Holzman NO and Another v Knights Engineering and Precision Works (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Nestadt J
• Judgment Date: 14 November 1978
• Court: Witwatersrand Local Division

Nestadt J:

On 21 March 1978 P M Hunt Engineering Works (Pty) Ltd (the company), alleging the respondent to be indebted to it in the sum of R412 460, launched an application in this Court for its winding-up.

The respondent gave notice of intention to oppose, and thereafter filed answering affidavits. Though admitting the company's claim, it alleged

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that it has been more than offset by payments made and counter-claims that it has, and that in the result there is a balance of R45 389,22 owing by the company to it. The application did not then proceed, it was postponed sine die. No replying affidavits were filed. The reason was that the A company (at its own instance) was on 28 April 1978 provisionally wound up. The rule was confirmed on 25 July 1978. The first applicant is the liquidator of the company. On 15 May 1978 he, in his capacity as provisional liquidator, sought and obtained an order authorising the holding of a commission of enquiry under s 417 of the Companies Act 61 of B 1973. Thereafter the enquiry was convened and conducted. The first applicant then decided to proceed with the application for the respondent's liquidation. To this end he gave notice under Rule 15 (3) of the Supreme Court Rules substituting, in his capacity as liquidator, himself as the applicant. Replying affidavits were filed and the matter set down for hearing on 15 November 1978. The respondent also reacted. It served a second answering affidavit, from which it appears that in May C 1978 it ascertained that on 6 April 1977, which was of course prior to the bringing of the application for the respondent's winding-up, the company ceded in securitatem debiti to the Standard Bank of South Africa Ltd, which is the second applicant, the claim upon which the application for D the respondent's winding-up is based. There is annexed a letter addressed to the respondent from the second applicant which is headed "P M Hunt Engineering Works (Pty) Ltd" and which reads as follows:

"We have to inform you that all amounts present and future, due and to become due by you to the above-named, together with all rights of action arising thereunder have been ceded to us, and we shall be glad if you will accordingly pay to us all such amounts in terms of the written cession E which we hold. We wish to point out that payment by you otherwise than to us would not absolve you from your liability to us. Will you please therefore ensure that payment is made to us of all amounts due by you on the due date".

The affidavit goes on to contend that in the circumstances the company had no locus standi to bring the application against the respondent.

F This has led to the application now before me, which is substantially for the following relief:

1.

At the instance of the first applicant for an order declaring that the cession did not preclude the company from applying for the respondent's winding-up, alternatively that the first applicant be authorised and given leave to continue such proceedings.

2.

G Alternatively (at the instance of the second applicant) that it be given leave to intervene in the winding-up proceedings and to move for a liquidation order on the same papers, or that it be substituted as applicant in such proceedings.

The founding affidavit does not dispute the existence and continued H efficacy of the cession. It is said that it was effected to secure an indebtedness of the company to the second applicant of an amount of about R70 000 and that in addition certain shares of the managing director of the company and his wife were pledged as further security for such indebtedness. The affidavit also explains why the cession was not disclosed. The respondent has not filed any answering affidavit to the present application. It opposes the grant of either order on the basis of questions of law only. It has in terms of Rule 6 (5) (d) (iii) filed a notice setting

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forth its contentions in this regard. What they are, will emerge shortly. I should mention that counsel appearing for both applicant and respondent, to whom I am indebted for their able and helpful arguments, were agreed A that, though the issues raised in the present application, and indeed the application itself, could, and perhaps should, have been heard on 15 November 1978 as part of the application for the respondent's winding-up, it was desirable and convenient that it be dealt with at this preliminary stage, thus (possibly) avoiding the Court next week having to be burdened B with the main application. The matter was accordingly argued, and hence this judgment.

