Spendiff NO v J A J Distributors (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Thring AJ
• Judgment Date: 07 December 1988
• Citation: 1989 (4) SA 126 (C)
• Hearing Date: 04 November 1988
• Court: Cape Provincial Division

Thring AJ:

On 5 September 1988 Pennyland Toys & Gifts CC, a close corporation to which I shall refer herein as 'Pennyland', launched the present proceedings against respondent. Pennyland claimed a provisional winding-up order on the ground, first, that respondent was unable to pay its debts, and second, on the ground that it would be just and C equitable for respondent to be wound up, so that a liquidator could take charge of respondent's assets and see to a proper distribution thereof. Pennyland avers that respondent is indebted to it in the sum of R86 534,94, being in respect of goods sold and delivered by it to respondent and certain royalties paid by Pennyland to the SA Broadcasting D Corporation. The application is opposed by respondent. It was postponed twice, once on 7 September 1988 and again on 16 September 1988. Opposing affidavits were delivered by respondent and replying affidavits by Pennyland. The matter was then set down for hearing on the semi-urgent roll on 4 November 1988.

However, before the case could be heard, Pennyland was placed E in provisional liquidation by order of the Durban and Coast Local Division on 18 October 1988, and, consequent thereon, the present applicant was appointed liquidator of Pennyland on 20 October 1988. On 2 November 1988 he was substituted for Pennyland as applicant in these proceedings in terms of Uniform Rule of Court 15(3). The provisional F order of liquidation of Pennyland had not yet been made final as at 4 November 1988.

There were further developments. When the matter was called in this Court on 4 November 1988 Mr Mitchell, who appears for respondent, handed in an affidavit deposed to by respondent's attorney, Mr Tyfield, to which was annexed a copy of a document purporting to be a cession of G Pennyland's book debts to the Standard Bank of South Africa Ltd (to which I shall refer herein as 'the bank'). The cession is dated 29 December 1987. The portions thereof which are relevant to the present proceedings read as follows:

'Cession of book debts

Deed of cession

(a)

H 'In consideration of the Standard Bank of South Africa Ltd (hereinafter with its successors or assigns referred to as "the bank") allowing me/us/the company/close corporation hereinafter mentioned such banking facilities as the bank may in its sole discretion deem fit (either by way of the continuation of any existing facilities and/or providing new or further facilities), and/or as security for guarantees already given or to be given to the bank by me/us/the I company/close corporation subject to the conditions hereinafter mentioned I/we, the undersigned, Daphne Snyders ID 3507215028003 in my capacity(ies) as member(s) of Pennyland Toys and Gifts CC CK 87/15876/23 (hereinafter referred to as "the company/close corporation") duly authorised hereto by a resolution of the board of directors of the company/members of the close corporation passed at Scottburgh on 29 J December 1987 (a certified copy whereof is hereunto annexed) do hereby pledge, cede, assign and transfer unto and in favour of the bank all my/our/the

Thring AJ

A company's/close corporation's right, title and interest in and to all book debts and other debts, and claims of whatsoever nature, present and future, due and to become due to me/us/the company/close corporation and to all rights of action arising thereunder, as a continuing covering security for all sums of money which I/we/the company/close corporation may now or at any time hereafter owe or be indebted in to the bank.'

(b)

'As from the date hereof the bank shall at all times have B the right by itself or by its nominees or agents to collect all sums of money due or to become due to me/us/the company/close corporation in respect of the said debts and the bank's right to give notice of this cession to any of the debtors and to draw bills of exchange on or obtain promissory notes from any of the debtors, is hereby recognised, and it is agreed that the exercise of any such rights shall not be construed C as relieving me/us/the company/close corporation from any liability to the bank and shall not prejudice the bank's claim against me/us/the company/close corporation.'

(c)

'It is further agreed that in the meantime until notice to the contrary is given by the bank, I/we/the company/close corporation shall act as the bank's agent in the collection of all moneys due or to become D due to me/us/the company/close corporation and that all such moneys shall be paid to the bank and shall, if so required by the bank, be deposited in a special banking account in the name of the bank, over which the bank shall have sole control.'

