Ensor NO v South Pine Properties (Pty) Ltd and Another

• Jurisdiction: South Africa
• Judge: Kriek J, Didcott J and Broome J
• Judgment Date: 22 February 1978
• Citation: 1978 (2) SA 755 (N)
• Hearing Date: 15 November 1977
• Court: Natal Provincial Division

Didcott J:

Krimp Centre (Durban) (Pty) Ltd, which I shall call Krimp Centre, is a trading company now in provisional liquidation, and the appellant is its provisional liquidator. It is well and truly bankrupt, with an excess of liabilities over assets amounting, as far as one can see A at present, to some R1 200 000. Disorder and muddle marked its collapse. Its books of account were hardly kept at all during its last two years of trading and, according to the appellant's comments on various occasions since he took control of it, its records on the whole are "chaotic" and in a "shocking state". The same, one gathers, goes for its affairs in B general. That they were grossly mismanaged by its directors seems the least that can be said.

The respondents, two companies associated with each other, are concurrent creditors of Krimp Centre. So is Commonwealth Shippers Ltd, which applied for Krimp Centre's liquidation. I shall refer to that company as Commonwealth Shippers. The amount of its claim against Krimp Centre, by C far the largest individual one, is R1 133 189.

A proposal for a compromise between Krimp Centre and its creditors was made to the appellant under s 311 of the Companies Act 61 of 1973. The compromise provided for the discharge of the provisional winding-up order, for the offeror's acquisition of all Krimp Centre's assets and its entire D share-holding as well, for his payment in full of the costs of its liquidation and the claims of its secured and preferent creditors, and for his supply of a fund amounting, to R110 000 for distribution amongst its concurrent creditors in proportion to and in final settlement of their claims. Commonwealth Shippers bound itself, if the compromise took effect, E to accept R80 000 in satisfaction of its claim and to allow the balance of R30 000 to be shared pro rata among the remaining concurrent creditors. This undertaking reduced its share of the fund and increased everyone else's correspondingly.

But for the compromise. Krimp Centre's final liquidation was inevitable. No other scheme for its rehabilitation was mooted.

F In these circumstances the appellant sought and obtained from the Durban and Coast Local Division an order summoning meetings of Krimp Centre's creditors so that they might consider the compromise. The Court stipulated that three separate meetings were to be called, the first consisting of secured creditors, the second of preferent creditors, and the third of G concurrent creditors. It appointed the appellant as the chairman of each meeting, and it issued the usual directions prescribing when and how the meetings should be convened and advertised. All its instructions were obeyed. If one controversial point is left aside for the moment, so were the requirements of s 312.

The meetings were held in due course, and the appellant presided over each H of them. No preferent creditors and only one secured creditor attended the gatherings for those classes. The solitary secured creditor voted in favour of the compromise. The third meeting was much livelier. Sixteen concurrent creditors, with claims amounting to R1 286 732, were either present or represented. They included both respondents, for whom senior counsel appeared, and Commonwealth Shippers. What should be done was debated to and fro. Senior counsel endeavoured to persuade the meeting to reject the compromise. Eventually, however, a resolution

Didcott J

assenting to it was passed by an overwhelming majority, comfortably exceeding the margin fixed by s 311 (2). Commonwealth Shippers and 13 A other creditors voted for the resolution. The total of their 14 claims was R1 251 321. Those voting against the resolution were the two respondents alone. Their claims amounted to R35 411. The resolution was thus supported by 87,5 per cent in number and 97,2 per cent in value of the votes cast, and opposed by a mere 12,5 percent in number and 2,8 per cent in value of such votes. All that was then needed for the compromise to take effect and to bind every creditor was the Court's approval of it.

B The appellant consequently applied to the Durban and Coast Local Division for the sanction of the compromise. The Master raised no objection to that course. But the respondents did, together with a third concurrent creditor with a relatively small claim, who had missed the meeting. All three intervened in the proceedings and opposed them. The application came C before MOSTERT J. He dismissed it and ordered the costs of all parties to be included in the costs of the liquidation.

