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STORTI v NUGENT AND OTHERS 2001 (3) SA 783 (W)

2001 (3) SA p783

Citation 2001 (3) SA 783 (W)

Case No 98/1488

Court Witwatersrand Local Division

Judge Gautschi AJ

Heard March 27, 1998

Judgment May 27, 1998

Counsel P Roodt for the applicant.

B Gudelsky SC for the first and second respondents.

Annotations Link to Case Annotations

D

[zFNz]Flynote : Sleutelwoorde

Company - Winding-up - Staying or setting aside of winding-up proceedings in terms of s 354(1)

of Companies Act 61 of 1973 - Court may grant order in terms of s 354(1) from date on which

application E for winding-up lodged - Section 354(1) intended to cater for attack on winding-up

order on basis that supervening events render stay or setting aside of proceedings necessary or

desirable, and not for rescission of assailable order - Rescission under s 149(2) of Insolvency

Act 24 of 1936 available in both situations - Rescission under common law also available where

winding-up order itself F assailable.

Company - Winding-up - Setting aside of winding-up order in terms of s 149(2) of Insolvency

Act 24 of 1936 read with s 339 of Companies Act 61 of 1973 - Section 149(2) may be invoked

where setting aside of winding-up order necessary or desirable in light of supervening events

and where order itself assailable because it was incorrectly G granted - Discretionary power

under s 149(2) not limited to rescission on common-law grounds - Order to be granted only in

unusual or special circumstances - Section cannot be invoked to obtain rehearing of merits of

sequestration proceedings - Where alleged that winding-up order should never have been

granted, facts must at least support cause of action for common-law rescission - Where

reliance placed on H supervening events, ordinary rehabilitation machinery to involve

unnecessary hardship, or circumstances to be very exceptional - Court should not exercise

discretion under s 149(2) in favour of application if undesirable consequences will follow - To

establish 'sufficient cause' required for common-law rescission, applicant to show prima facie

that company solvent - This requirement not I satisfied where applicant relying on contingent

asset such as successful outcome of claim instituted against creditor.

[zHNz]Headnote : Kopnota

Section 354(1) of the Companies Act 61 of 1973 provides that the Court 'may at any time

after the commencement of a winding up, on the application of J

2001 (3) SA p784

any liquidator, creditor or member, and on proof to the satisfaction of the Court that all

proceedings in relation to the A winding up ought to be stayed or set aside, make an order

staying or setting aside the proceedings . . . '. And s 339 of the Act provides that the law of


insolvency shall apply 'in respect of any matter not specifically provided for by this Act'.

Section 149(2) of the Insolvency Act 24 of 1936 provides that the Court 'may rescind or vary

any order made by it under the provisions of this Act'. B

An order under s 354(1) may be granted from the date on which the application for winding

up was lodged with the Registrar. (At 794D/E - F) The section may not be invoked for the

rescission of a winding-up order on the basis that it should never have been granted in the

first place due to some defect in the procedure or the merits of the application, but only

where the winding-up order is in itself C unassailable, and supervening events render it

necessary or desirable to stay or set aside the proceedings. (At 795D - E/F and 805H/I - I.)

If the winding-up order itself is assailable, it may be rescinded under the common law. (At

795F.) A party may, furthermore, invoke s 149(2) of the Insolvency Act, read with s 339 of

the Companies Act, in both the above-mentioned situations, but the following rules apply:

Although the Court's discretionary power under s 149(2) is not limited to D rescission on

common-law grounds, the facts must, where it is alleged that the order should never have

been granted, at least support a common-law action for rescission. In addition, unusual or

special circumstances must exist to justify relief under s 149(2), and the section cannot be

invoked to obtain a rehearing of the merits of the sequestration proceedings. Where

reliance is placed on supervening events, it should involve unnecessary hardship to be

confined to the E ordinary rehabilitation machinery, or the circumstances should be very

exceptional. Lastly, a Court must not exercise its discretion under s 149(2) in favour of such

an application if undesirable consequences would follow. (At 805I/J - 806G.)

It follows from the above that a party who wishes to set aside winding-up proceedings on

the ground that the winding-up order should never have been granted due to a defect in the

procedure or the merits F of the application must bring his claim under s 149(2) of the

Insolvency Act, or as a rescission under the common law. (At 805I/J - 806G.) On either

basis, he must at least bring himself within a rescission under the common law. That

involves establishing 'sufficient cause', which in turn involves two essential elements: (1) the

party seeking relief must present a reasonable and acceptable G explanation for his default,

and (2) such a party must on the merits have a bona fide defence that prima facie has some

prospect of success, which, in the case of an application for the rescission of a winding-up

order, means that the applicant must show prima facie that the company is solvent. This last

requirement is not satisfied where the applicant relies on a contingent asset such as the

successful outcome of an action instituted against H one of its creditors. (At 806J - 807C

and 809B - C/D.)

[zCAz]Cases Considered

Annotations

Reported cases

Abdurahman v Estate Abdurahman 1959 (1) SA 872 (C): applied

ABSA Bank Ltd v Rhebokskloof (Pty) Ltd and Others 1993 (4) SA 436 (C): dictum at 439A -

440E applied I

Assistant Taxing Master v Shenker, Shenker and Gross 1953 (4) SA 281 (T): dictum at

284B applied


Attorney-General v Blumenthal 1961 (4) SA 313 (T): criticised and not followed

Aubrey M Cramer Ltd v Wells NO 1965 (4) SA 304 (W): discussed J

2001 (3) SA p785

Austral Brick Co Pty Ltd v Falgat Constructions Pty Ltd (1990) 21 NSWLR 389: compared A

Chetty v Law Society, Transvaal 1985 (2) SA 756 (A): dictum at 764I - 765D applied

Collins and Another v G Collins & Sons Pty Ltd (1984) 9 ACLR 58: compared

Desai v Hajee and Another 1956 (3) SA 651 (N): applied

Ex parte African Motor Parts Co (Pty) Ltd (in Voluntary Liquidation) 1943 NPD 285: referred

to B

Ex parte Belcher: In re Die Boeren Ko-operatieve Molen Maatschappy Beperkt v Belcher

1939 WLD 39: applied

Ex parte Blevins 1933 WLD 160: applied

Ex parte Bobat: In re Kathorian Trading Co (Pty) Ltd 1965 (2) SA 291 (D): applied C

Ex parte Charmowitz & Co (Prop) Ltd (in Liquidation) 1937 OPD 6: applied

Ex parte Cohen 1937 OPD 17: applied

Ex parte De Freitas 1932 CPD 180: applied

Ex parte De Loor's Ltd 1931 TDP 171: compared

Ex parte G Pagan Enterprises (Pty) Ltd 1983 (2) SA 30 (W): applied

Ex parte Greef 1922 EDL 17: applied D

Ex parte Gwynn: In re Meat Producers Exchange Ltd (in Provisional Liquidation) 1923 PH

E3 (W): applied

Ex parte Less 1929 CPD 50: applied

Ex parte Liquidator, City Board of Executors and Trust Co Ltd 1930 WLD 187: applied

Ex parte Liquidator, Longfield & Co Ltd 1936 WLD 8: applied E

Ex parte Liquidator, Mossel River Estate Co Ltd 1917 CPD 528: applied

Ex parte Liquidators, Silver Cohen Furniture Manufacturers (Prop) Ltd 1938 WLD 245:

applied

Ex parte Mavromati 1948 (3) SA 886 (W): applied

Ex parte Orkin and Donenburg 1930 WLD 314: applied F

Ex parte Patterson 1931 TPD 374: applied

Ex parte Rossouw NO 1942 SWA 45: applied


Ex parte Sayanvala 1923 WLD 58: applied

Ex parte Steenkamp 1932 CPD 312: applied

Ex parte Van der Merwe 1962 (4) SA 71 (O): applied but dictum at 72F doubted

Ex parte Van Rensburg 1932 TPD 30: applied G

Ex parte Williams 1938 OPD 40: applied

Herbst v Hessels NO en Andere 1978 (2) SA 105 (T): discussed

High Court Buildings Trust (Pty) Ltd v Mia Ltd 1949 (3) SA 286 (W): applied

In re Bank of Queensland Ltd (1870) 2 QSCR 113: compared

In re Diamond Fuel Co (1879) 13 ChD 400 (CA): compared

In re Eerste Kaapse Diamantslypery (Eiendoms) Bpkt 1930 CPD 153: applied H

In re Golden Butterfly Gold Mining Co, No Liability (1916) SALR 177: compared

In re Photographic Artists' Co-operative Supply Association (1883) 23 ChD 370 (CA):

compared

In re South Coast Developing Co Ltd 1935 NPD 263: referred to

Krextile Holdings Pty Ltd v Widdows; Re Brush Fabrics Pty Ltd (1974) VR 689: compared I

Lusernvallei (Edms) Bpk v Turner 1964 (4) SA 104 (O): criticised and not followed

Mayerowitz v Sarembock and Klotz 1932 WLD 129: applied

O'Connell Manthe & Partners Inc v Vryheid Minerale (Edms) Bpk 1979 (1) SA 553 (T):

applied J

2001 (3) SA p786

Petjalis Engineering Works (Pty) Ltd v South African Transport Services and Another 1988

(1) SA 103 (C): dictum A at 109D applied

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A): dictum at

634E - 635C applied

Re A & BC Chewing Gum Ltd: Topps Chewing Gum Inc v Coakley and Others [1975] 1 All

ER 1017 (Ch) ([1975] 1 WLR 579): compared B

Re Allebart Pty Ltd (in Liquidation) and the Companies Act; re Home Holdings Pty Ltd (in

