Engelbrecht v Master of the High Court, Free State Division, Bloemfontein and Others (5148/2019) [2021] ZAFSHC 26 (5 February 2021)

IN THE HIGH COURT OF SOUTH AFRICA

FREE STATE DIVISION, BLOEMFONTEIN

Application number: 5148/2019

In the matter between:

WILHELM FREDERIK ENGELBRECHT

Applicant

and

THE MASTER OF THE HIGH COURT,

FREE STATE DIVISION, BLOEMFONTEIN 1st Respondent

ELRICH RUWAYE SMITH N.O.

2nd Respondent

KARIN FORTUIN N.O. 3rd Respondent

MPONYA LAZARUS LEDWEBA N.O. 4th Respondent

(First to Fourth Respondents in their

representative capacities as duly appointed

joint final liquidators of BZM TRANSPORT (PTY)

LTD [IN LIQUIDATION] – Master`s Ref: B 20/2019

CORAM: MBHELE, ADJP et VAN ZYL, J

JUDGMENT BY: VAN ZYL, J

DELIVERED ON: 5 FEBRUARY 2021

[1] This is a review application in which the applicant is seeking the following relief:

“1. That the decision of the First Respondent to allow the Section 417 of the Companies Act enquiry to be conducted by anyone else than the Master, in the insolvent estate of BZM Transport (Pty) Ltd [in liquidation], be reviewed and set aside.

2. In the alternative, that the First Respondent `s decision be reviewed and set aside in terms of the Promotion of Administrative Justice Act, 3 of 2000 (“PAJA”).

3. That the proceedings and record of such enquiry be struck (out) for not complying with the statutory provisions, as well as being procedurally irregular.

4. That the costs of this application be costs in the administration of the company in liquidation.”

[2] The application is opposed by the second to fourth respondents (“the respondents”) in their capacity as duly appointed liquidators of BZM Transport (Pty) Ltd [in liquidation] (“the liquidated company”).

Summarised Background:

[3] The respondents applied to the Master to authorise an enquiry in in relation to the liquidated company in terms of section 417 of the Companies Act, 61 of 1973 (“the Act”), read with paragraph [9] of schedule 5 of section 224 (3) of the Companies Act, 71 of 2008.

[4] The Master issued subpoenas to the different witnesses, as proposed by the respondents. The subpoenas, which form part of the record of the relevant proceedings, are titled “Subpoena in terms of section 417(1) of the Previous Companies Act” and further stipulates that the Master has ordered that an examination in terms of section 417 of the Act was due to take place on the specified date and at the specified venue.

[5] The Assistant-Master presided over the enquiry and in her reasons for her decision she indicated that “the enquiry was conducted” by counsel on instructions of an attorney and that the said counsel “appeared on behalf of the liquidators”.

[6] It is the applicant`s case that the examination at such enquiry convened in terms of section 417 of the Act may only be conducted by the Master or the court. Therefore the decision of the Master to have allowed the examination to have been conducted by someone other than the Master or the court and the subsequent proceedings, are to be reviewed and set aside.

[7] The crux of the application therefore lies in the interpretation of section 417 of the Act.

The relevant legislation:

[8] In my view it is necessary to consider both sections 417 and 418 of the Act:

“417 Summoning and examination of persons as to affairs of company

(1) In any winding-up of a company unable to pay its debts, the Master or the Court may, at any time after a winding-up order has been made, summon before him or it any director or officer of the company or person known or suspected to have in his possession any property of the company or believed to be indebted to the company, or any person whom the Master or the Court deems capable of giving information concerning the trade, dealings, affairs or property of the company.

(1A) Any person summoned under subsection (1) may be represented at his attendance before the Master or the Court by an attorney with or without counsel.

(2) (a) The Master or the Court may examine any person summoned under subsection (1) on oath or affirmation concerning any matter referred to in that subsection, either orally or on written interrogatories, and may reduce his answers to writing and require him to sign them.

(b) Any such person may be required to answer any question put to him or her at the examination, notwithstanding that the answer might tend to incriminate him or her and shall, if he or she does so refuse on that ground, be obliged to so answer at the instance of the Master or the Court: Provided that the Master or the Court may only oblige the person in question to so answer after the Master or the Court has consulted with the Director of Public Prosecutions who has jurisdiction.

(c) Any incriminating answer or information directly obtained, or incriminating evidence directly derived from, an examination in terms

of this section shall not be admissible as evidence in criminal proceedings in a court of law against the person concerned or the

body corporate of which he or she is or was an officer, except in criminal proceedings where the person concerned is charged with an offence relating to-

(i) the administering or taking of an oath or the administering or making of an affirmation;

(ii) the giving of false evidence;

(iii) the making of a false statement; or

(iv) a failure to answer lawful questions fully and satisfactorily.

