Moolman v Builders & Developers (Pty) Ltd. (in Provisional Liquidation) (170/89) [1989] ZASCA 171; [1990] 2 All SA 77 (A) (1 December 1989)

IN THE SUPREME COURT OF SOUTH AFRïCA

APPELLATE DIVISION

ín the matter betweenWYNAND THEUNIS JACOBUS MOOLMAN APPELLANT

and

BUILDERS & DEVELOPERS (PTY) LIMITED

(in provisional liquidation) RESPONDENT

ANDREW JOOSTE INTERVENING

PARTY

CORAM : JOUBERT, HEFER, STEYN, KUMLEBEN JJA et FRIEDMAN AJA.

HEARD : 24 NOVEMBER 1989.

DELIVERED : 1 DESEMBER 1989.

JUDGMENT BY J J F HEFER JA

1HEFER JA :This appeal is directed at an order made by MUL-LINS J In the South Eastern Cape Local Division discharg-ing a rule nisi which he had earlier granted at the in-stance of the present appelíant. How this came about appears from what follows.During October 1987 Builders & Developers (Pty) Ltd, a company incorporated in the Republic of Transkei, was placed under provisional liquidation by order of the General Division of the Supreme Court of that country. The appellant was appointed as provísional liquidator. Shortly after his appointment he obtained an order from the same court authorising an examination in terms of

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2.sec 417 and appointing a commissioner in terms of sec 418 of the Transkeian Companies Act 61 of 1973. The examina-tion commenced in Transkei and the commission then convened in Port Elizabeth for the purpose of interrogating certain persons residing in that city. Among them were Mr A Jooste (the sole director and major shareholder of the company) and Mr G H Visser and Mrs Scott (to whom Jooste had paid large amounts of money shortly before the provisional liqui-dation of the company by means of cheques drawn on its bank account). Jooste and Viiser objected to the inter-rogation on the grounds that the commissioner had no juris-diction in South Africa and that they were not compelléd to appear and were not obliged to submit to interrogation.

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The result of the objection was an ex parte ap-

plication which the appellant brought in the court a quo

for an order recognising (I) his appointment as provi-

sional liquidator and (2) the order of the Transkeian

court relating to the appointment of the commissioner.MULLINS J, before whom the application came, granted

a rule nisi calling upon "the Respondent" (although no

respondent was cited) to show cause, if any, why there

should not be an order:

" (a) Recognising the appointment of the appli-cant (in terms of the laws of the Republic of Transkei)as provisional Liquidator in the insolvent estate Builders and Developers (Pty) Ltd (in Liquidation) on the terms set out herein, within the Republic of South Africa until such recognition is withdrawn

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by order of this Court.

(b) Directing that the applicant provide secu-ríty to the satisfaction of the Master ofthis Honourable Court for the proper perfor-mance of his administration by virtue ofthis order and for the hereinmentioned Mas-ter's costs and charges;

(c) Declaring that thereafter the applicantshall by virtue of this recognition be em-powered to administer the said estate inrespect of all assets of the said estatewhich are situated within the Republic ofSouth Africa;

(d) The rights defined by the Insolvency Act

24 of 1936 read together with the Companies Act 61 of 1973 as amended in favour of the Master, a creditor, and a company being wound up, in regard to meetings of credit-ors, proof, admission and rejection of claims, sale of assets, plans of distribu-tion of proceeds,and the rights and duties of a liquidator in regard to those matters

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5.as defined in the Acts as aforesaid shall, until this order is amended, mutatis mutan-dis, exist in relation to the said adminis-tration as if the said Acts applied thereto pursuant to a provisional winding up order gran-ted by this Court on 8 October 1987 provided that:

(i) The rights and duties relating to the election and appointment of a iiquida-tor will not apply;

(ii) The requirements relating to the filing of inventories shall not apply;

(iii) The costs of this application taxed on the scale as between attorney and

client and such amounts as would have

been payable to the Master under the law of the Republic of South Africa if the Company had been wound up un-der such law and any additional costs and charges of the Master for giving effect to this order will be costs of administration;

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(iv) The rights and duties defined by Sec-tion 70 of the Insolvency Act 24 of 1936, read with section 394 of the Companies Act No. 16 of 1973 shall exist in relation to the administra-tion;

(v) Any assets and furthermore any funds remaining after the payment of all amounts due in respect of the afore-mentioned charges, costs and proved claims, may be transferred from the Republic of South Africa to the Re-public of Transkei only with the writ-ten permission of the Master of this Court . "

(It will be noticed that no provision is made in the rulefor the recognition of the commissioner. MULLINS J wasapparently not prepared to include such a provision. Hedid, however, grant the appellant leave to apply on the

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7.return date for the other relief sought in the notice of motion).On the extended return date Jooste sought,and was apparently granted,jeave to intervene in the proceedings and opposed the confirmation of the rule mainly on the grounds which he and Visser had earlier raised before the commissioner. His opposition was successful: MUL-LINS J discharged the rule and directed the appellant to pay Jooste's costs. Subsequently he granted the appel-lant leave to appeal to this court.