Liquidation) and the Companies Act (1971) 1 NSWLR 24: compared

Re Backhouse Pty Ltd (1946) QWN 4: compared

Re Baxters Ltd [1898] WN 60: compared

Re Bristol Victoria Potteries Co [1872] WN 85: compared C


Re Calgary and Edmonton Land Co Ltd [1975] 1 All ER 1046 (Ch): compared

Re Calmex Ltd; Calmex Ltd and Another v C Lila Ltd and Others [1989] 1 All ER 485 (Ch):

discussed

Re Condes Co of Chili Ltd (1892) 36 Sol Jo 593: compared

Re Continental Bank Corp, Re London and Mediterranean Bank (1867) 16 LT 112 ([1867]

WN 114): compared D

Re Data Homes Pty Ltd (in Liquidation) and the Companies Act (1972) 2 NSWLR 22 (CA):

compared

Re Denistone Real Estate Pty Ltd and Companies Act (1970) 3 NSWLR 327: compared

Re Eastern Investments Co Ltd [1905] 1 Ch 352: compared E

Re Empire Builders Ltd [1919] 88 LJ Ch 459 ([1919] WN 178): compared

Re E K Wilson & Sons Ltd [1972] 2 All ER 160 (CA): compared

Re Filshie, Broadfoot & Co Ltd (1913) QWN 46: compared

Re Intermain Properties Ltd (1986) BCLC 265 (Ch): discussed

Re Lowston Ltd (1991) BCLC 570: compared

Re Lyric Syndicate Ltd [1900] 17 TLR 162: compared F

Re Marine Investment Co, ex parte Poole's Executors (1873) 8 Ch App 702: compared

Re Mascot Home Furnishers Pty Ltd (in Liquidation) (1970) VR 593: compared

Re Oriental Bank Corp (1884) 10 VLR 154: referred

Re Patent Automatic Knitting Machine Co [1882] WN 97: compared G

Re Reprographic Exports (Euromat) Ltd (1978) 122 Sol Jo 400: applied

Re Schanschieff Electric Battery Syndicate [1888] WN 166: compared

Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688: compared

Re SS Chigwell Ltd (1888) 4 TLR 308: compared

Re SS Titian Co Ltd (1888) 58 LT 178: compared

Re St Nazaire Co (1879) 12 ChD 88: compared H

Re Telescriptor Syndicate Ltd [1903] 2 Ch 174: compared

Re Warbler Pty Ltd (1982) 6 ACLR 526: compared

Re Walters (Stephen) & Sons Ltd (1926) 70 Sol Jo 953 ([1926] WN 236): compared

Re Western of Canada Oil, Lands and Works Co [1874] WN 148: compared


Re Worcester, Tenbury and Ludlow Railway Co 3 De G and S 189 (64 ER 439): compared I

Re X L Petroleum Pty Ltd (1971) VR 560: compared

Remiliotis v Tenth Anemot Pty Ltd (in Liquidation) (1994) 13 ACSR 650 (Fed C of A):

compared

Rigby v Union Fruit & Citrus Farms Ltd (in Liquidation) 1931 TPD 265: applied J

2001 (3) SA p787

Ruskin NO v Hi-Level Enterprises (Pty) Ltd 1981 (1) SA 315 (W): criticised and not followedA

Smulders v Namibia Diamond Mining Co (Pty) Ltd 1982 (1) SA 549 (SWA): applied

Stern v Danzig 1926 WLD 4: applied

Terrace Bay Holdings v Strathmore Diamonds (Pty) Ltd 1976 (3) SA 664 (SWA): discussedB

Venbor (Pty) Ltd v Vendaland Development Co (Pty) Ltd t/a Camp Store 1989 (2) SA 619

(V): criticised and not followed

Vermeulen and Another v C C Bauermeister (Edms) Bpk and Others 1982 (4) SA 159 (T):

compared

Wolhuter Steel (Welkom) (Pty) Ltd v Jatu Construction (Pty) Ltd (in Provisional Liquidation)

1983 (3) SA 815 (O): dictum at 816D - E applied. C

[zSTz]Statutes Considered

Statutes

The Companies Act 61 of 1973, ss 339, 354(1): see Juta's Statutes of South Africa 2000 vol

2 at 1-202, 1-205

The Insolvency Act 24 of 1936, s 149(2): see Juta's Statutes of South Africa 2000 vol 2 at

1-482. D

[zCIz]Case Information

Application in terms of s 354(1) of the Companies Act 61 of 1973 for the setting aside of all

proceedings relating to the winding up of the third respondent on the ground that the

winding-up order had been wrongly granted. The facts appear from the reasons for

judgment.

P Roodt for the applicant. E

B Gudelsky SC for the first and second respondents.

Cur adv vult.

Postea (May 27).


[zJDz]Judgment

Gautschi AJ: The third respondent, Automotive Drive Lines (Pty) Ltd (ADL) is presently in

liquidation, a F final winding-up order having been granted on 30 September 1997 at the

instance of the first respondent (Nugent) and the second respondent (SPS). The fourth

respondent is the duly appointed liquidator of ADL. (Although he is the provisional liquidator

according G to the Master's certificate, this appears to be an error, since the company was

placed directly into final liquidation.) The applicant is a minority shareholder of ADL, but

represents the majority (69%) of shareholders. Nugent holds the balance (31%) of the

shares in ADL.

The main application before me is one in terms of s 354(1) of the H Companies Act 61 of

1973 (the 1973 Companies Act) to set aside all proceedings in relation to the winding up of

ADL. There is also an interlocutory application before me, by the applicant, for a

postponement of the main application to 28 April 1998 in order to enable him to deliver a

replying affidavit. Since Mr Gudelsky SC, for Nugent and SPS, indicated that he would

oppose a I postponement, inter alia on the basis that no case had been made out in the

founding affidavit of the main application for a setting aside of the proceedings in relation to

the winding up of ADL, I heard that argument together with the application for

postponement.

I need first to set out the history of the matter. During 1982 ADL J

2001 (3) SA p788

GAUTSCHI AJ

acquired a propshaft manufacturing business and employed Nugent as its A managing

director. ADL thereafter conducted business in the manufacture, repair and sale of drive

shafts and related components. The applicant alleges (although this is in dispute) that whilst

Nugent was a director of ADL, from approximately 1987 to May 1993, he unlawfully

competed with ADL under the name or guise of SPS. Nugent resigned from ADL on 31 May

1993 and since then has been B conducting business through SPS. During March 1994

ADL issued summons against Nugent and SPS for a disgorging of profits and damages

arising out of the alleged unlawful competition. The action was first enrolled for trial on 16

May 1995. It was not ripe for trial at that stage and was postponed by agreement, ADL

tendering to pay Nugent and SPS's wasted costs. It was again enrolled on 5 February 1996,

but was C postponed for a second time by agreement, ADL again tendering to pay the

wasted costs. The action was set down a third time for trial on 6 August 1996. ADL applied

for a postponement. There was a dispute as to who was at fault. The postponement was

granted by the Court after hearing argument and the wasted costs were reserved. The

action was set D down for a fourth time on 28 May 1997, but was again postponed at the

instance of ADL, who contributed the sum of R11 000 toward Nugent and SPS's wasted

costs. The matter was set down again on 14 November 1997, at which stage it was

postponed sine die and, I gather, the applicant (because ADL was by then in liquidation)

agreed to contribute an amount of R4 000 toward Nugent and SPS's costs. E

It is therefore clear that the action has been postponed on five occasions, and on four of

those the applicant or its camp paid the wasted costs, either in full or in part.

There were certain interlocutory applications to the action. On 4 June 1996 Nugent and SPS

sought an order dismissing the action F for non-compliance with a Court order which had


directed the furnishing of certain further particulars. On 3 July 1996, pursuant to a request

for security for costs, the Registrar of this Court fixed security in the amount of R130 000

which was required to be furnished by ADL 'within ten days by way of an approved South

African banker's guarantee'. A guarantee was furnished, but Nugent and SPS were not G

satisfied with its wording and brought an application for the dismissal of the action on the

grounds that ADL had failed to provide such security. On 30 July 1997 the Court granted

ADL three days within which to comply with the Registrar's ruling and stayed the action

pending compliance therewith. It also ordered ADL to pay the costs of H the application.

There was a further interlocutory application in terms of which Nugent and SPS sought

compliance with a Rule 35(3) notice, in which ADL was ordered on 6 May 1997 to pay costs.

On 15 September 1997, Nugent and SPS launched an application for the winding up of

ADL. Service of the application took place at ADL's I registered office. The indebtedness

relied on was an amount of R2 993,88, representing the taxed bills of costs relating to

interlocutory orders given on 6 May 1997 and 30 July 1996. On the basis of a nulla bona

return, the company's failure or inability to furnish financial statements beyond 1992, and its

failure personally to furnish security for J

2001 (3) SA p789

GAUTSCHI AJ

costs in the action, it was alleged that the respondent was unable to pay its debts and was

trading in A insolvent circumstances. It was also said to be just and equitable to wind up the

company. There was also a (misguided) reliance on s 344(f) of the Companies Act on the

basis that 75% of the respondent's assets had been lost. As I indicated above, a final

winding-up order was granted on 30 September 1997 by this Court. The application was

unopposed at that stage. B

The applicant learnt of the liquidation order at the latest on 6 October 1997 when he

received a telefax from the liquidator. After seeking several indulgences, the main

application to set aside the liquidation proceedings in terms of s 354(1) of the Companies

Act was eventually launched on 21 January 1998. In essence, it was alleged that the

winding-up order had been incorrectly granted. Nugent and SPS C gave notice of their

intention to oppose the application on 2 February 1998 and delivered their answering

affidavit on 20 February 1998. The applicant failed to deliver a replying affidavit within the

permitted time, which expired on 6 March 1998. On 16 March 1998 Nugent and SPS's

attorney (Mr Luen) wrote to the D applicant's attorney (Mr Mills) as follows:

'We note that your client's replying affidavit is long overdue. Our client is not prepared to permit any furtherdelays in this matter. We propose setting this matter down for hearing shortly.'