(3) The Master or the Court may require any such person to produce any books or papers in his custody or under his control relating to the company but without prejudice to any lien claimed with regard to any such books or papers, and the Court shall have power to determine all questions relating to any such lien.

(4) If any person who has been duly summoned under subsection (1) and to whom a reasonable sum for his expenses has been tendered, fails to attend before the Master or the Court at the time appointed by the summons without lawful excuse made known to the Master or the Court at the time of the sitting and accepted by the Master or the Court, the Master or the Court may cause him to be apprehended and brought before him or it for examination.

(5) Any person summoned by the Master under subsection (1) shall be entitled to such witness fees as he would have been entitled to if he were a witness in civil proceedings in a magistrate's court.

(6) Any person who applies for an examination or enquiry in terms of this section or section 418 shall be liable for the payment of the costs and expenses incidental thereto, unless the Master or the Court directs that the whole or any part of such costs and expenses shall be paid out of the assets of the company concerned.

(7) Any examination or enquiry under this section or section 418 and any application therefor shall be private and confidential, unless the Master or the Court, either generally or in respect of any particular person, directs otherwise.

418 Examination by commissioners

(1) (a) Every magistrate and every other person appointed for the purpose by the Master or the Court shall be a commissioner for the purpose of taking evidence or holding any enquiry under this Act in connection with the winding-up of any company.

(b) The Master or the Court may refer the whole or any part of the examination of any witness or of any enquiry under this Act to any

such commissioner, whether or not he is within the jurisdiction of the Court which issued the winding-up order.

(c) The Master, if he has not himself been appointed under paragraph (a), the liquidator or any creditor, member or contributory of the company may be represented at such an examination or enquiry by an attorney, with or without counsel, who shall be entitled to interrogate any witness: Provided that a commissioner shall disallow any question which is irrelevant or would in his opinion prolong the interrogation unnecessarily.

(d) The provisions of section 417 (1A), (2) (b) and (5) shall apply mutatis mutandis in respect of such an examination or enquiry.

(2) A commissioner shall in any matter referred to him have the same powers of summoning and examining witnesses and of requiring the production of documents, as the Master who or the Court which appointed him, and, if the commissioner is a magistrate, of punishing

defaulting or recalcitrant witnesses, or causing defaulting witnesses to be apprehended, and of determining questions relating to any lien with regard to documents, as the Court referred to in section 417.

(3) If a commissioner-

(a) has been appointed by the Master, he shall, in such manner as the Master may direct, report to the Master; or

(b) has been appointed by the Court, he shall, in such manner as the Court may direct, report to the Master and the Court,

on any examination or enquiry referred to him.

(4) Any witness who has given evidence before the Master or the Court under section 417 or before a commissioner under this section, shall be entitled, at his cost, to a copy of the record of his evidence.

(5) Any person who-

(a) has been duly summoned under this section by a commissioner who is not a magistrate and who fails, without sufficient cause, to attend at the time and place specified in the summons; or

(b) has been duly summoned under section 417 (1) by the Master or under this section by a commissioner who is not a magistrate and who-

(i) fails, without sufficient cause, to remain in attendance until excused by the Master or such commissioner, as the case may be, from further attendance;

(ii) refuses to be sworn or to affirm as a witness; or

(iii) fails, without sufficient cause-

(aa) to answer fully and satisfactorily any question lawfully put to him in terms of section 417 (2) or this section; or

(bb) to produce books or papers in his custody or under his control which he was required to produce in terms of section 417 (3) or this section,

shall be guilty of an offence.”

Case law and Submissions:

[9] Mr Hendriks, who appeared on behalf of the applicant, is relying on the judgment in Swart v Master of the High Court 2012 (4) SA 219 (GNP) in which matter the applicants also sought to set aside the Master`s authorization in terms of section 417 of the Act of an enquiry by the liquidators and a creditor of a company being wound up. In that judgment the applicants also contended that it was not permissible since an enquiry in terms of section 417 of the Act could only be conducted by the Master or the court. The court found in the applicants` favour by concluding as follows at paras [6.1] to [6.9] of the judgment:

“[6] Conclusion

[6.1] It is clear that the origin of s 417 is to be found in s 115 of the English Companies Act of 1862, where only the court (itself) could gather information — see para [5.2] above.

[6.2] This power had later been extended to include the master.

[6.3] Later, in a separate section, provision was made for the appointment of a commissioner — para [5.2] above.

[6.4] Thus, the powers of the court — later the master — were contained in the (now) s 417.

[6.5] The legislature kept these powers (in s 417) intact and made provision in a separate section (s 418) for the appointment of commissioners, etc.

