973.

Neutral citation:  This judgment may be referred to as :
Legh v Nungu Trading 353  [2007] SCA 122 (RSA)

___________________________________________________________________

PONNAN  JA

[1] During 1998, the appellant, John Alistair Legh, and one Gregory Francis
Porteous (‘Porteous’) purchased the shareholding and loan accounts in the second
respondent, Rietfontein General Galvanisers (‘the Company’), in consequence of
which each acquired ownership of 50 per cent of the Company’s shares.  In addition
the loan account of the Company was divided and each became a creditor of the
Company to the tune of R219 964.  According to the appellant, during 2003,
Porteous disposed of his entire share capital and loan account in the Company to
him.  This is disputed by Porteous. That dispute is the subject of pending litigation
between them.

[2] The Company is the registered owner of Portion 40 (Portion of Portion 24) of
the farm Rietfontein 63 IR Township, Registration Division IR, the Province of
Gauteng, measuring 6,0214 hectares and held under Deed of Transfer T13546/1958
(‘the property’).  It has no other assets and conducts no other business.  Since 1998
no financial reports had been prepared in respect of the Company and it had not
conducted any type of activity whatsoever in relation to the property.  For the period
2004 to 2006 there appeared to be no transactions on the Company’s bank account
save for five deposits effected by the appellant to meet bank charges and in order to
keep the bank account active and open.

[3] Over the years the property came to be neglected and had fallen into a state
of disrepair, so much so that it had come, according to the Ekurhuleni Metropolitan
Municipality (‘the Municipality’), to constitute a serious health hazard.  Numerous
written demands by the Municipality to the Company to remedy the situation were
ignored.  Moreover, charges on the property had not been paid to the Municipality
since 1998.  That resulted in an action being instituted by the Municipality in 1999 for
payment in the sum of R134 473.22.  Although the action was initially defended by
the Company it subsequently was barred from pleading and judgment by default was
taken against it during November 2003 for the amount claimed.

[4] On 14 May 2004, the Municipality applied on notice to the Company for an
order declaring the property executable.  There was no opposition by the Company.
On 24 May 2005, the Sheriff, having attached the property with a view to its sale in
satisfaction of the judgment, served a notice on the Company at its registered office
that the property would be sold in execution.  The sale was duly advertised thereafter
in the local press.  The appellant was informed on 7 June 2005 of the sale in
execution but took no steps to prevent the sale from proceeding.  Nor for that matter
did he even attend the sale in execution which occurred on 22 June 2005.

[5] At the sale in execution the property was sold on behalf of the Municipality by
the Deputy-Sheriff to the first respondent, Nungu Trading 353 (Pty) Limited
(‘Nungu’), for the purchase price of R100.  A condition of the sale was:
‘The purchaser shall pay to the Local Authority or any other body or person entitled thereto, all such
rates or taxes, and any other amounts, including arrear amounts, owing to the Local Authority, for any
services rendered in respect of the property and shall pay to the plaintiff’s attorneys, the aforesaid
amounts together with the costs of transfer, transfer duty, interest and all other amounts necessary to
obtain transfer of the property, upon demand.’

[6] In a letter dated 17 August 2006 to a director of Nungu, the Sheriff stated:

‘On the date of sale in execution all parties present were made aware of the additional payment to the
purchase price of approximately R3,5 million in outstanding rates and taxes due to Ekurhuleni
Metropolitan Municipality.  It was stressed that this amount was payable over and above the purchase
price and that this amount would most probably not be securable by a bond.’

[7] On 23 March 2006, Nungu was informed by the Municipality that the amount
owing to it was R3 424 346.18.  By agreement with the Municipality, Nungu paid to it
the sum of R320 203.51 in order to obtain a clearance certificate.  Additional
arrangements had, according to Nungu, been made with the Municipality in respect
of payment of the outstanding balance.  The clearance certificate was duly issued on
16 May 2006 and thereafter steps were taken to effect registration and transfer of the
property into the name of Nungu.

[8] On 4 August 2006, Porteous and two others brought an urgent application for
the winding up of the company.  On 14 August 2006 a written agreement was
concluded between Porteous and Nungu. Pursuant to that agreement the application

was withdrawn.  By that stage the transfer documents had been lodged with the
Registrar of Deeds and it was anticipated that registration and transfer was
imminent.  The next day the appellant launched an urgent application for the winding
up of the Company and the Company was placed in provisional winding up by an
order of the Johannesburg High Court.

