Investec Employee Benefits Ltd and Another v Electrical Industry KwaZulu-Natal Pension Fund and Others

• Jurisdiction: South Africa
• Citation: 2010 (1) SA 446 (W)

Investec Employee Benefits Ltd and Another v Electrical Industry KwaZulu-Natal Pension Fund and Others
2010 (1) SA 446 (W)

2010 (1) SA p446

Citation	2010 (1) SA 446 (W)
Case No	08/2602
Court	Witwatersrand Local Division
Judge	Joffe J
Heard	October 27, 2008; October 28, 2008; October 29, 2008; October 30, 2008; October 31, 2008
Judgment	November 19, 2008
Counsel	DM Fine SC (with MM Antonie) for the first applicant.; AP Rubens SC (with AT Rowan) for the second applicant.; GD Harpur SC (with PJ Wallis and A Coutsoudis) for the opposing parties.; DA Gordon (with D Donnelly) for the interdicting parties.

Flynote : Sleutelwoorde B

Interdict — Anti-dissipation order — Whether law to be developed to allow granting C of asset-preservation order where applicant can show that respondent disposing of property in way that will defeat applicant's right to levy execution upon it — Development making substantial inroads into property rights — Inconceivable that law required development in suggested manner — Court declining to implement suggested development — Applicant must as minimum establish intention on part of respondent to defeat creditors' claims.

D Pension — Pension fund — Funds — Investment — Transfer of invested funds from one long-term insurer to another during course of transfer of insurance business — Statutory approval of transfer by court — Majority of policy-holding funds (by aggregate investments) approving transfer — Opposition raised by minority concerning matter extraneous to transfer E (their as yet undetermined damages claimed against transferor) — Transfer in best interests of policyholders — Not apparent how approval of transfer would impact detrimentally on interests of opposing parties — Transfer of business approved — Long-term Insurance Act 52 of 1998, s 37.

Insurance — Long-term insurance — Insurance business — Proposed transfer — F Statutory approval by court — Whether transfer amounting to compromise or arrangement with long-term insurer's creditors requiring application under s 311 of Companies Act in addition to application under s 37(1) of Long-term Insurance Act — Insurer able to pay creditors and will continue to be able to do so — Not possible to construe transfer as compromise or arrangement requiring court's approval — No need for application under G s 311 of Companies Act — Long-term Insurance Act 52 of 1998, s 37(1) read with Companies Act 61 of 1973, s 311.

Insurance — Long-term insurance — Insurance business — Proposed transfer — Statutory approval by court — Court approval required by statute for three distinct situations: (1) transfer of business; (2) compromise, arrangement H or amalgamation under Companies Act; or (3) conversion of long-term insurer without share capital into public company with share capital — Substitution of liability of long-term insurer to its policyholders for liability of other insurer to such policyholders constituting scheme for transfer of business requiring court approval — Long-term Insurance Act 52 of 1998, s 37(1) and (2). I

Insurance — Long-term insurance — Insurance business — Proposed transfer — Statutory approval by court — Discretion of court — Court to ensure that transaction fair as between interests of classes of persons (policyholders, creditors and shareholders) affected by proposed transaction — Interests of entities with unquantified claims for damages may not be taken into J account until event establishing contractual or delictual liability verified -

2010 (1) SA p447

Until then such claimants having mere spes and not qualifying as A contingent or prospective creditors — Court not to take such 'claims' into account.

Insurance — Long-term insurance — Insurance business — Proposed transfer — Statutory approval by court — Application — Requirements — Disclosure of particulars of transfer — Whether complied with — Insurer having failed to B disclose payment of dividend in papers — Since application not ex parte (notice having been given to opposing parties), failure to disclose fully all material facts not fatal to application — Long-term Insurance Act 52 of 1998, s 38.

Headnote : Kopnota

This judgment dealt with an application for the approval of a transfer of an C insurance business under s 37(1) of the Long-term Insurance Act 52 of 1998. Section 37(1) reads as follows: 'No transaction to which a long-term insurer is a party and which constitutes an agreement by which all or any part of the business of a long-term insurer is transferred to another person, or by which a compromise, arrangement or amalgamation contemplated in Chapter XII of the Companies Act is effected, or by which a long-term D insurer which is not a company having a share capital is to be converted into a public company having a share capital, shall have legal force without the approval of the Court.'