That decision led to the present appeal. Both respondents resisted it, but not their ally. He retired from the litigation after agreeing with the appellant that, whatever happened here, his costs in the Court below would remain winding-up expenses.

D Having heard the appeal, we unanimously concluded that it ought to succeed and that further delay in the operation of the compromise should be avoided by the immediate announcement of its result. We therefore allowed it at once and ordered the respondents jointly and severally to E pay its costs. At the appellant's request, we left intact that part of MOSTERT J's order which had treated the third intervening creditor's costs as liquidation charges. The rest of his order, however, was replaced by one sanctioning the compromise, holding the respondents liable for their own costs in the Court below, and directing them jointly and severally to pay the costs incurred there by the appellant as the result of their opposition to the application. At the same time we mentioned that a F judgment explaining our decision would subsequently be written and filed. This is that judgment. It deals solely with the confirmation of the compromise, and not with our awards of costs against the respondents. On the appellant's behalf Mr Meskin asked for such orders if the appeal succeeded, and Mr Raftesath, who represented the respondents, did not G contend that their defeat in that event should nevertheless be financed by others. There was thus no separate issue about costs.

MOSTERT J had a single but telling reason for refusing to sanction the compromise. Mr Raftesath did not however confine his argument to that H point. He had several more, each of which, he submitted, was likewise fatal to the application. It is convenient to discuss these first, and to turn afterwards to MOSTERT J's judgment.

Whenever a compromise is due to be considered at a meeting of creditors, the notice convening the meeting which is required to be sent to every creditor must be accompanied, according to s 312 (1) (a) (i), by a statement "explaining the effect of the compromise". The appellant prepared a statement for that purpose and dispatched it, together with the notice calling the three meetings, to each known creditor of Krimp Centre. The statement was however said to have been defective. Whether this was

Didcott J

indeed so was the disputed question, to which I alluded earlier, about compliance with s 312. Mr Raftesath maintained that such was the case. That circumstance alone, he contended, had precluded the Court a quo from sanctioning the compromise.

A No complaint about the statement was made at any of the creditor's meetings. But the affidavits filed afterwards in opposition to the application bombarded it with criticisms. Wisely, in my opinion, Mr Raftesath did not press most of these. He limited his argument under this heading to the objection that the information furnished in the statement B had been incorrect in one respect and inadequate in others.

The first of these grievances related to the value which the statement had attributed to Krimp Centre's stock. Among its assets the appellant had specified:

"Stock-in-trade as at date of liquidation, as per stocktaking by my representative: R164 390."

C He had then added:

"Since the date, of liquidation I have continued to operate the business so as to preserve any goodwill which may attach to it. Since the date of liquidation, to date, sales totalling R19 854 have been effected and expenses (including rent for the premises) totalling R6 666 have been paid, leaving a balance on hand of R13 188. As I have not been prepared to make any purchases during this period, it seems clear that the more D saleable stock has been disposed of and that the residue consists of slower selling lines... (T)he offer which has now been made..., in my opinion... represents a better price than creditors are likely to achieve if the assets are submitted to sale in the ordinary course of liquidation. The opinion has been expressed that the stock, if submitted to sale by E public auction, would not realise more than R70 000. I have now instructed an auctioneer to inspect the stock and favour me with a valuation of it, which I shall have available at the meetings. In the interim any creditor who is able and wishes to do so is urged to inspect the stock for himself in order that he may formulate his own ideas as, to its value."

The valuation mentioned by the appellant was produced and tabled at each meeting. According to it, Krimp Centre's stock, reduced by the sales since F it was provisionally wound-up to goods with an apparent value of R144 536, was likely to fetch between R70 000 and R80 000, if sold at once by public auction. This appraisal was dated some two months after the provisional liquidation order was granted and about three weeks before the meetings were held. The minutes of the concurrent creditors' meeting do not record that the valuation was challenged or questioned on the respondents' behalf G by senior counsel who appeared for them on that occasion. Their spokesman did however put it in issue in his affidavit opposing the application. Having examined the stock, he insisted that it was worth R125 000. He did not disclose whether his postulate was the public auction of the stock or the disposal of it...