On the next day, 17 March 1998, Mr Luen set the application down for hearing during the

motion week commencing on Tuesday 24 E March 1998. There was no response from Mr

Mills, and indeed, when the matter was called before me on Wednesday morning, 25 March

1998, there was no appearance for the applicant. The matter stood down for enquiries to be

made, which resulted in Mr Roodt appearing before me for the applicant seeking a

postponement (by way of a substantive application) to permit the filing of a replying affidavit.F

Some explanation is given in the application for postponement for the failure to deliver a

replying affidavit and to appear on Wednesday 25 March 1998. The explanation leaves


much to be desired, and there is merit in Mr Gudelsky's submission that the failure to deliver

the replying affidavit is really inexcusable. It is, G however, unnecessary for me to base a

finding on this, in the light of the view which I take of the case sought to be made out in the

founding papers. In any event, I would have been reluctant to non-suit the applicant on the

basis of the remissness of his attorney, if he had a good cause of action. I would have

preferred to mulct the applicant severely in costs. H

The main application, as I have said, is based on s 354(1) of the 1973 Companies Act. That

section reads as follows:

'354. Court may stay or set aside winding-up

(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 I thewinding-up ought to be stayed or set aside, make an order staying or setting aside the proceedings or for thecontinuance of any voluntary winding up on such terms and conditions as the Court may deem fit.'

Since I had reservations about the applicability of s 354(1) to the applicant's situation, I

required argument to be addressed to me on this J

2001 (3) SA p790

GAUTSCHI AJ

aspect. The first question to be addressed is whether the applicant correctly bases its cause

of action on s 354(1). A

In order to ascertain the scope and purpose of the section, it is necessary firstly to delve into

its origins. The logical starting place is the early English companies legislation. The limited

liability company, as we know it today, was unknown to Roman-Dutch law, and has been

adopted from English legislation. The first modern legislation on B companies in England

was the Joint-Stock Companies Act, 1844 (7 & 8 Vict c 110) which created the unlimited

company. The Limited Liability Act, 1855 (18 & 19 Vict c 133) created the machinery for the

limitation of the liability of shareholders to the amount due by them on their shares. The

Joint-Stock Companies Act, 1856 (19 & 20 Vict c 47) C consolidated the two former Acts. It

made provision for two kinds of company, namely the unlimited company and the limited

company, and introduced the requirement of a memorandum of association and articles of

association. The first important consolidating Act thereafter was the Companies Act, 1862

(25 & 26 Vict c 89) which introduced a third D category, namely the company limited by

guarantee, and dropped the words 'Joint Stock'. The (South African) 1973 Companies Act is

the successor to the Companies Act 46 of 1926 (the 1926 Companies Act), which in turn

was based on the Transvaal Companies Act, 1909 (Act 31 of 1909). The latter was

modelled on the English Companies (Consolidation) Act, 1908 (8 Edw VII, c 69) which was

the first recodification of the E English company law after the Companies Act, 1862. (See,

on the English legislation, Gower's Principles of Modern Company Law 6th ed pp 38 - 52,

and on the English and South African legislation, Hahlo's South African Company Law

through the Cases 5th ed by Pretorius et al pp 1 - 3, or, for a fuller history, the F 4th ed pp

10 - 16.)

The Joint Stock Companies Winding-up Act, 1848 (11 & 12 Vict c 45) entitled shareholders

to petition for the winding up of their company. The 1856 Act and the Winding-up (Insolvent)

Act, 1857 (20 & 21 Vict c 78) removed companies from normal bankruptcy jurisdiction and

provided G instead for winding-up proceedings, and winding up at the instance of creditors,


and the distinction between compulsory and voluntary winding up, were introduced.

Section 119 of the 1848 Act contains the first provision for a stay of winding-up proceedings

of which I am aware. It provides: H

'CXIX And be it enacted, That it shall be in the Discretion of the Court on Application made to it in that Behalfby any Party interested in the Matter of the Winding-up, to stay Proceedings on any Report or Order of theMaster.'

The first appearance of the predecessor to s 354(1), of which I am aware, is s 85 of the

1856 Act, which provided: I

'85. The Court may, at any time after an order or decree has been made for winding up a company, upon theapplication by motion of any creditor or contributory of the company, and upon proof to the satisfaction of theCourt that all proceedings in relation to such winding up ought to be stayed, make an order staying the same,either altogether or for a limited time on such terms and subject to such conditions as it deems fit.' J

2001 (3) SA p791

GAUTSCHI AJ

The section was thereafter, and until today, faithfully retained in the subsequent English

legislation, with only minor changes. The A section was repeated in s 89 of the Companies

Act, 1862, which merely omitted the words 'or decree':

'89. The court may at any time after an order has been made for winding up a company, upon the applicationby motion of any creditor or contributory of the company, and upon proof to the satisfaction of the B courtthat all proceedings in relation to such winding up ought to be stayed, make an order staying the same,either altogether or for a limited time, on such terms and subject to such conditions as it deems fit.'

Section 144 of the Companies (Consolidation) Act, 1908 is in almost identical terms: C

'144. The court may at any time after an order for winding up, on the application of any creditor orcontributory, and on proof to the satisfaction of the court that all proceedings in relation to the winding upought to be stayed, make an order staying the proceedings, either altogether or for a limited time, on suchterms and conditions as the court thinks fit.'

Section 58 of the Companies Act, 1928 (18 & 19 Geo V c 45) amended D s 144 of the 1908

Act by, inter alia, inserting the words 'of the liquidator or the official receiver or' after the

words 'the application'.

The next consolidating Act was the Companies Act, 1929 (19 & 20 Geo V c 23), s 202 of

which read as follows:

'202(1) The court may at any time after an order for winding up, on the application either of the liquidator, orthe official receiver, E or any creditor or contributory, and on proof to the satisfaction of the court that allproceedings in relation to the winding up ought to be stayed, make an order staying the proceedings, eitheraltogether or for a limited time, on such terms and conditions as the court thinks fit.

(2) On any application under this section the court may, before making an order, require the official receiverto furnish to the court F a report with respect to any facts or matters which are in his opinion relevant to theapplication.'

A further section was added in the Companies Act, 1947 (10 & 11 Geo VI c 47) which later

became the third subsection to the section. Section 97(1) of that Act read as follows:

'97(1) On the making of any order staying the proceedings in a winding up, a copy of the order must forthwithbe forwarded by the G company, or otherwise as may be prescribed, to the Registrar of Companies, who


shall make a minute thereof in his books relating to the company.'

Section 256 of the next consolidating Act, the Companies Act, 1948 (11 & 12 Geo VI c 38),

combined the developments after 1908: H

'256(1) The court may at any time after an order for winding up, on the application either of the liquidator orthe official receiver or any creditor or contributory, and on proof to the satisfaction of the court that allproceedings in relation to the winding up ought to be stayed, make an order staying the proceedings, eitheraltogether or for a limited time, on such terms and conditions as the court thinks fit. I

(2) On any application under this section the court may, before making an order, require the official receiverto furnish to the court a report with respect to any facts or matters which are in his opinion relevant to theapplication.

(3) A copy of every order made under this section shall forthwith be forwarded by the company, or otherwiseas may be prescribed, to the registrar of companies, who shall make a minute of the order in his booksrelating to the company.' J

2001 (3) SA p792

GAUTSCHI AJ

Its successor, s 549 of the Companies Act 1985, was short-lived. It A provided:

'549(1) The court may at any time after an order for winding up, on the application either of the liquidator orthe official receiver or any creditor or contributory, and on proof to the satisfaction of the court that allproceedings in relation to the winding up ought to be stayed or sisted, make an order staying or sisting theproceedings, B either altogether or for a limited time, on such terms and conditions as the Court thinks fit.

(2) The Court may, before making an order, require the official receiver to furnish to the Court a report withrespect to any facts or matters which are in his opinion relevant to the application.

(3) A copy of every order made under this section shall forthwith be forwarded by the company, or otherwiseas may be prescribed, to the C registrar of companies, who shall enter it in his records relating to thecompany.'

('Sisted' appears to be the Scottish equivalent of a stay.)

This section has now been taken up in s 147(1) and (2) of the Insolvency Act, 1986, which

provide as follows:

'147(1) The court may at any time after an order for winding up, on the application either of the liquidator orthe official receiver or D any creditor or contributory, and on proof to the satisfaction of the court that allproceedings in the winding up ought to be stayed or sisted, make an order staying or sisting theproceedings, either altogether or for a limited time, on such terms and conditions as the Court thinks fit.

(2) The Court may, before making any order, require the official receiver to furnish to it a report with respectto any facts or matters E which are in his opinion relevant to the application.

(3) A copy of every order made under this section shall forthwith be forwarded by the company, or otherwiseas may be prescribed, to the registrar of companies, who shall enter it in his records relating to thecompany.'

The first subsection has been adopted in South African company F legislation in

substantially identical terms, but introducing, from 1926 onwards, the competence to set

aside proceedings as well. The 1973 Companies Act first introduced the right to order the

'continuance of any voluntary winding-up', but this in my view plays no part in the

interpretation of the section and will consequently be ignored. G

Section 120(1) of the 1926 Companies Act provided as follows:


'120(1) The court may at any time after an order for winding up, on the application of any creditor orcontributory, and on proof to the satisfaction of the court that all proceedings in relation to the winding upought to be stayed or set aside, make an order staying or setting aside the proceedings, on such terms andconditions as the Court deems fit.' H

This was a redraft of s 121 of the Transvaal Companies Act 1909, which provided:

'121 The court may at any time after an order for winding up, on the application of any creditor orcontributory, and on proof to the satisfaction of the court that all proceedings in relation to the winding upought to be stayed, make an order staying the proceedings, I either altogether or for a limited time, on suchterms and conditions as the Court deems fit.'