[6.6] It should thus be clear that s 417 pertains and can only (from the clear wording of the section) pertain to enquiries by the court or the master.

[6.7] Section 418 clearly deals with commissioners (also see paras [5.4] and [5.5] above).

[6.8] The provisions (ss 417 and 418) are not in conflict with the Constitution, and historically, and from the clear wording thereof, and even applying a restrictive interpretation (which is not necessary), they are still not in conflict with the Constitution (see para [5.6] above).

[6.9] Consequently, I have come to the conclusion that the authorisation of the first respondent dated 29 January 2010 (annexure S15, which should be S17), of the enquiry in terms of s 417 of the Companies Act in the insolvent estate of Promgrow Developers (Pty) Ltd (in liquidation), should be reviewed and set aside.”

[10] Mr Hendriks also relies on the judgment of FMFG Garcao v DT Majiedt and Others (1559/2012) [2013] ZANCHC 20 (28 June 2013), in which judgment the Swart-judgment, supra, was followed.

[11] Mr Tsangarakis, who appeared on behalf of the respondents, is relying on the judgment in R v Herholdt 1957 (3) SA 236 (A), which judgment dealt with sections 155 and 156 of the Companies Act applicable at the time, Act 46 of 1926. The said sections were similar to the present sections 417 and 418 of the Act, respectively. The following relevant dicta are contained in the said judgment at 251 D and further:

“Mr. Rosenberg contrasted the wording of sec. 155 of the Companies Act with that of sec. 156. In the latter there are specific provisions in sub-secs. (2) and (3), allowing the Master, the liquidator, and any creditor or contributory to take part in the examination either personally or by attorney with counsel. There are no corresponding provisions in sec. 155, which merely says (in sub-sec. (2)): 'The Court may examine him' (i.e. a witness summoned before it) 'on oath, either by word of mouth or on written interrogatories . . .' Mr. Rosenberg submitted accordingly that when the inquiry was one held under sec. 155 no one other than the Court had the right to examine witnesses, and that in the case before us it was an irregularity for the commissioner to allow questions to be put by counsel for the liquidator.

Mr. Rosenberg referred us also to secs. 180 bis and ter of the Companies Act and sec. 65 of the Insolvency Act, 24 of 1936, as further instances where there is specific provision that certain interested parties may examine or interrogate the witnesses.

The fact, he argued, that the Legislature inserted an express provision to this effect in other sections was an indication that its omission in sec. 155 was intentional and was meant to confine the right of examination to the Court.

…

I find it unnecessary, however, to try to define the extent of the Court's powers under sec. 155, for the inquiry with which we are now concerned was held 'in terms of sec. 155 of the Companies Act, read with sec. 194 thereof'. The latter section contains the provision I have just referred to - the last sentence of sub-sec. (1) - reading:

'The Master, the liquidator and any creditor or contributory may be represented at such inquiry by an attorney with or without counsel.'

Mr. Rosenberg submitted that if the Court itself did not have the power, under sec. 155, of allowing anyone but the Court to take part in the examination, a commissioner appointed by the Court should have no greater power; and therefore, he argued, the applicability of the provision I have quoted should be limited to cases in which a commissioner had been appointed for other inquiries - e.g. one under sec. 156 - and should not be extended to a commissioner appointed for the kind of inquiry provided for in sec. 155.

This argument presupposes the acceptance of his submission that no one but the Court may take part in the examination of a witness summoned before it under sec. 155. I have already indicated that this argument does not appeal to me…”

[12] Mr Tsangarakis submitted that we are bound by the aforesaid decision.

[13] In my view the Herholdt-judgment is distinguishable from the present matter. It is evident from the dicta that follow upon the cited part of the judgment that the eventual finding by the court was actually based on the following reasoning at 253 A:

“…but even if it did, I do not see how it can do away with the applicability of sec. 194 (1) when once the matter is referred to a

commissioner appointed under that section.

I am therefore of opinion that the objection to the admission of the evidence given before the commission of inquiry cannot be sustained.

I may add that the case dealt with by HOLMES, J., in Amod's case, supra, was also one of an inquiry by a commissioner appointed under sec. 194 for the purpose of an examination of certain persons under sec. 155, and the learned Judge read the final sentence of sec. 194 (1) to be applicable. In my opinion he was correct in doing so.”