[9] On 26 August 2006, Nungu applied to intervene in the winding up application.
It sought the discharge of the provisional winding up order. In the alternative Nungu
contended that it was entitled, in terms of s 20(1)(c) of the Insolvency Act 24 of 1936
(‘the Act’), to registration and transfer of the property into its name notwithstanding
the provisional winding up order being made final. Blieden J agreed with Nungu’s
alternative contention and on 13 October 2006, the learned Judge granted the
following order:
‘(a)
the rule nisi provisionally winding up the Company is confirmed.
(b)
It is declared that the intervening party, Nungu is entitled to take transfer of the property in
terms of the agreement between it and the Sheriff of Germiston alternatively the Municipality.
(c)
The applicant is to pay the costs of the intervening party, such costs are to include the costs
of two counsel.’
With leave of the learned Judge the appellant appeals against part (b) of the order as
also the resultant cost order, whilst Nungu conditionally cross appeals, seeking, in
the event of the appeal succeeding, that the winding up order be discharged.

[10] Section 20(1)(c) reads:

‘The effect of the sequestration of the estate of an insolvent shall be –
…
(c)
as soon as any sheriff or messenger, whose duty it is to execute any judgment given against
an insolvent, becomes aware of the sequestration of the insolvent’s estate, to stay that execution,
unless the court otherwise directs’.
Section 339 of the Companies Act 61 of 1973 provides that in the winding up of a
company unable to pay its debts, the provisions of the law relating to insolvency
shall, insofar as they are applicable, be applied mutatis mutandis in respect of any
matter not specially provided for by the Companies Act. The question that this
appeal therefore raises is whether s 20(1)(c) is rendered applicable to a company in
winding up by virtue of s 339 of the Companies Act.

[11] First though, a look at the other provisions of s 20 of the Act, for s 20(1)(c)
cannot be viewed in isolation. A useful starting point, it would seem, is s 20(1)(a). Its
effect is to divest the insolvent of his estate and to vest it in the Master and then,
upon his appointment, in the trustee.  Section 20(2)(a) provides, that for the
purposes of s 20(1), the estate of the insolvent shall include ‘all property of the
insolvent at the date of the sequestration including property or the proceeds thereof
which are in the hands of the sheriff or a messenger under a writ of attachment’.
The estate of a company in liquidation, on the other hand, remains vested in the
company. In terms of s 361(1) of the Companies Act all of the property of a company
being wound up is deemed to be in the custody and under the control of the Master
until a provisional liquidator has been appointed and has assumed office. The
property of the company of whatever kind, although it is in his or her custody and
under his or her control, does not vest in its liquidator unless the court so orders in
terms of s 361(3). Sections 20(1)(a) and 20(2)(a) of the Act insofar as they vest the
insolvent’s property in the trustee therefore plainly have no application to a company
in winding up.  Both sections are therefore not rendered applicable by s 339 of the
Companies Act to a company in winding up. (See Michael Blackman ‘Attachments
put in force before the commencement of winding-up’ (1980) 97 SALJ 379 at 381.)

[12] Section 20(1)(b), which, save for certain specified exceptions, causes all civil
proceedings instituted by or against an insolvent to be stayed, until the appointment
of a trustee, likewise finds no application to a company in winding up, for it has
corresponding counterparts in ss 358 and 359 of the Companies Act. Nor for that
matter is s 20(1)(d), which empowers the insolvent, if in prison for debt, to apply to a
court for his release, applicable to a company in winding up, for it by its very nature
is unique to an individual insolvent.

[13] If, as I have just shown, none of the other provisions of s 20 of the Act are of
application to a company in winding up, the legislature could hardly have intended, it
seems to me, that only the one provision, that contained in s 20(1)(c) would be
rendered applicable. But there is a further reason. One, which on the authority of this
court, is decisive of the issue.

[14] Section 361(1) of the Companies Act provides:

‘In any winding-up by the Court all the property of the company concerned shall be deemed to be in
the custody and under the control of the Master until a provisional liquidator has been appointed and
has assumed office.’
Of its predecessor, s 124(3)(b) of the Companies Act 46 of 1926, Botha JA stated in
Secretary for Customs and Excise v Millman, N.O. 1975 (3) SA 544 (A) at 552 G:
‘In view of this special provision in the Companies Act, the property of a company is
not, upon its winding up, by reason of sec. 182 [now s 339] of the Companies Act,
vested in the Master and the liquidator in terms of s 20 of the Insolvency Act 24 of
1936 as was supposed in the majority judgments in Cornelissen, N.O. v Universal
Caravan Sales (Pty.) Ltd 1971 (3) SA 158 (AD) at pp177, 183.’