In the Cape Colony, s 143 of the Companies Act 25 of 1892 was closer to the English

equivalent:

'143 The court may at any time after an order has been made for winding up a company, upon theapplication by motion of any liquidator, creditor or J

2001 (3) SA p793

GAUTSCHI AJ

contributory of the company, and upon proof to the satisfaction of the court that all proceedings in relation tosuch A winding up ought to be stayed, make an order staying the same either altogether or for a limitedtime, on such terms and subject to such conditions as it deems fit.'

Its predecessor, s IX of the Winding-up Act of 1868 provided as follows:

'IX The court may at any time after such order, on the application of the liquidator or liquidators, eithergeneral or B provisional, or of any creditor of or contributory to such company, or other person showing aninterest in the matter, and upon proof to the satisfaction of the court that all or any proceedings in relation tosuch winding-up ought to be stayed either absolutely or conditionally, or suspended for any time, make anorder accordingly, subject or not subject to conditions, or any other order of the same nature as shall to thecourt seem just.' C

The same section appeared as s 9 of the Winding-up of Joint Stock Companies Law 2 of

1892 of the Orange River Colony, which read:

'The court may, at any time after such order (for liquidation) shall have been granted, and upon application ofthe liquidator or liquidators, whether general or provisional, or of any creditor or contributory of suchcompany, or of any person interested therein, and D upon being satisfied that all proceedings relating tosuch winding up ought to be finally stopped or conditionally stayed, or suspended for any period, make anorder to that effect conditionally or unconditionally or may make such order of a similar nature as it shalldeem fit.'

I am not aware of a similar provision in the statutes of the Colony of Natal. E

Subsection (2) in the English legislation aforementioned has not been repeated in the South

African legislation. Subsection (3) was introduced as s 120(3) of the 1926 Companies Act

(in similar but not identical wording) by Act 46 of 1952. It was not included as a subsection

to s 354 of the 1973 Companies Act.

Section 354(2) of the 1973 Companies Act provides: F

'(2) The Court may, as to all matters relating to a winding-up, have regard to the wishes of the creditors ormembers as proved to it by any sufficient evidence.'

Section 120(2) of the 1926 Companies Act is to the same effect, and a similar provision is

also to be found in, for instance, s 144 of the Cape Act of 1892, s 122 of the Transvaal Act

of 1909, and s 10 of the G Orange River Colony Act of 1892, as well as in s 145 of the


English Companies (Consolidation) Act, 1908.

There is one final provision that I wish to refer to in order to complete the picture. Section

388(1) of the 1973 Companies Act allows s 354(1) to be applied in respect of voluntary

winding up. It provides: H

'(1) Where a company is being wound up voluntarily, the liquidator or any member or creditor or contributoryof the company may apply to the Court to determine any question arising in the winding-up or to exercise anyof the powers which the Court might exercise if the company were being wound up by the Court.' I

This section, too, is to be found in varying forms in most of the above-mentioned companies

legislation, and features in some of the cases referred to below.

The above history of s 354(1) reveals that it was originally and still is used in England to

provide the Court with the power to stay proceedings, but has been broadened in its wording

in South Africa to include J

2001 (3) SA p794

GAUTSCHI AJ

the setting aside of proceedings. But for that distinction (which I shall explain presently), the

basic wording and purpose seem A to have remained much the same in England and South

Africa for almost a century and a half.

There are four features of s 354(1) which need to be emphasised immediately. Firstly, it

refers to the staying or setting aside of 'proceedings' and not 'order'. The reason for this in

my view lies B in the nature of winding-up proceedings. The grant of a winding-up order

sets in motion the liquidation process. Occasions will arise, because of events which

supersede the winding up (such as offers of compromise), when it will be necessary or

desirable to set aside or stay the winding up proceedings. Such a need will not generally

arise in the case of other orders, as for example a judgment for payment of a C debt.

Secondly, only the liquidator, a creditor or member may bring such an application. The

company itself, as represented by its board of directors does not have locus standi in judicio

under this section. This has, in my view, important consequences in determining the scope

and purpose of the section. D

Thirdly, an order might be made under this section at any time after 'the commencement of

a winding up'. That expression is given a particular meaning in s 348 of the 1973

Companies Act:

'A winding-up of a company by the Court shall be deemed to commence at the time of the presentation to theCourt of the E application for the winding up.'

The application for winding up is presented to the Court within the meaning of the section

when it is duly lodged with the Registrar of the Court. (Wolhuter Steel (Welkom) (Pty) Ltd v

Jatu Construction (Pty) Ltd (in Provisional Liquidation) 1983 (3) SA 815 (O) at 816D - E.) F

Although it was decided in Vermeulen and Another v CC Bauermeister (Edms) Bpk and

Others 1982 (4) SA 159 (T) that, in relation to s 341(1) of the 1973 Companies Act, before

the deeming provision of s 348 can operate there must be a winding up by the Court, it

seems to me that this reasoning will not apply to the expression 'commencement of a

winding up' in s 354(1). It would be G illogical to provide a remedy to stay or set aside


proceedings from the date on which the application for winding up is lodged, but then to

decree that it is only to be exercised once the winding-up order has been granted. It would

be equally illogical to have deliberately changed the wording of the section from the 1926

Companies Act ('after the making of an order for winding up') to the 1973 Companies H Act

('after the commencement of winding up') if it was not intended to provide a remedy from the

earliest possible stage of winding-up proceedings. The Vermeulen case was concerned only

with the application of s 348 to s 341 of the 1973 Companies Act, and I do not read it as

having dealt exhaustively with the applications of s 348. It is therefore not in conflict with my

view that a stay or setting I aside of proceedings may be sought in terms of s 354(1) at any

time after the lodging of the application for winding up.

Fourthly, the section provides for both a staying and setting aside. As I have shown above,

the section as borrowed from English legislation originally only permitted the staying of

proceedings. The power to set J

2001 (3) SA p795

GAUTSCHI AJ

aside was introduced in the 1926 Companies Act. The balance of the A section remained

largely unchanged. Although the word 'stay' means, in our law, to suspend, the expression

has a wider meaning in English law. Apart from the usual meaning (suspend), it may also

mean the total discontinuance of proceedings. (See Jowitt's Dictionary of English Law 2nd

ed vol 2 sv 'stay', and see the advice given in Re Intermain Properties Ltd (1986) BCLC 265

B (Ch) at 266h, which only makes sense if 'stay' means the total discontinuance of

proceedings. In Australia it has been recognised that a perpetual stay paradoxically brings

the winding up process to an end: Krextile Holdings Pty Ltd v Widdows: Re Brush Fabrics

Pty Ltd (1974) VR 689 at 693 - 4. The relevant section in the Australian 1981 Act (quoted

below) now allows for 'terminating the winding up'.) The addition in the South African Act,

from 1926, of C the power to set aside was probably in recognition of the difference in

terminology. (This serves as a reminder of the dangers of borrowing from English law,

however similar corresponding legislation may appear to be.) The addition of the power to

set aside has therefore not altered the scope of the section in any fundamental way. D

A moment's reflection reveals that an application to set aside or stay winding-up

proceedings may arise in two broad situations. On the one hand, the winding-up order may

be attacked on the basis that it should never have been granted, by reason of some defect

in the procedure or the merits of the application. On the other hand, the E winding-up order

may be unassailable in itself, but later events may render a stay or setting aside of the

winding-up proceedings necessary or desirable.

In my view, the section is intended to cover the latter situation, and not the former. My

reasons for this view are the following. Firstly, if the winding-up order itself is assailable, it

may be rescinded under the common law, and there is no need for a section in F the

Companies Act to provide for such a situation. (I leave out the applicability of s 149(2) of the

Insolvency Act 24 of 1936 for the moment, since its use in the argument would lead to a

circuitous reasoning. I shall deal with that section later.) There is however a real need for a

section to deal with the second situation. G

Secondly, the company, represented by its board of directors, has no locus standi in judicio

under the section. A company has the right to rescind or appeal a winding-up order, or to


oppose an application for winding up. (In regard to an appeal, see In re Diamond Fuel Co

(1879) 13 ChD 400 (CA) at 405, 412; In re Photographic Artists' Co-operative Supply

Association (1883) 23 H ChD 370 (CA); Re E K Wilson & Sons Ltd [1972] 2 All ER 160

(CA); O'Connell Manthe & Partners Inc v Vryheid Minerale (Edms) Bpk 1979 (1) SA 553 (T)

at 556F - 558C. In regard to opposition to an application for winding up, I respectfully

associate myself with the position taken up in O'Connell Manthe & Partners Inc v Vryheid

Minerale (Edms) Bpk (supra); Smulders v Namibia I Diamond Mining Co (Pty) Ltd 1982 (1)

SA 549 (SWA); Ex parte G Pagan Enterprises (Pty) Ltd 1983 (2) SA 30 (W); Wolhuter Steel

(Welkom) (Pty) Ltd v Jatu Construction (Pty) Ltd (in Provisional Liquidation) (supra); and

ABSA Bank Ltd v Rhebokskloof (Pty) Ltd and Others 1993 (4) SA 436 (C) at 439A - 440E,

for the reasons stated in those cases, and I respectfully disagree with the J

2001 (3) SA p796

GAUTSCHI AJ

contrary decisions of Ruskin NO v Hi-Level Enterprises (Pty) Ltd 1981 (1) SA 315 (W) and

Venbor (Pty) A Ltd v Vendaland Development Co (Pty) Ltd t/a Camp Store 1989 (2) SA 619

(V). Further support may be found in Re Reprographic Exports (Euromat) Ltd (1978) 122

Sol Jo 400. It bears mention that the decision of Trollip J in Attorney-General v Blumenthal

1961 (4) SA 313 (T), in which it was held that on the granting of a B winding-up order the

directors ceased to be directors and are divested of all their powers, which features

prominently in the debate and which is relied upon by both Van Dyk J in the Ruskin case

and Van der Spuy AJ in the Venbor case, was criticised in the Australian case of Austral

Brick Co Pty Ltd v Falgat Construction Pty Ltd (1990) 21 NSWLR 389 at 391F - G as going

further than the mainstream of authority.) If the section were intended to permit of a C

process akin to rescission of an order, there would be no reason to exclude the company as

one of the possible applicants.

