NSP Unsgaard (Pty) Ltd v Master of the High Court Cape Town and another
| Jurisdiction | http://justis.com/jurisdiction/166,South Africa |
| Judge | Savage J |
| Judgment Date | 28 August 2023 |
| Citation | 2023 JDR 3349 (WCC) |
| Hearing Date | 14 August 2023 |
| Docket Number | 1137/2022 |
Savage J:
Introduction
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Savage J
The applicant, NSP Unsgaard (Pty) Ltd (“NSP”), seeks the review and setting aside of a decision of the first respondent, the Master of the High Court (“the Master”), made on 28 January 2022 under section 46 Insolvency Act 24 of 1936 (“the Act”), in terms of which the liquidators of the second respondent, Green Tissue (Pty) Ltd (“Green Tissue”), were permitted to disregard a set off applied by NSP in its dealing with Green Tissue before liquidation.
Green Tissue manufactured and supplied paper-based products to customers, including NSP. Between 2007 and 2013, Green Tissue caused four general notarial bonds to be registered in favour of Investec Bank Ltd and a special notarial bond in 2015. On 8 September 2016, Standard Bank Ltd entered into a first cession of debtors with Green Tissue. This followed the conclusion, on 8 August 2016, of an agreement between Standard Bank and Green Tissue to vary an existing invoice factoring agreement which created a pledge in favour of the bank in respect of all book debts, with the set off of any claims expressly precluded. The effect was that the debts of Green Tissue had been to Standard Bank and Investec.
In March 2018, Green Tissue became financially distressed when it lost a major client which had accounted for 85 percent of its sales. In September 2018, 100% of Green Tissue’s shares were sold to The Lion Match Company (Pty) Ltd (“Lion Match”), with Lion Match in control of Green Tissue from 2 November 2018. From that date, on the instruction of Lion Match, NSP commenced business with Green Tissue through a contract manufacturing agreement. In terms of this agreement NSP supplied raw materials, packaging and advanced working capital to Green Tissue to enable it to fulfil orders it received from NSP. The goods produced by Green Tissue were then purchased by NSP, with the amounts paid by NSP in respect of raw materials, packaging and working capital deducted from the amounts due to Green Tissue for the manufactured goods received.
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Savage J
On 3 June 2019, this contract manufacturing agreement was recorded in a Master Supply Agreement (“MSA”), concluded between NSP and Green Tissue. At the time of conclusion of the MSA, two of the three directors of Green Tissue were also directors of NSP, one of whom, Mr Jacob van Wyk, was also the Group Chief Executive Officer of Lion Match. The date of commencement of the MSA was backdated to the date of the initial supply of raw materials, packaging and working capital by the NSP in November 2018.
The MSA provided that goods were to be manufactured by Green Tissue from raw materials and packaging supplied to it by NSP, with Lion Match and its subsidiaries, including NSP, to assist Green Tissue with working capital. As working capital, NSP advanced to Green Tissue a “conversion fee”, which consisted of funding for upfront labour costs, direct overheads and a contribution to other overheads. Green Tissue invoiced NSP for the finished goods it produced, including the cost of raw materials, packaging and the conversion fee for which NSP was credited. Without the raw material supplied and cash advances made, Green Tissue would not have been in a financial position to manufacture the products it supplied to NSP.
On 18 September 2019 Investec Bank Ltd perfected the general and special bonds in its favour, with a final order taken against Green Tissue on 27 September 2019. This created an enforceable cession in favour of Investec and authorised it “to take and retain possession of the business [of Green Tissue] and/or any of the movable assets of [Green Tissue]”, operate and draw on the banking account of Green Tissue and sue any or all debtors of Green Tissue. Mr Van Wyk, as Group Chief Executive Officer of Lion Match and director of both NSP and Lion Match, represented Green Tissue in the perfection application. Thereafter, on 31 October 2019, at the instance of Investec Bank, Green Tissue was placed in provisional liquidation, with a final order of liquidation granted on 6 December 2019.
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Savage J
On 3 September 2021, Green Tissue’s liquidators (“the liquidators”) wrote to the Master seeking that the set off applied by NSP in respect of the cost of raw materials, packaging and the conversion fee paid to Green Tissue be disregarded in terms of section 46 of the Act. Although initially refuted in its founding affidavit, NSP accepted in reply that its attorney of record, Mr Kobus van Niekerk, had received a copy of this application by email on 6 October 2021, after he had been advised telephonically that the application had been made to the Master.
The application to the Master recorded inter alia that NSP had lodged a claim in the amount of R40 124 967,97 with the liquidators and that it had applied a set off in the amount of R52 157 269,92. The liquidators applied to the Master for permission to disregard the set off on the basis that it was “not in the normal course of business” and was –
‘within six months of winding up, amounts to accounting entries after the fact and essentially after the business had ceased operating pursuant to the perfection aforesaid. Applying set-off will give rise to an undue preference in favour of NSP to the prejudice of a substantial body of creditors.’
On 28 January 2022 the Master granted the liquidators permission to disregard the set off in favour of NSP. No reasons for the decision were provided. Subsequent to the Master’s decision, on 6 May 2022, NSP’s attorneys addressed a letter to the Master stating inter alia that:
‘. . .11. [NSP] deemed it imperative to enter into the aforementioned agreement in order to keep Green Tissue running as a going concern. By entering into the agreement, our client ensured that there would be clarity as to the transfer of funds and stock between NSP and GT.
As expressed in clause 3.2 and 3.3, NSP would supply GT with raw material in order for GT to maintain its manufacturing capacity of finished goods as ordered by NSP. GT would then furnish NSP with an invoice for
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Savage J
finished products. . . GT did in fact deliver goods to NSP, however it was in terms of the [MSA] for which [the liquidator] fails to make reference to.
Once GT renders an invoice to NSP, GT proceeded to credit NSP for the value of raw materials supplied in the manufacturing of the said finished products. This provision can be found in clause 3.8 of the [MSA]. In any event, once a liquidated claim existed between the two parties, se-off applied pro-tanto.
As per clause 3.10 of the [MSA], it is evident that any set-off that was applied was done in the normal course of business for NSP and GT in order to reconcile the accounts from time to time in terms of what is owed and what is owing. This is evidentially what NSP proceeded to do. NSP completed a reconciliation of the accounts between NSP and GT and doing so in terms of the [MSA] entered into between all of the respective parties.’
On 13 May 2022 the Master responded to NSP’s attorneys, stating only that the “Master instructed the liquidators to disregard the set-off on the 28th of January 2022”.
Submissions of parties
It was argued for NSP that the decision of the Master to disallow the set off was both procedurally and substantively unfair, since NSP was not given the opportunity to be heard or make submissions prior to the decision which was made; and that the decision was made in an arbitrary manner without reasons provided with the Master not having applied the required contextual approach in making the decision, without sufficient material before her to assess properly the facts, the prior conduct of the parties, the terms of the transaction and the decision to invoke the set
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Savage J
off. [1] Consequently, it...
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