[15] In Cornelissen, the majority held:
‘In terms of sec 20 of the Insolvency Act (which is, mutatis mutandis, applicable in the case of
liquidation of a company), the goods therefore formed part of the company’s estate and as such
vested, upon liquidation, in the appellant in his capacity as liquidator of the company.  I agree with
Kotzé A.J.A., that, having regard to the terms of sec 20, read with later provisions in the Insolvency
Act relating to the distribution of the proceeds of the assets, the whole estate, which would include the
goods in question, would fall to be dealt with by the liquidator strictly in accordance with the scheme
of distribution described in the Act.’ (per Miller AJA at 177H – 178A);  and

‘By virtue of sub-sec. (1)(a) of sec. 20 of the Insolvency Act, 24 of 1936, as amended – applied
mutatis mutandis to the winding-up of a company unable to pay its debts by sec. 182 of the
Companies Act, 46 of 1926, as amended – a company becomes divested of its estate on winding-up.’
(per Kotze AJA at 183 D)

[16] Moreover, s 342(1) of the Companies Act provides that ‘in every winding up of
a company the assets shall be applied in payment of the costs, charges and
expenses incurred in the winding up and . . . the claims of creditors . . .’ (see also
s 391). That purpose and indeed the purpose of s 361(1) could hardly be achieved
once the sole asset of the company has been transferred out of the company and
into the name of a third party. Similarly, various powers conferred upon the liquidator
by s 386 are rendered nugatory by the grant of the declaratory relief envisaged in
paragraph (b) of Blieden J’s order. It follows, on the facts here present, that the grant
of orders on the one hand finally winding up the company, and on the other
authorising its sole asset to be transferred into the name of a third party, are mutually
contradictory and create what can only be described as a legal anomaly.

[17] It follows that s 20 (1) (c) finds no application to a company in winding up and
in the result the appeal must succeed. I turn now to the cross appeal.

[18] In my view, the appellant established that he is a creditor of the company.
Furthermore, it is undisputed that the Company was unable to pay its debts.
Generally speaking an unpaid creditor has a right ex debito justitiae to a winding up
order against a company unable to pay its debts.  It is so that the court is vested with
a discretion by the very terms of s 344 of the Companies Act.  Blieden J was alive to
that and exercised his discretion in favour of the grant of a final winding up order.  In
that, he cannot be faulted.  In the result the cross appeal must fail.

[19] In the result:
(a)
The appeal is upheld with costs, including the costs of two counsel.
(b)
The first respondent’s conditional cross appeal is dismissed with costs,
including the costs of two counsel.
(c)
The order of the court a quo is set aside and there is substituted
therefore the following order:
(i)
The rule nisi provisionally winding up the respondent is
confirmed and a final order of liquidation issues;
(ii)
The intervening party’s application is dismissed with costs,
including the costs of two counsel.

____________________
V M  PONNAN
JUDGE OF APPEAL

CONCUR:

HOWIE P
MLAMBO JA
MALAN AJA

HEHER JA:

[20] I have read the judgment of Ponnan JA and agree with the orders he
proposes. I prefer to leave open the question of whether s 20(1)(c) of the Insolvency
Act falls to be treated on the same footing as the other subsections of s 20(1) in the
application of s 339 of the Companies Act (‘the Act’). The last-mentioned section
only applies the provisions of the law relating to insolvency in respect of any matter
not specially1 provided for by the Act. The provisions in question in this case are
those which bring about a stay of execution after an attachment of assets belonging
to the insolvent estate. I do not think that the sections of the Act referred to by my
colleague speak necessarily or by implication on that matter: cf Mahomed v Kazi’s
Agencies (Pty) Ltd and Others 1949 (1) SA 1162 (N) at 1166 in fine. Section
359(1)(a) of the Act may well do so, but for the reasons which follow, I do not think it
is necessary to decide whether it does.

[21] Section 359(1)(a) suspends all civil proceedings (ie both those already
commenced before a winding-up and those which would, but for the suspension, be
commenced after the making of an order for winding up) until the appointment of a
liquidator, whereafter they may be commenced or continued only after compliance
with the provisions of s 359(2). In this case the claim against the company for
transfer of the property sold in execution had arisen before the commencement of
the winding-up. After the provisional order the property remained that of the
company and fell into the concursus.

[22] To obtain an order for transfer of the immovable property into its name Nungu
had perforce to bring a counter-application against the company, as it purported to
do by serving that application at the registered office of the company. At the time a
provisional winding-up order was in operation but Nungu did not attempt to comply
with s 359(2) of the Act.

1 My emphasis.

[23] It does not matter in this regard whether one treats the claim for transfer as
part of the proceedings of execution (as Jennett J did in Ex parte Flynn: in re United
Investment and Development Corporation Ltd (in liquidation) 1953 (3) SA 443 (E) at
445G-H) or as an independent proceeding. In either case the counter-application
purported to initiate civil proceedings for relief against the company (cf Collett v
Priest 1931 AD 290 at 299; King Pie Holdings (Pty) Ltd v King Pie (Pinetown) (Pty)
Ltd 1998 (4) SA 1240 (D) at 1248H) in the face of the statutory bar while the
company was powerless to resist. The court a quo accordingly had no valid
application before it which enabled it to make the order for transfer (whether under s
20(1)(c) or otherwise).

____________________
J A   HEHER
JUDGE OF APPEAL