Thirdly, the section refers to 'proceedings' and not 'order'. 'Proceedings' is a very wide term

(Assistant Taxing Master v Shenker, Shenker and Gross 1953 (4) SA 281 (T) at 284B) and

would D ordinarily include the commencement of proceedings for the enforcement of relief

(Petjalis Engineering Works (Pty) Ltd v South African Transport Services and Another 1988

(1) SA 103 (C) at 109D). Although the expression 'proceedings' may therefore be accepted

to be wide enough to include any order granted, generally when an order is E set aside, all

the proceedings which flowed from the order (for example execution) are automatically set

aside as well. The reference to 'proceedings' is therefore another indication that this section

was not intended for or geared to the rescission of an assailable order. This is strengthened

when 'proceedings' is read with 'stay' and 'set aside'. The Court has the power to suspend

(stay) the F proceedings, or to set them aside, in which latter event the entire proceedings,

including the application for winding up, would be set aside. Where the winding-up order

had been incorrectly granted, however, the Court would ordinarily wish merely to rescind

(set aside) the order, leaving the application for winding up intact. The wording of s 354(1) is

not geared for the latter situation, since the Court G has to be satisfied, according to the

section, that all the proceedings ought to be stayed or set aside, and is unlikely ever to be

satisfied that the application itself, as opposed to merely the order and all that flowed from it,

should be set aside where the order had been incorrectly granted.

Fourthly, although the wording might be arguably wide enough to H include the

first-mentioned situation, this could lead to anomalies. For instance, if a winding-up order

should not have been granted for one reason or another, s 354(1) would be available to a


member or creditor (I leave aside the liquidator who is unlikely to bring such an application),

while the company would have to invoke the common law. If the test were identical, this

would simply reinforce the point that I there was no need to legislate for such a position. If

the test were different, this may possibly lead to different results, depending upon who

launches the application.

Fifthly, my view is reinforced by a study of the reported decisions on the section. J

2001 (3) SA p797

GAUTSCHI AJ

The English cases dealing with the section which I have consulted A (and I do not pretend

that my researches have been exhaustive) mostly involve events which apparently arose

after winding up. The earliest case which I have been able to find, Re Worcester, Tenbury

and Ludlow Railway Co 3 De G and S 189 (64 ER 439), decided in 1850, involved an

application by the directors of a company inter alia for a stay of proceedings on the bases

that no person had B been placed on the list of contributories, no creditor had made any

claim, the official manager and petitioner consented, and sufficient money had been paid in

to cover the liabilities of the company. A stay was ordered. Re Continental Bank Corp, Re

London and Mediterranean Bank (1867) 16 LT 112 ([1867] WN 114) and on appeal [1867]

WN 178, contains no indication of the basis upon which C the stay was sought and is

therefore of no assistance in the enquiry. Re South Barrule Slate Quarry Co (1869) LR 8 Eq

688 concerned the wish of shareholders of a company in voluntary winding up under

supervision, to put an end to the further progress of the liquidation with a view to the

company continuing and resuming its business. In Re Bristol Victoria Potteries Co [1872]

WN 85 D a stay of proceedings was sought in order that the company, which had been

(correctly) put into compulsory liquidation, could be placed in voluntary liquidation under

supervision. Re Marine Investment Co, ex parte Poole's Executors (1873) 8 Ch App 702

involved an arrangement between the creditors and the company. In Re Western of Canada

Oil, Lands and Works Co [1874] WN 148 the debenture E holders, who had wound up the

company, proposed a scheme for the reconstruction of the company. The arrangement was

sanctioned by the Master of the Rolls. In Re Patent Automatic Knitting Machine Co [1882]

WN 97, the winding-up order was discharged following upon the sanctioning of a

composition between the company and the creditors. No reference is however made in the

report to any F legislative provisions relied upon. The report in the matter of Re

Schanschieff Electric Battery Syndicate Ltd [1888] WN 166 is scant, but it is at least clear

that the application for a stay of all the proceedings in the winding up of the company

followed upon the voluntary winding up of that company and the subsequent G cancellation

of a tripartite agreement in terms of which the company had sold its patent rights to another

company. It appears that the purpose of the stay was to repossess the company of its

assets.

In Re SS Chigwell Ltd (1888) 4 TLR 308 it was desired to resume the business of the

company, which had previously gone into voluntary liquidation but where the shareholders

later formed the opinion that the business could be carried on profitably. Re SS H Titian Co

Ltd (1888) 58 LT 178 involved a stay with a view to reconstruction of the company. Re

Condes Co of Chili Ltd (1892) 36 Sol Jo 593 involved a stay of the voluntary winding up of

the company, in order to enable it to enter into a proposed arrangement for a sale of its

property. In Re Baxters Ltd [1898] WN 60, a I company moved for an order rescinding the

winding- up order on the basis that all the creditors had been paid off or their claims


compromised. It was held that the proper order to be made was to stay all proceedings in

the winding up in terms of s 89 of the Companies Act, 1862. It was held that for that purpose

the notice of motion had to be amended to ask for that prayer, and a creditor or J

2001 (3) SA p798

GAUTSCHI AJ

contributory had to be joined as applicant. An application for a stay of winding-up A

proceedings was dismissed in Re Telescriptor Syndicate Ltd [1903] 2 Ch 174, but the

application was brought upon facts which arose after the winding up of the company. In the

case of Re Eastern Investments Co Ltd [1905] 1 Ch 352 a stay was sought in order to

enable the company to transfer certain mining claims in a particular manner so as to ensure

the validity of such transfer, before B the company was deemed to be dissolved. Re

Walters (Stephen) & Sons Ltd (1926) 70 Sol Jo 953 ([1926] WN 236) concerned the

sanction of a scheme of arrangement with creditors and shareholders, involving a reduction,

reorganisation and increase of capital and stay of voluntary winding-up proceedings. It is

said in the report that C during the winding up it became apparent that it was desirable that

the business of the company should continue to be carried on. The order was granted. In Re

A & BC Chewing Gum Ltd; Topps Chewing Gum Inc v Coakley and Others [1975] 1 All ER

1017 (Ch) ([1975] 1 WLR 579), the company was wound up on the just and equitable basis.

Thereafter an application was made by the respondent directors for D a stay to be granted

of that order. The report does not specify for what purpose the stay was sought, but it

appears to have been pending an appeal and not for purposes of a rescission of the order.

(See Gore-Brown on Companies 44th ed vol 2 para 32.8 footnote 3.) The application for a

stay was refused. The application for a stay in Re Calgary and Edmonton Land Co Ltd

[1975] 1 All ER 1046 E (Ch) was also refused, but the application was brought well after the

voluntary winding up of the company, and upon supervening events. Lastly, Re Lowston Ltd

(1991) BCLC 570 concerned an application to stay winding-up proceedings on the basis that

the judgment upon which the petitioning creditor had relied had been set aside. It is not

clear from the report precisely when the judgment was F set aside, but I perceive from the

facts set out that it occurred after the obtaining of the winding-up order.

As against the aforegoing line of cases, there are a few which concern a stay of

proceedings sought on the basis that the winding-up order should not have been granted.

One such case was Re Empire Builders Ltd (1919) 88 LJ Ch 459 ([1919] WN 178). In that

case G the Board of Trade had made an order in respect of each company that its business

should be wound up upon the ground that it had been carried on for the benefit or under the

control of an enemy subject one Henry Samuel, and thereafter had made an order that each

company should be wound up. In doing so it had acted in terms of powers given to it by the

Trading with the Enemy (Amendment) Act, 1918. The application for a H stay was brought

by Samuel. Younger J had this to say:

'This application is misconceived. The validity of the winding up of a company cannot be questioned on anapplication in the winding up itself. The validity of the winding up of these companies depends upon thevalidity of the orders to wind up the two businesses. If the I validity of those orders depends upon theopinion of the Board of Trade as to a fact, namely, the nationality of Mr Samuel, then it cannot be questionedin this Court at all; but if it depends upon the existence of that fact itself, then the remedy is not to apply tothe Court in the winding up, but to challenge the validity by independent proceedings in which the fact maybe investigated.' J

2001 (3) SA p799


GAUTSCHI AJ

No order was granted on the application and Samuel was given leave to apply after the

action which he would then institute had been A determined that the costs of the application

be treated as costs in the action. This case can therefore not be used as authority that the

section is available where the winding-up order has been incorrectly granted.

The report in Re Lyric Syndicate Ltd (1900) 17 TLR 162 is short enough to be quoted in full:B

'This was an application to rescind a winding-up order made on a creditor's petition. The ground of theapplication was that the order had been obtained by the mistake of a solicitor's clerk, who after arrangementshad been made to satisfy the petitioners and have the petition withdrawn, which were duly carried out, inignorance C instructed counsel and obtained the order. The evidence showed that the petitioners accededto the application.

His Lordship said that he had no jurisdiction to rescind the order after it had been passed and entered. Hesuggested that application before Mr Justice Wright to stay the winding up might be made if debts were paid.'

There is a general rule in English law that the Court cannot revoke an order which has been

perfected (Re St Nazaire Co D (1879) 12 ChD 88; Re Intermain Properties Ltd (supra at

266b - c)), hence the failure of the application for rescission. The legal advice thereafter

given by the learned Judge, Cozens-Hardy J, is not part of the decision, and the condition

attached ('if debts were paid') seems in any event to indicate that a stay could only be

obtained if the cause for the E winding-up order were removed, and not merely because the

order had been incorrectly sought and obtained.

