Bank of Lisbon and South Africa Ltd. v Master of the Supreme Court (Transvaal Provincial Division) (127/86) [1986] ZASCA 121; [1987] 1 All SA 286 (A) (30 September 1986)

IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)

In the matter of:THE BANK OF LISBON AND SOUTHAFRICA LIMITED ,

Appellant

versus

THE MASTER OF THE SUPREME COURT

(TRANSVAAL PROVINCIAL DIVISION) ... First respondentG H J VENTER JUNIOR, N OSecond respondent

IMPERIAL MOTOR COMPANY (PROPRIETARY) LIMITED .

Third respondent

NORTON ABRASIVES (PROPRIETARY)LIMITED

Fourth respondent

M J DE PONTESFifth respondent

CORAM: RABIE, CJ, JANSEN, CORBETT, GALGUT, AJA.

DATE OF HEARING: 19 May 1986 DATE OF JUDGMENT: 30 September 1986.JOUBERT. JJA, et

JUDGMENT

GALGUT, AJA:

A company, George de Pontes and Partners (Pty)

/ Ltd.......

2Ltd ("the company"), was, because of its inability to pay its debts, wound up by order of court dated 29 May 1979. Second respondent was initially appointed as provisional liquidator and thereafter as liquidator of the company. I shall refer to him as the Liquidator. Third, fourth and fifth respondents are creditors of the company. The first respondent is the Master of the Supreme Court (Transvaal Provincial Division). The only creditors who proved claims in the estate of the company were the appellant and third, fourth and fifth respondents. In the affidavit in proof of its claim for R58 327,77 appellant, to which I shall refer as "the Bank", stated that it had received security from the company in the form of

" . . . . a general Pledge and Cession signed by the Company in favour of the Bank in terms whereof the Company pledged to the Bank, inter alia, all present and future book debts. A copy of the Pledge and Cession is annexed hereto marked 'B', but the Bank is unable to value its security at this stage with the information at its disposal."

/ In 3In para 7 of the affidavit the following is stated:

"The Bank relies entirely on its security and all suretyships that it may hold for the said debt for the satisfaction of its claim."

The Master, after considering written representations which were made to him (as to which more later) directed, on 20 October 1981, that the Liquidator should, in the relevant Liquidation and Distribution accounts, reflect the Bank's claim as a concurrent claim.

The Bank challenged this ruling and applied in the Transvaal Provincial Division for an order —

"calling upon first respondent to show cause why his decisions of 20 October 1981 in the Estate of George de Pontes and Partners (Proprietary) Limited ('the Estate') should not be reviewed and corrected so as to direct second respondent to amend the first liquidation account and the second and final liquidation and contribution accounts respectively in the Estate so as to reflect that applicant is not liable for any costs of realisation nor any costs of administration in the Estate."

/ The

4The matter came before ACKERMANN J and he dismissed the application. The Bank then appealed to the Full Court of that Division. That appeal failed and the present appeal before us is against the decision of the latter Court.

The third, fourth and fifth respondents were cited because of their respective interests in the matter. No relief was sought against them if they did not oppose. They did not in fact oppose.

The security upon which the Bank relied in its proof of claim is clearly a cession of book debts in securitatem debiti executed by the company in favour of the Bank on 10 December 1977. Prior to the above cession the company had executed, also in securitatem debiti, a cession of its book debts in favour of Nedbank Limited. Nedbank at the date of the winding-up order was in the

/ process

5process of collecting the debts and continued to do so with the consent of the Liquidator. It collected approximately R6 530 in excess of the amount owing to it. This sum was handed to the Liquidator. I shall refer to the Nedbank cession as the first cession and the Bank's cession as the second cession.

Provision was made in clause 23 of the second cession for the contingency of a prior cession. The clause reads:

"'(23) without derogation from any warranty given by me/us to the BANK in terms hereof, should it transpire that any security(ies) promised or purported to be given in terms hereof is/are subject to any prior pledge and/or cession with the result that the BANK is in whole or part deprived of such security(ies) or precluded from taking delivery thereof, these presents shall, insofar as the particular security (ies) subject to such prior pledge and/or cession is/are concerned, or insofar as the particular part(s) of such security(ies)

/ is/are

6 is/are concerned as the case may be , operate as a pledge and cession to the BANK, upon all the terms and conditions herein set out, of all my/our reversionary rights and all my/our remaining right(s), title and interest in and to such particular security(ies) and the subject matter thereof, as well as all my/our rights of action and recourse against the prior pledgee(s) and/or cessionary(ies) thereof."

Prior to proving its claim the Bank had written to the Liquidator confirming that he (the Liquidator) had

"knowledge of our (the Bank's) pledge over debtors and

debts that you would be collecting the book/and would account

to us in due course". The Liquidator replied stating:

"I confirm my knowledge of the fact that you hold a pledge over the sundry debtors and in this regard I must inform you that the claim of the Netherlands Bank, who hold the first pledge over the sundry debtors, has now been settled in full and consequently the total proceeds of the debtors will now be subject to your pledge."

/ At

7At the time when the winding-up order was made the company was in the process of performing certain contracts. The Liquidator decided to have these contracts completed. The ultimate cost of so doing was in the order of R97 000 whereas the amount which accrued to the company therefrom was approximately R55 000. He then adopted the attitude that the Bank was liable for the R97 000 and that it could collect the R55 000 from the debtors.