I commence with a consideration of first applicant's entitlement to the declaratory order sought. The argument on its behalf was founded on the contention that, despite the cession, the company had locus standi to bring the winding-up proceedings. This necessitates a consideration in the C first instance of s 346 (1) (b) of the Companies Act 61 of 1973. It provides that an application for the winding-up of a company may be made by one of its creditors (including a contingent or prospective creditor). This is to be contrasted with the corresponding provision of the Insolvency Act 24 of 1936 (s 9) which contains no reference to contingent D or prospective creditors, and which further restricts the right of a creditor to sequestrate (as compared with liquidation proceedings) by requiring that the creditor has a liquidated claim of not less than R100.

First applicant's case was that the company was a contingent or prospective creditor within the meaning of s 346 (1) (b). As far as I am aware the issue thus raised, namely whether the cedent in securitatem E debiti of a right against a company qualifies as a contingent or prospective creditor thereof for the purposes of applying for its winding-up, has never been decided in our law. In Barclays Bank (DC & O) and Another v Riverside Dried Fruit Co (Pty) Ltd 1949 (1) SA 937 (C) at 949 the problem was referred to. NEWTON THOMPSON J, by way of an obiter F dictum, said that he "rather doubted" that such a cedent is a contingent creditor. It becomes necessary therefore to decide the point.

I think it is worth stressing, as Mr Wulfsohn for the respondent did, that what is required is that the applicant for winding-up be a (contingent or prospective) creditor; a contingent interest does not suffice. The G expression "contingent or prospective creditor" is not defined in the Companies Act. It has however been judicially defined as one who by reason of some existing vinculum juris has a claim against a company which may ripen into an enforceable debt on the happening of some future event or on some future date. I refer in this regard to the judgment of TRENGOVE J in H Gillis-Mason Construction Co (Pty) Ltd v Overvaal Crushers (Pty) Ltd 1971 (1) SA 524 (T) at 528C - D. The learned Judge was dealing with the predecessor to s 346 of the present Companies Act, namely s 113 of the 1926 Act. The two sections are for present purposes the same. The problem TRENGOVE J was concerned with was whether a person who had an unliquidated claim for damages against a company for breach of contract was a contingent or prospective creditor of such company within the meaning of s 113 and as such had locus standi to petition for the company's winding-up. He answered the question in the affirmative. The judgment contains a comprehensive review of the history

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of the section. It appears that the law was changed substantially when the words "including any contingent or prospective creditor or creditors" were introduced for the first time into s 114 of the Companies Act of 1909 (T). Then, after referring to certain English and South African authority, and A after defining a contingent or prospective creditor in the terms stated, the following appears (at 528):

"It seems to be clear from the authorities which I have quoted that an insured under a policy of insurance, whether it be indemnity or non-indemnity insurance, is regarded as a contingent or prospective creditor of the insurance company concerned. As far as the present issue is concerned there is, in my view, no difference, in principle, between B such an insured and someone who has a valid claim for damages for breach of contract against such company. Under an insurance contract, the insurance company, generally speaking, undertakes either to indemnify the insured against loss which may arise on the happening of some future event, or to pay him a sum of money on the happening of some event. For example, under a fire insurance policy the insured is indemnified against loss or damage by fire. The general risk insured against is fire and until a fire occurs it is uncertain whether it will ever occur or what the extent of the loss or damage will be, should it occur; and yet the C insured, under such a contract of insurance, qualifies as a creditor of the company concerned for the purposes of s 113. As I see it the insured is regarded as a contingent or prospective creditor of the company because he has a contingent or prospective claim arising from an existing vinculum juris. Similarly a person who has a valid claim for damages for breach of contract against the company also has a claim which arises from an existing vinculum juris and this claim is prospective or contingent in the D sense that the exact of the loss still has to be determined. The mere fact that the claim may still be unliquidated, at the time of the filing of a winding-up petition, should not in itself disqualify such an applicant from petitioning for winding-up".

In Simmons NO v Snobberie Cape (Pty) Ltd 1977 (3) SA 451 (W) PHILIPS AJ followed the Gillis-Mason decision.

E Neither of these authorities distinguishes between a contingent creditor on the one hand and a prospective creditor on the other. Nor did counsel in argument before me seek to draw a distinction between the two...