The case of Re Intermain Properties (supra) was an application to rescind a winding-up

order which had already been perfected. The application was brought by the petitioning

creditor, who had incorrectly obtained a winding-up order without proper service, and F

therefore had no effective winding-up order. Whilst the existing order stood, he could not

obtain an effective order by presenting another petition, and therefore required the

rescission of the existing order. Hoffmann J (as he then was) considered that, because of

the effect of the order on other parties, it was not possible simply to rescind the order upon

the petitioning creditor's application. On the authority of G Re Lyric Syndicate Ltd (supra) he

held that the correct procedure was to apply for a stay of winding up under s 549 of the

1985 Act. The authority relied upon, as I have indicated above, is of dubious value. In

particular, the learned Judge did not apparently consider whether s 549 of the 1985 Act was

intended to be H used in such circumstances.

In Re Calmex Ltd; Calmex Ltd and Another v C Lila Ltd and Others [1989] 1 All ER 485 (Ch)

the same learned Judge was faced with an application in which a company had been wound

up by mistake, and now sought a rescission of that order, although it had been 'drawn up'

(perfected). At 486h - j the following is said: I

'The first question is whether the winding-up order can be rescinded. Until the Insolvency Rules 1986, SI1986/1925, came into force, a winding-up order could not be rescinded after it had been drawn up. The onlyremedy was to apply for a stay: see Re Intermain Properties Ltd (1986) BCLC 265. But r7.47(1) of the 1986

rules says: J

2001 (3) SA p800

GAUTSCHI AJ

''Every court having jurisdiction under the Act to wind up companies may review, rescind or vary any


order made by it in the A exercise of that jurisdiction.'' '

The learned Judge found that that rule gave him jurisdiction to rescind the order, and

granted the order sought. His reference to the position prior to the Insolvency Rules 1986

was obiter, and his reliance is purely on the Intermain case, which in turn B relies on the

dubious authority of the Lyric case. One may also ask what the purpose of the

above-quoted rule is if s 147 of the Insolvency Act, 1986 is applicable to such a situation.

None of the last-mentioned four cases presents, in my respectful view, any strong authority

that the section was either intended to cater or actually catered for a stay of proceedings

where the winding-up order should not have been granted in the first place. My C

conclusion on the English cases examined is that the section, in English law, was probably

intended to be used purely in the situation where new developments after a winding-up

order (correctly granted), necessitated a stay or rendered it desirable. But even if I am

wrong in arriving at this conclusion, it is significant that there is an D obstacle in English law

to rescinding a perfected judgment. South African law does not suffer from this impediment,

and s 354(1) must accordingly be considered bearing this distinction in mind.

An analysis of the South African cases (and again I do not pretend that my search was

exhaustive) reveals that they too, with few exceptions, involve events which arose after the

winding up. In E Ex parte Liquidator, Mossel River Estate Co Ltd 1917 CPD 528 the

company had been placed into voluntary liquidation. The assets were valued and partly

realised, whereafter it appeared that the company was solvent and that there was no longer

any need for it to remain in liquidation. The creditors and shareholders sought a stay of the

F proceedings and that the company be allowed to resume business in terms of its articles

of association. The order was granted. In Ex parte Sayanvala 1923 WLD 58 the company

was liquidated after one Weinberg had obtained a judgment against it. His debt was paid by

the petitioner, a shareholder. The only creditors were Weinberg and the G petitioner.

Neither Weinberg nor the liquidator opposed the application for a stay. The petitioner

alleged that he wished to keep the company in existence and that if it were dissolved he

would suffer financial loss. The winding-up order was stayed.

In Ex parte Gwynn: In re Meat Producers Exchange Ltd (in Provisional Liquidation) 1923 PH

E3 (W) a stay was granted for a day in order to allow certain meetings to take place and

resolutions to H be passed. In In re Eerste Kaapse Diamantslypery (Eiendoms) Bpkt 1930

CPD 153, a setting aside of a voluntary liquidation was sought in order to allow the company

to continue its business operations. The creditors, save for two, were all paid in full after the

liquidation. The petitioner was one of the unpaid creditors and the I remaining creditor

consented. The proceedings in the voluntary liquidation were set aside. In Ex parte

Liquidator, City Board of Executors and Trust Co Ltd 1930 WLD 187 the company had gone

into voluntary liquidation. After the liquidator had assumed his duties, it was ascertained that

the company was solvent and that there were sufficient assets in the estate to pay all

creditors. Thereafter all J

2001 (3) SA p801

GAUTSCHI AJ

creditors were paid in full, save for a lessor. Arrangements were made for a cession of the

lease to a third party, and the lessor consented A thereto. The liquidation proceedings were

set aside. Ex parte De Loor's Ltd 1931 TPD 171 is authority for the proposition that by

reason of s 171 of the 1926 Companies Act (the equivalent of s 388 of the 1973 Companies


Act), the Court can discharge a company from liquidation under s 120 of that Act, even

when the liquidation is B voluntary. In that case the discharge from liquidation was sought

on the basis of an offer of compromise having been sanctioned by the Court. In Rigby v

Union Fruit & Citrus Farms Ltd (in Liquidation) 1931 TPD 265, s 120 of the 1926 Companies

Act was invoked in order to restrain a liquidator from proceeding with the sale C of the

assets of the company after the final winding-up order had been granted, in view of a

possible reconstruction of the company. In the case of In re South Coast Developing Co Ltd

1935 NPD 263 an order was sought discharging the company from liquidation, authorising it

to resume and carry on its business in terms of its articles of association, and releasing the

applicants from their office and functions as liquidators. The application was not brought in

terms D of any provision of the Companies Act, but the cases of City Board of Executors,

De Loor and Mossel River Estate were referred to. The purpose of the application was to

enable the company to carry on its business again. There is no doubt that, had the learned

Judge been aware of ss 120 and 171 of the 1926 E Companies Act, he would have based

his order upon those sections. The order in Ex parte African Motor Parts Co (Pty) Ltd (in

Voluntary Liquidation) 1943 NPD 285, to discharge the company from liquidation, was

granted on the authority of the South Coast case, also without reference to ss 120 or 171 of

the 1926 Companies Act. In that case all the creditors had been paid during the liquidation.

In Ex parte Liquidator, Longfield & Co Ltd 1936 F WLD 8 the liquidator asked for an order

(which was granted) staying the proceedings in a voluntary winding up, where the creditors

had made an offer of compromise which the company had accepted. Ex parte Charmowitz

& Co (Prop) Ltd (in Liquidation) 1937 OPD 6 and Ex parte Liquidators, Silver Cohen

Furniture Manufacturers (Prop) G Ltd 1938 WLD 245 were to the same effect. In High Court

Buildings Trust (Pty) Ltd v Mia Ltd 1949 (3) SA 286 (W) the applicant obtained an order for

the provisional liquidation of the respondent. Thereafter the applicant and the respondent

arrived at a settlement which was reduced to writing. The applicant joined with the

respondent in seeking leave to anticipate the return day, and for an order discharging the

provisional order and making the H settlement an order of Court. After being satisfied that

all the creditors consented, Millen J granted the order as prayed. It is not clear upon what

authority the order was granted, but in the course of argument the Court was referred to s

120 of the 1926 Companies Act. In Ex parte Bobat: In re Kathorian Trading Co (Pty) Ltd

1965 I (2) SA 291 (D) application was made for the sanction of a compromise with the

creditors of the company, and the discharge of the company from liquidation under the

provisions of s 120(1) of the 1926 Companies Act. Although the compromise was

sanctioned, it was held that the Durban and Coast Local Division had no jurisdiction to set

aside an order which had been granted by the Natal J

2001 (3) SA p802

GAUTSCHI AJ

Provincial Division, and consequently no order was made on the second part of the relief A

claimed. In Terrace Bay Holdings (Pty) Ltd v Strathmore Diamonds (Pty) Ltd 1976 (3) SA

664 (SWA) an order was granted in terms of s 354, but the report contains no facts upon

which that application was based and merely records that the Court was satisfied on the

papers that the order should be granted. The bulk of the report deals with B neglect by the

liquidator. However, it appears that the liquidator was appointed almost two years before the

application was heard, and I infer from that fact that the setting aside of the winding up was

based on supervening events.


There are a few cases against the general trend. In Aubrey M Cramer Ltd v Wells NO 1965

(4) SA 304 (W) the company (an insurance company) had been provisionally placed under

judicial C management at the instance of the Registrar of Insurance and was thereafter on

the application of the respondent, as judicial manager, placed under final liquidation. The

final order was not opposed. Thereafter the applicant, the manager of the businesses of the

company and also a large shareholder therein, applied for the setting aside of D the

winding-up order made 'against the long-term insurance business of the company'. (See in

this regard the justified criticism in Henochsberg on the Companies Act 5th ed vol 1 pp 747 -

8; only the company can be wound up, and not the business or part of the business thereof.)

The applicant contended that the long-term business was at all times solvent and should

never have been liquidated. E However, the application was brought more than a year after

the liquidation. In the result Claassen J exercised his discretion against the applicant. It is

difficult to view this case as authority for the proposition that the section may be invoked in a

situation where the winding-up order had been incorrectly granted. The point was not F

considered and, to the extent that the application failed, was unnecessary to consider.

In the case of Herbst v Hessels NO en Andere 1978 (2) SA 105 (T) the applicant sought to

set aside a winding-up order in terms of s 354(1) of the 1973 Companies Act on the grounds

that the company did not owe any amount to the petitioning creditor, that the company G

was in fact solvent at the time of the application, and that the provisional liquidator of the

petitioning creditor did not have authority to bring the application for liquidation. The

applicant had taken no steps to oppose the application for liquidation as he had been

advised by his attorney that there was nothing which could be done to stop the application

and as his own mental state was depressed by the H disadvantageous state of his personal

fortunes. Eloff J (as he then was) accepted, without deciding, that the section was wide

enough to cover that situation. He went on to find that under s 354(1) nothing less would

suffice than was required in terms of a common-law rescission and that the applicant had

not brought himself within the I requirements of a common-law rescission. This case is not

authority for the proposition that s 354(1) may be invoked for a rescission of a winding-up

order on the basis that it should not have been granted in the first place, given the mere

assumption (which was all that was necessary in that case) that the section would cover the

situation. J

2001 (3) SA p803

GAUTSCHI AJ

The only other South African case of which I am aware which appears A to be against the

trend of authority cited above is the case of Lusernvallei (Edms) Bpk v Turner 1964 (4) SA

104 (O). In that case the company sought to place itself under voluntary liquidation. A

provisional winding-up order was granted on 30 April 1964, and the matter came before

Erasmus J on the return day. One Turner objected, and claimed to represent the company.