Pursuant thereto the Liquidator framed a First Liquidation and Distribution Account. It was advertised as lying for inspection. He thereafter drew a Second Liquidation and Distribution Account. The second account does not, as far as affects this case, alter anything in the first account. Neither account has been confirmed. In the first account the Bank was reflected as a secured creditor but the cost of completing the executory contracts was shown as an amount to be deducted from any sum due to

/ the

8the Bank. The Bank lodged an objection to that account with the Master and with the Liquidator. It contended that it was not liable for the costs occasioned by the completion of the executory contracts and submitted that the shortfall resulting from the Liquidator's decision to complete those contracts should not be confused with the costs of realisation of its security. The Liquidator responded to the objection in a letter dated 4 March 1981 to the Master. He wrote:

"On the information furnished me, I accepted that the objector (the Bank) was to be treated as a secured creditor after Nedbank Limited released its security and treated it as a secured creditor. It was also specifically arranged between the objector and myself that as soon as Nedbank Limited had realised sufficient security to satisfy its claim, I would realise the balance of claims against debtors on behalf of the objector for the benefit of the objector."

The Liquidator also submitted that he was "now" of the view that at the date of liquidation the

/ Bank

9Bank was not in possession of any security and was not a secured creditor because at that time the cessionary of the book debts was Nedbank which was, at the relevant time, in possession and control of the security.

A great deal of correspondence followed.

It appears therefrom that the Bank, in a letter to the Master, eventually conceded that it held no security for its claim and was not a secured creditor. It, however, stressed that in its proof of claim it had specifically relied on its security; that "since the Bank relied on its security only there would be no concurrent claim proved by it even if (as is the case now) there is in fact and in law no security"; that it was accordingly not liable to contribute towards costs which had been occasioned by the completion of the executory contracts; that such costs were not costs of realisation of the security but were costs of administration for which it

/ was

10

was in any event not liable.

The Master in a letter dated 20 October 198l then ruled:

"As you and the Liquidator have conceded that your client does not have a secured claim, I am directing the Liquidator to amend the account to reflect your client's claim as concurrent. Under the circumstances it is no longer necessary for me to rule on your submissions as to the extent of your client's security or for which costs he would or would not have been liable as a secured creditor in terms of Section 89(1) of the Insolvency Act No 24 of 1936 as amended."

It was this decision which the Bank brought on review before the Court of first instance. The relief which it sought has been set out above.

I pause to mention that in terms of section 339 of the Companies Act No 61 of 1973 the provisions of the law relating to insolvency shall, in so far as they are applicable, be applied mutatis mutandis in the winding up of a company unable to pay its debts.

/ It

11

It is necessary to refer to the following sections of the Insolvency Act No 24 of 1936 ("the Act").

"Security", in relation to the claim of a creditor of an insolvent estate, means property of that estate over which the creditor has a preferent right by virtue of any special mortgage, landlord's legal hypothec, pledge or right of retention;

"property" means movable or immovable property wherever situate within the Republic, and includes contingent interests in property other than the contingent interests of a fidei commissary heir or legatee;

"movable property" means every kind of property and every right or interest which is not immovable property.

Sec. 44(4) provides that a claim shall be proved, at a meeting of creditors, by affidavit setting out the relevant facts and particulars in support of the claim and

if the creditor holds security therefor "the nature and

/ particulars

12

particulars of that security".

Sec. 45(2) requires the trustee to examine all claims for the purpose of ascertaining whether the estate in fact owes the amount claimed.

Sec. 45(3) provides that if a trustee disputes a claim after it has been proved, he shall report to the Master giving his reasons. The Master thereupon, after affording the claimant an opportunity to substantiate his claim, may confirm, reduce or disallow the claim.

Sec 52(5) precludes a proved secured creditor from voting at meetings of creditors, on matters not affecting his security.

Sec. 89(1) sets out that any costs occasioned by the maintenance or realisation of the property which is subject to the security is to be paid out of the proceeds of such property.

/ Sec. 89(2)

13

Sec. 89(2) reads:

"If a secured creditor states in his

affidavit submitted in support of his claim against the estate that he relies for the satisfaction of his claim solely on the proceeds of the property which constitutes his security, he shall not be liable for any costs of sequestration other than the costs specified in sub-section (1), and other than costs for which he may be liable under paragraph (a) or (b) of the proviso to section one hundred and six."

The relevant portion of sec. 106 provides:

"Where there is no free residue in an insolvent estate, or where the free residueis insufficient to meet all the expenses,costs and charges mentioned in sectionninety seven, all creditors who haveproved claims against the estate shallbe liable to make good any deficiency, thenon-preferent creditors each in proportionto the amount of his claim, and securedcreditors each in proportion to the amountfor which he would have ranked upon thesurplus of the free residue if there hadbeen any "

Then follow certain provisos which have no application to the present case.

/ In

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In the Court of first instance only the Liquidator appeared to oppose. The Master, in his report to the Court intimated that he was not appearing to oppose and stated inter alia that:-

"The applicant agrees that he has no security. For this reason he is therefore a concurrent creditor."

ACKERMANN J analysed the relevant sections of the Act. He then quoted sec. 89(2) and went on to say:

"In Section 106 the phrase 'all creditors who have proved claims against the estate shall be liable to make good any deficiency' is likewise in the widest and clearest terms, as is the next succeeding phrase: 'the non-preferent creditors, each in proportion to the amount of his claim, and secured creditors, each in proportion to the amount for which he would have ranked upon the surplus of the free residue, if there had been any'.

In these sections provision is only made for two classes of creditors, secured and non-preferent creditors. There seems to me to be no basis for incorporating a third class, namely concurrent creditors who mistakenly claim to have security for their claims and state that they rely solely on the proceeds of their security for satisfaction of their claim,

/ when

15

when no indication whatsoever exists in the Act for the acceptance of such a third class

In my view the applicant is to be

treated as any other concurrent or non-preferent creditor would be in terms of the Insolvency Act."