Lipschitz NO v Udc Bank Ltd

• Jurisdiction: South Africa
• Judge: Rabie JA, Corbett JA, Miller JA, Diemont JA and Hoexter AJA
• Judgment Date: 28 November 1978
• Citation: 1979 (1) SA 789 (A)
• Hearing Date: 25 September 1978
• Court: Appellate Division

Miller JA:

This appeal is against orders of the Witwatersrand Local D Division (FRANKLIN J) reversing the decision of the appellant that certain claims lodged by the respondent against three companies, which had during October 1974 been placed in liquidation, be rejected. The judgment of the Court a quo has been fully reported at 1977 (1) SA 275. In this judgment I shall refer to the appellant as "the receiver", to the respondent as UDC, and to the three companies, respectively, as Ubco, E Oreon and Kruben. As a reference to the report of the judgment a quo will show, the receiver, who was the liquidator of each of the three companies, was appointed by the Court "as receiver for the creditors of each company to give effect" to an order sanctioning an offer of compromise made in respect of each of the companies in liquidation. The ground upon which the receiver rejected the claims lodged by UDC was that the transactions upon F which such claims were founded were transactions in contravention of the provisions of s 86 bis (2) of the Companies Act 46 of 1926. That Act was in force at the relevant times.

Before describing the transactions in question it is necessary to refer G very briefly to the question discussed by FRANKLIN J at 277D - 279B of the report. That question related to the Court's powers in the proceedings, which were styled "review" proceedings and were brought in terms of a special provision contained in each of the duly sanctioned offers of compromise. The Court a quo held that its powers on review, in the existing circumstances, were not limited as they would be upon review of the discretionary decision of certain domestic tribunals and that the proper approach in this case was

H "simply for the Court to decide whether the receiver's decision was right or wrong."

On appeal that conclusion was not only not attacked but it was common cause between the parties that the approach of the trial Judge in that respect was correct and the appeal was argued on that basis. That being so I need say no more in that regard than that I share the learned Judge's view, although I would add that the word "simply", in relation to the decision ultimately to be made in this particular case, is euphemistic.

The background to the relevant transactions may be briefly stated.

Miller JA

Each of the three companies owned, in one particular area, a piece of ground; Ubco owned stand 876, Ferndale, Oreon stand 874, Ferndale, and Kruben stand 872, Ferndale. During March 1972 a company to which I shall A refer as "Prosun" offered to purchase the shares in and loan accounts against Kruben. Part of the purchase price was to be paid in cash and the balance (less the amount of a bond registered against the immovable property) was to be paid about a year later. Such balance, in round figures, was R87 000. Prosun was controlled by one Baker. The offer was B duly accepted during March 1972. During June of that year Prosun made an offer for the purchase of the shares in and loan accounts against Oreon, which was accepted. In due course Ubco, also controlled by Baker, took over the rights and obligations of Prosun under the two agreements and became substituted for Prosun as the purchaser of the shares in and loan accounts against Oreon and Kruben. It appears to have been common cause C that Baker's purpose was that Ubco, so soon as it obtained full control of the stands owned respectively by Oreon and Kruben, by virtue of its acquisition of Prosun's rights, would consolidate those stands, together with stand 876 which it already owned and controlled, into a single stand for development. It was in those circumstances and with that purpose that D Ubco approached UDC, a bank, for a loan. Such approaeh was made towards the end of 1972. UDC, while not prepared to grant the loan as asked for by Ubco, signified its willingness to advance on loan R132 500, which would cover the balance of the purchase price owing by Ubco to Prosun in respect of the shares in and loan accounts against Oreon. Of that total sum, R77 640,64 had been determined as being the price of the Oreon shares and the E balance of R54 859,36 as the price of the loan accounts. In due course agreement was reached in respect of such a loan, subject to several conditions imposed by UDC and accepted by Ubco. The nature of such conditions is reflected by the following acts thereafter performed, all of which form part of what, for convenience, I shall refer to as "the first F transaction".