The court a guo's reasons for discharging the rule may briefly be stated as follows:

1. The sole purpose of the application was "to enable8

the said enquiry to continue its work in Port Elizabeth, and to enable the commissioner to in-terrogate persons who are subject to the juris-diction of this court".

2. Although it was necessary to interrogate Jooste and the other persons referred to earlier since it was clear to the court "that payments were made to them which might be voidable díspositions, and that they could provide useful and indeed vital information regardíng the affairs of the respondent company", the court has no power to grant recognition to a foreign liquidator merely for the purpose of enabling him to enquíre locally

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into the affairs of the company. In his judg-

ment MULLINS J said:

"As I understand the position therefore, while comity extends to affording a foreign trustee or liquidator the opportunity of

recovering assets within our jurisdiction, there is no basis for afford.íng him other powers or functions which he may have with-in the area of jurisdiction of the country in which he was appointed. There may be sound arguments in favour of granting an application such as the present one, but there must be some authoríty therefor. Such authority is not to be found either in our statute law, or in our corrmon law either directly or as an extension of recognition orders which have been granted in the past."

The argument presented to this court on Jooste'sbehalf followed mainly the lines of the court a guo's

judgment. On appellant's behalf it was contended that

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10.the absence from the court's jurisdiction of property falling to be recovered and dealt with m the process of liquidation does not preciude a court from granting a recognition order. Enquiring into the affairs of a com-pany with a view to the possible discovery of assets and impeachable transactions - so the argument went - forms part of the functions of a liquidator just as much as the actual recovery of assets does; there i s no reason to withhol.d, in connection with the former part of his func-tions, recognition which can be, and has often in the past been, granted to foreign liquidators in connection with the latter part.

Before considering the merits of these contentions

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11. it is necessary to state that the company to which the appeal relates, has no established place of business inSouth Africa and is not an "external company" as defined in sec 1 of the South African Oompanies Act 61 of 1973. The provisions of the South African Act regulating the winding-up of companies in this country do accordingly not apply and do not assist the appellant in the perfor-mance of his functions. He derives his authority en-tirely/ from his appointment in a foreign country and is precluded from exercising the statutory powers of a loc-ally appoínted provisional liquidator. The corrmissioner appointed by the Transkeian court is in the same position; although he is at liberty to conduct the examination at

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12.a venue in South Africa and to examine witnesses who areprepared to submit to interrogation, there is no means bywhich he, or any one else, can compel their attendanceor oblige them to submit to interrogation if they are notprepared to do so. It is clear therefore that neitherthe appellant nor the commissioner will be able to performtheir functions in South Africa without the "active assis-tance óf the court" which is what a recognition order en-tails (Re African Farms Ltd 1906 TS 373 at 377). Apart from the practical frustration of their functions that the lack of recognition brings about, it must be borne in mind/that it is a well-recognised prin-ciple that

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"where a foreign representative, such as an exe-cutor, liquidator, or receiver, wishes to deal with assets in this country in his representa-tive capacíty and by virtue of his foreign au-thorisation he must first be recognised in his appointment by a Court of Law or person of com-petent jurisdiction in South Africa before he is entitled to act" (per WATERMEYER J in Liquida-

tor Rhodesian Plastics (Pvt) Ltd v Elvinco Plas-tic Products (Pty) Ltd 1959(1) S A (C) at 869

C-D).

The operation of this principle is illustrated by the case of Zinn, N O v Westminister Bank, Ltd 1936 A D 89 in which this court held that an English administrator was not entitled to issue summons for the payment of money in a South Afrícan court without first obtaining recognition. As STRATFORD JA said at 99,

".... when a foreign representative, whatever name he may be given elsewhere, claims

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property in thís country, by virtue of his foreign authorization, he requires recognitíon by a Court of law 'or person of competent jurisdiction in South Africa'. "

It is for this reason that recognition orders have been sought and granted, not only in respect of locally situ-ated immovables (where the practical need for recognition is obvious), but in many cases also in respect of mov-ables (see eg Leslie's Trustee v Leslie 1903 TS 839; Ex parte Sewell's Curator 1906 TS 195; In Re Melliar, Smith & Co,Ex parte Hooper 1922 C P D 116), and even in respect of incorporeals (see eg Re Estate Campbell

1905 TS 28 where recognition was granted to an English receiver whose sole duty it was to collect outstanding debts in South Africa).

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From this it follows (1) that the appellant re-quires recognition before he is entitled to deal with any property of the company in this country, and (2) that, without recognition, any claim that he may decide to bring in respect of the payments to Mr Visser and Mrs Scott will not be entertained by a South African court.

The complicating features of the present case are that, apart from a possible claim in respect of these payments or other property that may be discovered as a result of the enquiry, the company has no property in South Africa; and that the immediate purpose for whích recognition was sought from the court a guo was to enable the commissioner to continue the enquiry here. In the

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African Farms case (supra) at 377 INNES CJ said that the recognition of a liquidator is in effect a declaration that he is entitled to deal with local assets in the same way as if they were within the jurisdiction of the courts of the country where he was appointed (subject, of course, to the requirements of the local law). Relying on this dictum Jooste's counsel submitted that a recognition or -der can be granted for no other purpose than to enable a foreign representative to deal with assets within the court's jurisdiction and, in particular, that it cannot in the present case be granted for the purpose of enabling the commissioner to continue his work. For the reasons which follow I do not agree.