[14] Mr Tsangarakis is furthermore relying on the following part of the judgment in an application for leave to appeal in the matter of Gargao v Master of the Northern Cape High Court, Kimberley and Others (185/13) [2015] ZANCHC (8 May 2015), in which the court, consisting of two judges, pronounced as follows:

“[5] Adv PJJ Zietsman, on behalf of the applicant, argued that the enquiry could only be held by the Master in terms of peremptory provisions of s 417 of the Act or in terms of s 417 read with s 418 held by the Master or a Court or a Commissioner. In support of this proposition he relied on the case of SWART AND OTHERS v MASTER OF THE HIGH COURT PRETORIA AND OTHERS 2012 (4) SA 219 (GNP). In terms of s 417 only the Master is authorised to conduct the enquiry, his argument goes. He argued further, for the first time, that the summons issued was irregular. He stated that the liquidators’ powers were extended only to the Liquidators and could not be delegated to the Master or his assistant. This is contrary to the initial argument by the applicant that the enquiry

and the examination of persons had to be conducted by the Master in terms of the peremptory provisions of s 417 of the Act. The

applicant’s case is difficult to comprehend.

[6] In response Adv P Zietsman SC, on behalf of the respondents, submitted that the contention that the enquiry was conducted in accordance with s 417 is not substantiated by the evidence even after the review application was dealt with. He submitted further that there were no prospects of success on appeal.

[7] The argument that s 417 only empowers the court or the Master to examine persons summoned before it and that only the court can allow any person to examine and not the Master cannot be sustained. This aspect is fully covered in our judgment delivered on 08 August 2014 with regards to the case of SWART, supra and R v HERHOLDT AND OTHERS 1957 (3) SA 236 (A). I do not intend to repeat same here. S 417 (2) (a) of the Companies Act provides as follows:

‘The Master or the Court may examine any person summoned under subsection (1) on oath or affirmation concerning any matter referred to in that subsection, either orally or on written interrogatories, and may reduce his answers to writing and require him to sign them.’ (My underlining).

The use of the word ‘may’ above is obviously directory and not peremptory….”

[15] Mr Tsangarakis consequently submitted that the Swart-judgment is wrong in law and that we are therefore not bound by it.

[16] I do not agree. In my view the contention by Mr Hendriks that the Garcao-judgment is clearly distinguishable from the present application, is correct. In that matter the court actually found that the relevant enquiry was convened in terms of sections 417 and 418:

“[3] The order granted by Olivier J on 10 June 2011 was by agreement between the parties. Para 2.1.2 of the said order reads thus:

‘The applicants’ powers as Provincial Liquidators are extended to empower them to convene an investigation in terms of Section 417 and/or Section 418 of the Companies Act 61 of 1973 (read with Section 9 of Schedule 5 of the Companies Act, 71 of 2008) [“the Act”] pertaining to the transactions recorded in the said Annexures “B1” and “B2’ (My emphasis).

The heading in the subpoena addressed to the applicant clearly describes the type of enquiry that was to be held. It reads as follows:

‘THE ENQUIRY IN TERMS OF SECTION 417 read with SECTION 418 OF THE COMPANIES ACT, NO 29 of 1985, AS AMENDED (the Act).’

[4] The argument that the content of the subpoena refers to the enquiry in terms of s 417 cannot be sustained. The heading of the subpoena and the order by Olivier J are express and clear and need no further clarification. The assistant Master, Mr WK Van Rensburg, presided as the Commissioner in terms of s 418 (1) (a) of the Act and filed a Report dated 07 September 2012. It stated in no uncertain terms that the enquiry was convened in terms of s 417 and 418 of the Companies Act. S 418 (1) (a), (b) and (c) of the Act sets out the powers of the Master and the prescribed procedure as follows…

[7] The enquiry was convened by the Liquidators in terms of the order granted by Olivier J on 10 June 2011. The Assistant Master therefore

conducted the proceedings as a Commissioner appointed by the Master in compliance with s 418 (a) of the Act and the powers stipulated in s 418 (c).”

(Own emphasis)

Conclusion:

[17] I consequently respectfully agree with the Swart-judgment and I consider this court to be bound by it.

[18] The application therefore stand to be granted.

Costs:

[19] The applicant sought in his notice of motion for an order that the costs of the application be costs in the liquidation.

Order:

[20] The following order is made:

1. The decision of the Master on 21 October 2019 to have continued with the enquiry in terms of section 417 of the Companies Act, 61 of 1973, in circumstances where it was allowed that counsel for the respondents conducted the enquiry, is hereby reviewed and set aside.

2. The proceedings and the record of the said enquiry are to be struck out and considered to be null and void ab initio.

3. The costs of this application are to be costs in the liquidation.

C. VAN ZYL, J

I concur:

NM MBHELE, ADJP

On behalf of applicant: Adv. CJ Hendriks

Instructed by:

Noordman Attorneys

BLOEMFONTEIN

On behalf of 2nd – 4th respondents: Adv. S

Tsangarakis

Phatshoane Henney Inc