The deponent to B the founding papers was one Joubert who claimed to be a director of

and shareholder in the company, and claimed, with his wife, to be the only two shareholders

in and directors of the company. The objector, Turner, alleged in an answering affidavit that

he and his wife had already on 13 March 1964 purchased all Joubert and his wife's shares

and rights in the company, that he had taken over the assets of the company C (including

its property), that Joubert and his wife had during March resigned as directors of the

company in writing, that the shares had been transferred to him (Turner) and his wife, that

he and his wife had already been the shareholders in and directors of the company before


the purported resolution by Joubert and his wife to liquidate D the company, and that the

company was solvent. Certain crucial allegations made by Turner were not denied by

Joubert in reply. On the papers, Erasmus J found that Joubert and his wife's affidavits could

not be accepted as true and found that they had no locus standi to apply for the provisional

liquidation of the company. He E also found that they had failed to disclose material facts in

the founding papers and that the rule nisi should be discharged for that reason. The

provisional winding-up order was set aside. It is not clear whether this was done in terms of

s 171(1) of the 1926 Companies Act (the equivalent of s 388(1) of the 1973 Act), read with s

120(1). There was, with respect to the learned Judge, no reason to have considered or

invoked ss 171 or 120 of the 1926 Companies Act. F His reliance on De Loor's case supra

was also misplaced, since in that case the Court invoked ss 120 and 171 of the 1926

Companies Act to set aside a voluntary winding up by reason of the sanctioning of an offer

of compromise. In addition, the rule nisi which had been issued in the Lusernvallei case

called upon interested parties to show cause why a final order G should not be granted. A

corollary thereto was that, if cause was shown why a final order should not be granted (as

was done in that case), the provisional order had to be discharged. There was no need to

invoke ss 120 and 171 of the 1926 Companies Act to come to that conclusion. To the extent

that those sections were invoked, I am of the respectful view that that case is wrong and

should not be followed. H

My conclusion on a review of the South African cases is that the clear trend supports my

view, and that the cases which are seemingly against that view (Aubrey M Cramer, Herbst

and Lusernvallei) are not, on proper analysis, authority to the contrary. I

I have also delved, although somewhat superficially, into the position in Australia. That

country has enjoyed a federal form of government since 1900. Since the late 1950s the goal

has been uniform company legislation throughout Australia. Uniform Companies Acts were

passed in all Australian jurisdictions during 1961 and 1962, although they were not strictly

uniform (Halsbury's Laws of Australia vol 7 paras 120-105, J

2001 (3) SA p804

GAUTSCHI AJ

120-130). I have had access to s 243 of the Companies Act, 1961, applicable in the States

of New A South Wales and Victoria, which provides as follows:

'243(1) At any time after an order for winding up has been made the Court may, on the application of theliquidator or of any creditor or contributory and on proof to the satisfaction of the Court that all proceedings inrelation to the winding up ought to be stayed, make an B order staying the proceedings either altogether orfor a limited time on such terms and conditions as the Court thinks fit.

(2) On any such application the Court may, before making an order, require the liquidator to furnish a reportwith respect to any facts or matters which are in his opinion relevant. C

(3) An office copy of every order made under this section shall be lodged by the company with theCommission within fourteen days after the making of the order.'

The Companies Act 89 of 1981, which is an Act of the Commonwealth (Federal) Parliament,

applies only as legislation of the Australian Capital Territory. It has been adopted, with

variations, in each State. The relevant section is s 381, which appears to apply in each State

D without variations:


'383 Power to stay or terminate winding up

(1) (Stay or termination) At any time during the winding up of a company, the Court may, on the application ofthe liquidator or of a creditor or contributory, make an order staying the winding up E either indefinitely or fora limited time or terminating the winding up on a date specified in the order.

(2) (Liquidator's report) On such an application, the Court may, before making an order, direct the liquidatorto furnish a report with respect to a relevant fact or matter.

(3) . . . . F

(4) . . . .

(5) . . . .'

The reported decisions of which I have become aware (although I did not have access to all

the reports) indicate that the section has been used to attempt to stay proceedings as a

result of supervening events, and not to rescind an order incorrectly granted. This appears

from the G following cases: In re The Bank of Queensland Ltd (1870) 2 QSCR 113

(application by shareholders, apparently based on supervening events; the application was

postponed because the court was not satisfied that all shareholders had notice; there is no

mention of the specific legislation involved, but it was probably based on the English Act of

1862 - Halsbury's Laws of Australia vol 7 para H 120-100); Re Filshie, Broadfoot & Co Ltd

(1913) QWN 46 (to enable the company to sell its assets and recommence business); Re

Oriental Bank Corp (1884) 10 VLR 154 (after the company's branch in Victoria had been

wound up, the court stayed the proceedings on the unanimous request of the creditors). In

re Golden Butterfly Gold Mining Co, No Liability (1916) SALR 177 (to return the company to

a going concern); Re Backhouse Pty Ltd I (1946) QWN 4 (creditors paid in full out of

trading profits without resort to capital); Re Denistone Real Estate Pty Ltd and Companies

Act (1970) 3 NSWLR 327 (to enable the company to trade again; it is specifically said - at

331 - that the winding-up order had been proper; the order was J

2001 (3) SA p805

GAUTSCHI AJ

refused because the company remained insolvent); Re Mascot Home Furnishers Pty Ltd (in

A liquidation) (1970) VR 593 (proposed scheme of arrangement); Re Allebart Pty Ltd (in

Liquidation) and the Companies Act; re Home Holdings Pty Ltd (in Liquidation) and the

Companies Act (1971) 1 NSWLR 24 (to stop harassment and oppression in the course of

the winding-up process); Re X L Petroleum Pty Ltd (1971) VR 560 (differences between the

parties had been compromised after the B winding-up order had been pronounced but not

passed and entered); Re Data Homes Pty Ltd (in Liquidation) and the Companies Act

(1972) 2 NSWLR 22 (CA) (proposed scheme of arrangement; the application had been

refused by the Court a quo on the basis that the court would not approve of the proposed

scheme of arrangement, and the appeal against such refusal was dismissed); Krextile

Holdings Pty C Ltd v Widdows; Re Brush Fabrics Pty Ltd (supra) (to enable the company to

continue its business); Collins and Another v G Collins & Sons Pty Ltd (1984) 9 ACLR 58

(providing new capital to pay off the creditors; a temporary stay of the winding up was

granted in order to effect amendments to the articles of association to D issue shares);

Austral Brick Co Pty Ltd v Falgat Constructions Pty Ltd (supra) (the contributories increased

the authorised capital of the company and capitalised their loan accounts, and the company

accordingly ceased to be insolvent); Remiliotis v Tenth Anemot Pty Ltd (in Liquidation)

(1994) 13 ACSR 650 (Fed C of A) (to pursue an action against an insurance company; the


application was refused). A case which deserves closer scrutiny is Re Warbler E Pty Ltd

(1982) 6 ACLR 526. The relief sought in that matter was to set aside the winding-up orders,

alternatively to stay proceedings in relation to the winding up, and ancillary relief. It appears

that the winding-up order had been obtained unopposed. An explanation was given for the

default. However, it is not alleged in the report that the F application for a stay or setting

aside was brought on the basis that the winding-up order should not have been granted.

Indeed, the report notes that the first prayer would not be proceeded with, and that it was

conceded that the winding-up order had been properly made. The applicant alleged that all

costs and liabilities had been paid, and that the company was able to pay its debts. It is

therefore not a true G rescission that was sought, because there was no attack on the

validity of the order.

My conclusion on those Australian cases which I have been able to consult or find a

reference to, is that, without fail, the section in question has not been used in any of those

cases in circumstances where the winding-up order has been attacked on the basis that it

should not H have been granted.

I am therefore of the view that s 354(1) does not apply to the first situation described above,

that is for the rescission of a winding-up order which should not have been granted. It is

intended to apply to the second situation mentioned above, namely where supervening

events I render it necessary or desirable to stay or set aside the proceedings.

A consequence of this finding is that, by reason of s 339 of the 1973 Companies Act, s

149(2) of the Insolvency Act 24 of 1936 is applicable to the winding up of a company unable

to pay its debts. Section 149(2) provides as follows: J

2001 (3) SA p806

GAUTSCHI AJ

'The Court may rescind or vary any order made by it under the provisions of this Act.' A

There is a long and respected line of authority that this section may be invoked both where

the order should not have been granted, and where it was properly made but supervening

factors make its rescission or variation necessary or desirable. Ex parte Greeff 1922 EDL

17; Stern v Danzig 1926 WLD 4; Ex parte Less B 1929 CPD 50; Ex parte Orkin and

Donenburg 1930 WLD 314; Ex parte Patterson 1931 TPD 374; Ex parte De Freitas 1932

CPD 180; Ex parte Steenkamp 1932 CPD 312; Ex parte Van Rensburg 1932 TPD 30;

Mayerowitz v Sarembock and Klotz 1932 WLD 129; Ex parte Blevins 1933 WLD 160; Ex

parte Cohen 1937 OPD 17; Ex parte Williams 1938 OPD 40; Ex parte Belcher: In re Die

Boeren C Ko-operatieve Molen Maatschappy Beperkt v Belcher 1939 WLD 39; Ex parte

Rossouw NO 1942 SWA 45; Ex parte Mavromati 1948 (3) SA 886 (W); Desai v Hajee and

Another 1956 (3) SA 651 (N); Abdurahman v Estate Abdurahman 1959 (1) SA 872 (C); Ex

parte Van der Merwe 1962 (4) SA 71 (O). D

The principles to be gleaned from the authorities, often not harmonious, are in my view the

following:

(1) The Court's discretionary power conferred by this section is not limited to rescission

on common-law grounds.