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Appellant's counsel is plainly correct in his submission that to enquire into the company's affairs forms part of a liquidator's functions just as much as reducing the assets of the company into his possession and dealing with them in the prescribed manner does. In performing the former part of his functions he exerci-ses an ancillary power wíthout which the second part can-not properly be performed. It is only by enquiring that he ís able to determine what is and what is not the pro-perty of the company, or who is and who is not a creditor or contributory. It is, moreover, obviously in the in-terest of creditors that doubtful claims which the com-pany may have against outsiders be properly investigated

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before being pursued and that claims against the company also be properly investigated before they are admitted or re-jected. It is for such reasons that both the South African and the Transkeian Companies Act contain elaborate provisions relating to the interrogation of directors and other persons at meetings of creditors or by a commissioner (of the remarks in Pretorius and Others v Marias and Others 1981(1) S A 1051 (A) at 1063H-1064A). A liquidator would be failing in his duty if he were to neglect making use , whenever the need to do so arises, of the machinery provided by the Acts.

In any event 1 consider ít entirely unrealistic to take account of the ímmediate but not of the ultimate

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purpose for which recognition is being sought. In his

supporting and replying affidavíts the appellant made it

clear that his sights were trained on the amounts paid toMr Visser and Mrs Scott, which in total amount to more

than R400 000. Appellant's ultimate aim being the re-

covery of the company's assets(for which purpose

the enquiry is a preliminary but well-advised step),there

can in my view be no question about the court's power

to grant the appellant and the commissioner recogní-

tion.

The grant or refusal of recognition to a foreign representative is a matter for the court's discretion (Ex parte B Z Stegmann 1902 TS 40 at 48, 53). But, by

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adopting the attitude that he had no power to grant re-cognition in a case like the present one, MULLINS J pre-cluded himself from exercising his discretion. We have not been asked to remit the matter in order to allow him to do so and what remains , is to consider whether it should have been exercised in appellant's favour and, if so, whether any conditions should be attached to prevent prejudice to local interested parties (Re African Farms, Ltd (supra) at 377).As explained in the Stegmann case (supra) at 52 recognition is granted solely on grounds of comity and convenience. What counts in the appellant's favour is, firstly, that the Transkeian and South African law

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relating to the winding up of companies i s practically identical; secondly, that there i s an historic bond and a large measure of interdependence and co-operation be-tween the two countries which comity requires be re-cognised; thirdly, that the matters to be investigated by the corrmissioner are of such a nature that they píainly require to be examined; fourthíy, that it appears to be in the interests of all concerned that there should be an enquiry before the costly procedure of resorting to the courts is adopted. Jooste's counsel pressed upon us the inconvenience and expense that an enquiry will en-volve. He also submitted that ít would constitute an unfair advantage to the appellant as a prospective

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litigant if he were in effect to be enabled to gather in-formation from and to interrogate the very people against whom action is contemplated . Considering,however, that Jooste alleges in his opposing affidavit that the payments to Mr Visser and Mrs Scott are not impeachable the enquiry may well induce the appellant not to proceed agaínst them. It will, therefore, not necessarily be a disadvantage. But even if it is, it is clear that, had the appellant been appointed in South Africa and had the company been incor-porated and placed under liquidation in this country,Jooste and the other persons concerned would have suf-

fered the same disadvantage by vírtue of our own lêgisla-

tion. The parties should not, in my judgment, be treated differently merely because the appellant happens to be a foreigner. In my view , his application for recognition should have been granted. I do not consider it neces-sary to attach any conditions to the recognition apart from those mentioned in the rule

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nisi and paragraph 6 of the notice of motion.Before the appropriate order is made, it is necessary to revert to the rule nisi. I mentioned ear-lier that it contains no provision for the recognition of the conrmissioner's appointment and that leave was granted to the appellant to apply on the return date for the relief sought in this regard ín paragraph 6 of the notice of motion. On the extended return date the appeilant in fact did so apply and, had the rule been confirmed (as it should), the further relief should also have been granted. This explains the form of the order that I am about to make.

The result is that the appeal ís upheld with

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costs, including the costs of two counsel. The order

of the court a quo is set aside. Substituted for it is

the following order:

"1. Paragraph 1 of the rule nisi dated 6 Janu-ary 1988 is confirmed.

2. A further order is granted in terms of para-graph 6 of the notice of motion.

3(a). The costs of the application shall be paid by the applicant on the basis of an unop-posed application.

(b). Applicant's costs occasioned by the oppo-sítion to the application and those per-taining to the application for leave to intervene shall be paid by Andrew Jooste, the intervening party."

J J F HEFER JA. JOUBERT JA )

STEYN JA ) CONCUR.

KUMLEBEN JA )

FRIEDMAN AJA )