The court held that there was no basis for the contention that the first 'or' in s 37(1) really meant 'and'. Approval under s 37 was required for each of the three distinct situations set out in s 37(1), and an applicant was not E required to also bring an application under s 311 of the Companies Act. Approval under s 311 would only be required if it was shown that the transferring insurer was, or would in future be, unable to fully pay its creditors. It was in any event clear that insofar as the transfer amounted to a delegation of obligations, it could be neither a compromise nor an arrangement. (Paragraphs [48] - [49] and [52] - [54] at 464J - 465C and 465G - 466E.) F

The applicants sought approval under s 37 of the Long-term Insurance Act for the transfer of the insurance business of the first applicant (IEB) to the second applicant (CAL). The application was opposed by nine pension/provident funds (the opposing parties) that had instituted action against IEB for damages arising out of alleged breaches of the provisions of G certain insurance policies concluded between them and IEB. Not all pension funds involved opposed the transfer: funds with claims of R2,85 billion did not do so, while the claims of the opposing parties amounted to R1,12 billion.

The opposing parties (together with two other pension funds, collectively known as the interdicting parties) also sought, in a conditional counterclaim, H anti-dissipatory relief against IEB in the form of an order restraining it from taking steps to reduce or encumber its surplus assets of R3,46 billion. They argued that the law had to be developed to allow the granting of an asset-preservation order where it was demonstrated that the respondent was disposing of property in a way that would defeat the applicant's right to levy execution upon it. I

The opposing parties were motivated by their concern that the proposed transfer would not leave sufficient assets to pay their (not yet determined) claims for damages of R1,12 billion against IEB. They contended that it would not be equitable for the transfer to be approved because it might have a negative impact on the recoverability of their claims against the remaining assets of IEB. The application, they said, had to be viewed in the light of IEB's J

2010 (1) SA p448

A scaling-down of its operations and divestiture of its assets by the declaration of dividends, which would ultimately lead to its inability to pay any damages awarded to the opposing parties. The opposing parties further contended that IEB had refused to furnish details of its financial position, and that it intended reducing its assets by the payment of dividends before the determination of their claims. When it came to light that an undisclosed B dividend had indeed been paid, the opposing parties contended that the application had to be dismissed because IEB's conduct was contrary to its obligations as to full disclosure in an ex parte application.

Statutory reports on the proposed transfer were furnished by the actuaries for IEB, CAL and by an independent actuary appointed by the Financial C Services Board. The Registrar of Long-term Insurance also submitted a report. The reports concluded that the proposed transfer was actuarially sound and would not prejudice IEB, or CAL policyholders. The independent actuary stated that it was not possible to express an opinion on the impact the transfer would have on the recoverability of the pension funds' claims against the remaining assets of IEB, since it was impossible to assess the merits of the claim or to pin down its absolute amount. The Registrar D of Long-term Insurance endorsed the conclusion that both IEB and CAL would remain financially sound and that there was no indication that the transfer would be contrary to the interests of policyholders. The registrar also found that the merits of the claims against IEB could not be determined and that they were extraneous to the present case.

Held, that the evidence as to IEB's dividend policy did not establish that the E company was in terminal decline. Nor did its financial statements show this to be the case. Though the company was solvent and profitable, the scaling- down of its business was, however, a cause for concern and a factor to be considered. (Paragraph [46] at 464F.)

Held, further, that the court had to exercise its discretion under s 37 with due F regard to potential prejudice to policyholders, shareholders and creditors of the parties concerned. The transaction as a whole had to be fair and equitable with respect to these parties. (Paragraphs [56] and [60] at 466G - H and 467I/J.)

Held, further, that the opposing parties' claims against IEB (which had not been verified or quantified) could not be taken into account in the determination G of its solvency of IEB, which was clearly solvent when such claims were left out of the picture. (Paragraphs [63] and [69] - [70] at 468H and 471D - F.)

Held, further, as to...