(2) Unusual or special or exceptional circumstances must exist to justify such relief. E


(3) The section cannot be invoked to obtain a rehearing of the merits of the

sequestration proceedings.

(4) Where it is alleged that the order should not have been granted, the facts should at

least support a cause of action for a common-law rescission. F

(5) Where reliance is placed on supervening events, it should for some reason involve

unnecessary hardship to be confined to the ordinary rehabilitation machinery, or

the circumstances should be very exceptional.

(6) A Court will not exercise its discretion in favour of such an application if undesirable

consequences would follow. G

In Ex parte Van der Merwe (supra at 72E - H) certain other general principles are

enunciated. The first deals with notice to interested parties. I have not repeated that

principle because it is of course fundamental to all applications. The second is that there

should be no dispute on the facts. I do not agree with this unqualified statement. If the

application involves a rescission of an H order which should not have been granted, an

applicant for a rescission under the common law need only make out a prima facie case (I

deal more fully with this below). The effect of the order is interim only, and not final, and

therefore factual disputes are ordinarily not a bar to success. If on the other hand the order

was correctly made, I but is to be set aside (permanently) because of, for instance, a

composition with creditors, the order of setting aside is expected to have final effect and

factual disputes would then become an obstacle to the applicant (Plascon-Evans Paints Ltd

v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A) at 634E - 635C).

It follows from what I have said above that the applicant's claim J

2001 (3) SA p807

GAUTSCHI AJ

cannot be brought under s 354(1). It must be brought under s 149(2) of the Insolvency Act

read with s 339 of the 1973 Companies Act, or as A a rescission under the common law.

On either basis, the applicant must at least bring itself within a rescission under the common

law. That involves establishing 'sufficient cause', which in turn involves two essential

elements - B

(1) the party seeking relief must present a reasonable and acceptable explanation for

his default, and

(2) on the merits such party must have a bona fide defence which, prima facie, carries

some prospect of success.

(Chetty v Law Society, Transvaal 1985 (2) SA 756 (A) at 764I - 765D.) C

I now turn to the facts, to examine whether the applicant established 'sufficient cause'. In

doing so, I have not overlooked the fact that the applicant brought his case purely on s

354(1). An amendment of the prayer is, however, theoretically possible and I bear in mind

that I am concerned with an application for postponement which, if granted, would enable

the applicant to so amend. I shall therefore approach the facts D as if the applicant's relief

invokes s 149(2) or a common-law rescission.


I start by considering whether the applicant has given a sufficient explanation for failing to

oppose the application for winding up. The relevant allegations made by the applicant in this

regard are the E following:

'65 Had I been aware of the application for the winding up of ADL, I would merely have procured that theclaim of Nugent and SPS was settled. To the extent necessary the application would also have beenopposed and the relevant facts placed before the above Honourable Court. As appears from the return ofservice in the winding-up F application (annexure C to the founding affidavit of Nugent), service of suchapplication was effected at the registered offices of ADL. I have ascertained that a copy of the applicationwas faxed to the offices of ADL by the auditors but this was during the period that the aforementioned movewas in progress and accordingly the application was not brought to my attention.'

(The 'aforementioned move' referred to, took place on 1 October 1997, whereas the

application for liquidation was served on G 15 September 1997.) The applicant and his

father, Enrico Storti, are the two directors of ADL. The passage quoted above indicates only

that the applicant had no knowledge of the application for liquidation, but does not say that

his father, Enrico Storti, the other director, did not have such knowledge. There is no

affidavit by the other H director, or the auditor, or any other officer of the company, to say

that they did not know of the application for liquidation.

It also appears, on the face of it, that the move was not yet in progress when the application

was served. There is therefore no acceptable evidence before me that the application was

unopposed I because the company and/or its officers had no knowledge thereof. That

being so, the only inference to be drawn is that the company was in wilful default. That in

itself would be a bar to a setting aside of the order.

It is set out in the founding affidavit that ADL ceased trading at the end of May 1997. It may

well be asked then, for what purpose it is sought J

2001 (3) SA p808

GAUTSCHI AJ

to bring it out of winding up. The only reason given in the founding papers is to enable the

company to pursue its action against A Nugent and SPS. But this misses the point. The

action can be pursued by the liquidator. Mr Roodt sought to persuade me that there is a

disadvantage if the liquidator pursues the action. This does not seem to me to be so. The

action will be funded and de facto driven by the applicant. Nugent is a minority shareholder

and his claim B was for a small amount of money. His wishes do not represent the wishes

of the company in liquidation, and he would therefore have no de facto control over the

liquidator's actions. In any event, in the correspondence he undertook not to attempt to

influence the liquidator qua liquidator in respect of the action. It therefore seems C to me

that the applicant has misconceived the position in attempting to bring the company out of

its winding up purely in order to pursue an action for damages. For that reason too, the

application cannot succeed.

Then it is said that the company was in fact at all times solvent. The financial position as

disclosed in the founding affidavit is the following. ADL has no trade creditors. Its other

creditors are Nugent D and SPS for R2 993,88; a loan account in favour of Alex

International (Pty) Ltd for R210 000; and a contingent claim by the applicant against ADL for

R130 000 in respect of the guarantee put up for security for costs. The total liabilities are

therefore R342 993,88. As against that, it is claimed that ADL has assets in the E total sum

of R254 150, being the market value of its equipment, and its claim for damages against


Nugent and SPS. Of notable absence are the audited financial statements for ADL after

1992. There are no audited financial statements for those years. This lacuna was

appreciated by the applicant, for in the application for postponement Mr Mills says that it has

been decided, in order to establish conclusively that ADL is in fact solvent, both factually

and F commercially, that the auditors should be instructed to prepare audited financial

statements from 1993 onwards. It is not clear, and does not appear from the papers,

whether the auditors have by now been given that instruction. Even if the audited financial

statements would show that the company is solvent, this would amount to making out a

case for G the first time in reply. I do not consider that I would permit a postponement in

order to allow the belated delivery of a replying affidavit which seeks to make out a case

which should have been contained in the founding affidavit. There is also no evidence that if

and when audited financial statements are produced, they will show ADL to be solvent. H

It is difficult to see how one can show a Court with any degree of confidence that a company

is solvent, without the audited financial statements. Although I look at this stage only at the

allegations in the founding affidavit, and treat them as being correct for the purposes of

deciding whether the founding affidavit discloses a cause of action, I consider that a Court

would be very reluctant to accept I the mere say-so of a director as to the financial position

of a company in the absence of audited financial statements, particularly where there has

been criticism since 1994 of the failure to produce same, and the solvency or insolvency of

the company depends entirely on whether one takes into account the action for damages.

The liabilities, actual and contingent, exceed the J

2001 (3) SA p809

GAUTSCHI AJ

value of the equipment. If no account is taken of the action for damages, then the company

is in fact insolvent, A on the applicant's own version. Mr Gudelsky has argued strenuously

before me that the applicant and his legal representatives have no faith in the company's

prospects of success in the action. Given that there have been five postponements, four of

which were apparently the applicant's fault, one does get that feeling. However, B I do not

believe that it is safe for me to draw any such inference. I do however consider it too

nebulous to place any value on a contingent asset when considering whether to bring a

company out of winding-up. The applicant in such a situation must show prima facie that the

company is solvent. If its solvency depends upon the successful outcome of an action

(which might take some years yet) then I am being C asked to revive a company which is

presently insolvent, and may never become solvent. I do not consider that this would be a

proper approach. I am strengthened in this view by the approaches adopted in Re

Denistone Real Estate (supra), where a stay was refused because to have acceded to the

application would have been to launch into the world an insolvent company 'in anticipation

that it will in D due course trade itself out of its insolvency' (at 330), and in Remiliotis v

Tenth Anemot (Pty) Ltd (in Liquidation) (supra), in which Young J held at 653:

'In my opinion, the Court should not allow a company, even in this limited area, which is obviously insolvent,out into the community even to pursue a limited claim of the kind specified.' E

I hold, accordingly, that solvency has not been prima facie established, and that this too is

an obstacle to the relief sought.

A point was made that the Court which granted the winding-up order had been misled into

believing that Nugent and SPS held no security for the costs orders amounting to R2


993,88. Mr Gudelsky sought to persuade me that interlocutory costs orders are not covered

by the F guarantee furnished for R130 000. I do not believe that he is correct, but it is not

necessary that I make a finding in this regard. The fact is that the existence of the

guarantee for R130 000 was mentioned in the founding affidavit in the winding-up

application and there can be no criticism of the petitioning creditors for expressing their view

G that the guarantee did not cover such costs orders. In any event, the existence of security

does not preclude a winding up.

In all the circumstances, I hold that the applicant has failed to show sufficient cause for a

rescission of the winding-up order under the common law, and the main application

therefore cannot succeed. That H being so, there is no point in permitting a postponement

in order to file a replying affidavit. In the result, the application for postponement is refused,

and the main application is dismissed.

Mr Gudelsky has sought a punitive order of costs. I do not believe that there is any basis for

such an order.

In the result, both applications are dismissed with costs. I

Applicant's Attorneys: Cliffe, Dekker & Todd Inc. First and Second Respondents' Attorney:

Nathan Luen.

Documents

STORTI v NUGENT AND OTHERS 2001 (3) SA 783 (W) - Yolashepstone.synthasite.com/resources/Storti v Nugent 2001(3)783(W).pdf · STORTI v NUGENT AND OTHERS 2001 (3) SA 783 (W) 2001 (3)