(d)

'I/We/The company/close corporation hereby nominate(s), constitute(s) and appoint(s) any general manager or assistant general manager for the time being or any branch or acting branch manager of the E bank as my/our/the company's/close corporation's true and lawful attorney and agent irrevocably and in rem suam with power of substitution, to exercise all the rights of action and powers and rights accruing to me/us/the company/close corporation for the purpose of calling up and collecting all the said debts (the right to collect which shall vest in the bank on the signing hereof) and to institute whatsoever legal proceedings the bank may consider necessary and to F prove any claim in any insolvent estate, and generally to do all that may be requisite and necessary just as if I/we/the company/close corporation were acting therein, and in particular to recover all moneys and rights due to me/us/the company/close corporation in respect of the said debts and to grant valid receipts and acquittances therefor in my/our/the company's/close corporation's name....'

(For the sake of ease of identification and reference, I have labelled these passages '(a) ' to '(d) ', although they are not so marked in G the document itself.)

Mr Griesel, who appears for applicant, did not object to these documents being handed in, and he also indicated that applicant did not wish to file any further papers in response thereto.

In his affidavit, Mr Tyfield also says that on the morning of H 4 November 1988, and with the consent of applicant's counsel, he telephoned applicant and was advised by him that (1) Pennyland was indebted to the bank in the sum of R101 000; and (2) other than the debt allegedly owing by respondent to Pennyland, the total of the other debts owing to Pennyland amounted to some R7 200.

I It must clearly be accepted that on 29 December 1987 Pennyland ceded all its book and other debts to the bank in securitatem debiti in terms of the cession, and that the cession subsists.

In limine, Mr Mitchell took the point that, because of the cession, neither Pennyland, as at the date of the launching of this application, nor applicant since his substitution as such, had or has locus standi J to apply for

Thring AJ

A the winding-up of respondent. He accordingly submitted that the application should be dismissed, with costs.

Section 346(1)(b) of the Companies Act 61 of 1973 provides that:

'An application to the Court for the winding-up of a company may, subject to the provisions of this section, be made

(a)

...

(b)

B by one or more of its creditors (including contingent or prospective creditors).'

Mr Mitchell contended that, once it had ceded all its debts to the bank, in which were included the debts allegedly owing to it by respondent, Pennyland ceased to be a creditor of respondent, either C contingent, prospective or at all, and that it had no locus standi to apply for respondent's winding-up when the application was subsequently launched by it. Nor, he argued, did it lie in applicant's power simply to adopt Pennyland's defective application and proceed with it, especially as the liquidation of Pennyland is not yet final. If Pennyland was not a creditor of respondent at the relevant time, nor D could applicant be, so his argument ran.

Mr Mitchell relied heavily on the decision in Holzman NO and Another v Knights Engineering and Precision Works (Pty) Ltd 1979 (2) SA 784 (W). In that case it was held that a cession by the applicant company of its book debts, including its claim against the respondent, in E securitatem debiti to a third party before the institution of a winding-up application precluded the applicant company from applying for the respondent's winding-up because it deprived the applicant company of locus standi in judicio. As in the present case, a winding-up order was granted against the applicant company itself between the launching of the proceedings and the hearing of the application, and the F company's liquidator was substituted as applicant. Save in two respects, to which I shall presently turn, the cession in the Holzman case appears to have been in similar terms to that in the present case (see the Holzman case supra at 792E - F and 795E - G).

After referring to a number of earlier authorities, Nestadt J (as he then was) said at 791H - 792A:

G 'In the result, it seems to me that it is now established that the effect of a cession in securitatem debiti is the same as far as the debtor is concerned as an out-and-out cession. If reference is still to be made to the cedent retaining dominium, it must be confined to the ownership of a personal right that he has against the cessionary arising from the contract between them, inter alia, that, on payment of the secured debt, the ceded right will be returned to the cedent.'

H At 793C - F he concluded as follows:

'I return now to the initial issue referred to, namely whether, despite the cession, there existed a vinculum juris between the company and the respondent. In my opinion, the answer is no. The effect of a cession in securitatem debiti as set out above, and more particularly its equation, as far as the debtor is concerned, with an I out-and-out cession...