On or about 12 January 1973,

A (i)

Ubco signed an acknowledgment of debt in favour of UDC in the sum of R77 640,64, being the agreed price of the Oreon shares;

A (ii)

Oreon passed a resolution in terms of which it acknowledged its G liability to UDC for R54 859,36 (together with interest at 10 per cent per annum), being the agreed amount of Oreon's debt on loan account, and it undertook to pass a mortgage bond over certain of its fixed property in favour of UDC in order to secure payment of that sum;

A (iii)

Ubco ceded to UDC its rights to the loan accounts against Oreon;

A (iv)

Oreon furnished UDC with a special power H of attorney to pass the bond referred to in A (ii) above; ie to pass a bond securing payment of the amount allocated to the loan accounts against Oreon;

A (v)

Ubco granted an option to UDC to subscribe at par for onequarter of the issued share capital of Oreon, or to require payment by Ubco, in lieu of its right to acquire such shares, of R25 000.

UDC thereupon duly advanced the sum of R132 500 to Ubco on loan and it was not disputed that, when so doing, UDC knew that the purpose

Miller JA

of the agreement was to enable Ubco to acquire the shares in and loan accounts against Oreon. I should add, at this stage, that the mortgage A bond referred to in A (ii) was never passed and that the special power of attorney referred to in A (iv) was not an irrevocable power, nor was it at any time expressly revoked.

On 20 February 1973 Ubco again approached UDC for a loan, this time to enable it to discharge its obligations to Prosun in respect of the B purchase of the shares in and the loan accounts against Kruben. UDC agreed to advance R87 000 to Ubco subject to conditions which were accepted and complied with. This was what I shall call "the second transaction", the details of which I shall enumerate under the letter B, to distinguish them from the enumerated items under the letter A in respect of the first transaction. The relevant components of the second transaction follow. (In most instances the conditions were complied with on 2 March 1973.)

B (i)

Ubco consented to transfer C to UDC, for so long as Baker and Ubco remained indebted to UDC, the entire issued share capital of Ubco.

B (ii)

Ubco signed an acknowledgment of debt in favour of UDC for R87 000, with interest at 10 per cent per annum.

B (iii)

Ubco, Oreon, D Kruben and Baker signed a deed (to which I shall refer as "the cross-guarantee") in terms of which they jointly and severally bound themselves as sureties and co-principal debtors to UDC

E "for the due fulfilment of all the obligations of whatsoever nature and from whatsoever cause arising which now exist or which may arise in future for which each and all of (Kruben, Oreon, Ubco, Baker)... may be or become liable to you and we agree that this is a continuing guarantee...";

B (iv)

Each of Kruben and Oreon gave to UDC a special power of attorney to enable "surety mortgage bonds" to be passed over F their immovable property. In the case of Oreon, the power of attorney was granted for the purpose of securing the indebtedness of of Ubco to UDC in the sum of R142 000 (plus an additional R18 000 in respect of costs); in the case of Kruben, the power of attorney was granted for the purpose of securing Ubco's debt to UDC in the sum of R77 000 (plus an additional R8 000 in respect of costs).

B (v)

On 15 August 1973 the contemplated surety mortgage bond by Oreon G in favour of UDC was duly executed. This bond served to secure the obligations of Ubco to UDC in respect of the purchase by Ubco of the loan accounts against Oreon, ie for the sum of R54 859,36, and the purchase of the shares in Kruben for the sum of R87 000.

B (vi)

On 12 June 1973 a surety mortgage bond by H Kruben in favour of UDC was duly executed to secure the obligation of Ubco to UDC in respect of the purchase of the Oreon Shares, for the sum of R77 000. (My italics in B (v) and (vi).)

B (vii)

On 2 March 1973 Ubco granted to UDC an option to subscribe at par for one-quarter of the issued share capital of Kruben, or to require, in lieu of its right to subscribe for the shares, payment of R15 000.

Miller JA

In support of the receiver's rejection of the claims lodged by UDC (for the details of such claims, see 1977 (1) SA at 279C - 281H) Mr Shaw contended on appeal that each of the first and second transactions, A considered as entirely separate and distinct transactions, fell foul of s 86 bis (2) because in each of them the company concerned (Oreon in the first and Kruben in the second transaction) gave financial assistance, whether directly or indirectly, for the purpose of or in connection with the purchase of its shares. Consequently, so he contended, the agreements B in respect of the loans made by UDC to Ubco and in respect of security for such loans were void and therefore entirely unenforceable. And if it were found that the first transaction, considered on its own as if the second transaction had not taken place at all, did not contravene the section, Mr Shaw argued that the terms of the second transaction sealed not only its own doom but also that of the first transaction, for reasons which I shall later discuss.

C The relevant provisions of s 86 bis (2) read:

"No company shall give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of...