THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Reportable

Case No: 20736/2014

In the matter between:

ERAVIN CONSTRUCTION CC

APPELLANT

and

JACOBUS NICOLAAS BEKKER NO

FIRST RESPONDENT
CLIFFORD THABANG MAREDI NO

SECOND RESPONDENT
CHAVONNES BADENHORST ST’CLAIR
COOPER

THIRD RESPONDENT

Neutral citation: Eravin Construction CC v Bekker NO (20736/2014) [2016]

ZASCA 30 (23 March 2016).

Coram:
Lewis, Tshiqi, Swain and Dambuza JJA and Plasket AJA

Heard:
15 March 2016

Delivered:
23 March 2016

Summary:
Company law – whether void disposition in terms of s 341(2) of
the Companies Act 61 of 1973 recoverable by creditor or whether
enforcement precluded by s 154(2) of the Companies Act 71 of 2008 –
whether pre-business rescue debt – meaning of „debt owed‟.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: North West Division of the High Court, Mahikeng (Landman
J sitting as court of first instance)
1 The appeal is upheld with costs.
2 The order of the court below is set aside and replaced with the following
order:
„The application is dismissed with costs.‟
______________________________________________________________

JUDGMENT
______________________________________________________________

Plasket AJA (Lewis, Tshiqi, Swain and Dambuza JJA concurring):

[1] The issue to be determined in this appeal is whether the payment of
R389 593.49 by Ditona Construction (Pty) Ltd (Ditona) – a company being
wound-up – to the appellant, Eravin Construction CC (Eravin), is recoverable
at the instance of Ditona‟s liquidators as a void disposition in terms of s 341(2)
of the Companies Act 61 of 1973 (the old Act), or may not be recovered by
them because, in terms of s 154(2) of the Companies Act 71 of 2008 (the new
Act), it is a pre-business rescue debt which may not be enforced. In the court
below, the North West Division of the High Court, Mahikeng, Landman J
declared the payment to be void and ordered the repayment of the money. He
subsequently granted Eravin leave to appeal to this court.

Background
[2] In order to place the matter in its proper context, it is necessary to
chronicle the travails of Ditona in its winding-up and Eravin in it being placed
under business rescue. The events that I shall outline and their chronology
are common cause.

[3] On 20 October 2010, an application was brought by KLK Landbou Ltd
for the winding-up of Ditona. A provisional winding-up order was made on 9
December 2010. A final order was made on 3 March 2011. The effective date
of the winding-up, in terms of s 348 of the old Act, was 20 October 2010, the
date of „the presentation to the court of the application for the winding-up‟.1 On
4 October 2011, Messrs. J N Bekker, C T Maredi and C B St Clair Cooper, the
respondents in this appeal and who were the applicants in the court below,
were appointed as Ditona‟s liquidators.

[4] On 21 October 2010, a day after the winding-up application was
launched, the disputed payment of R389 593.49 was made by Ditona to
Eravin.

[5] On 24 September 2012, Eravin‟s board resolved to place it under
business rescue in terms of s 132 of the new Act. Notice to commence
business rescue proceedings was filed in the offices of the Companies and
Intellectual Property Commission (CIPC) on 26 September 2012, thus
beginning the business rescue process.2 A business rescue practitioner, Mr
Jean-Pierre Jordaan, was appointed on 5 October 2012 and a business
rescue plan was adopted on 25 January 2013. The business rescue was
terminated on 31 May 2013 and a notice was filed to the effect that substantial
compliance with the business rescue plan had been achieved.3

[6] Ditona‟s liquidators, having established that the disputed amount had
been paid to a firm of attorneys, Grobler, Levin and Soonius Inc, instructed
their attorneys to ascertain the basis of the payment. By letter dated 15
February 2013, their attorneys gave notice to Grobler, Levin and Soonius Inc
that the payment, having been made after the effective date of the winding-up,
was void and that they were obliged to pay the money received back to
Ditona.

1 Section 348 of the old Act provides:
„A winding-up of a company by the Court shall be deemed to commence at the time of the
presentation to the Court of the application for the winding-up.‟
2 New Act, s 132(1)(a)(i).
3 New Act, s 132(2)(c)(ii).

[7] Having stated in the letter that Ditona‟s liquidators intended
establishing a s 417 enquiry to investigate the circumstances of the payment,
the attorneys proceeded to say that this would not be necessary if Grobler,
Levin and Soonius Inc either repaid the money or furnished a comprehensive
written explanation of the circumstances under which the payment to them
had been made. In other words, the letter continued, „we want to know on
what basis you received the payment, what you have given in exchange for
receipt of the payment to the company in liquidation and also when the
governing agreement was concluded as well as what the terms of the
agreement were‟.

[8] On 1 May 2013, Grobler, Levin and Soonius Inc, which had by now
changed its name to Grobler Vorster Inc, responded by letter. It said:
„We confirm  that the amount of R389 593.49 (THREE HUNDRED AND EIGHTY
NINE THOUSAND FIVE HUNDRED AND NINETY THREE RAND AND FORTY
NINE CENTS) was paid to our company in terms of an Acknowledgement of Debt
signed by Mr G P Pretorius in his personal capacity and on behalf of the company.
Mr Pretorius failed to perform in terms of the Acknowledgement of Debt and
we therefore proceeded to obtain judgment whereafter a warrant of execution was
issued against the property of Mr Pretorius, as a result of the said judgment. Mr
Pretorius‟s mother proceeded to pay this judgment debt.
Accordingly it is our submission that the monies you refer to was not paid by
the company in liquidation, but was paid by a third and independent party,‟

[9] The person mentioned in the letter, Mr G P Pretorius, was Ditona‟s
managing director prior to its winding-up. In an affidavit attached to the
liquidators‟ replying affidavit Pretorius denied that the money paid to Eravin
emanated from his mother and that Ditona‟s account was used as a mere
conduit for that payment by his mother. Instead, he said, the „money was
Ditona‟s money and came from a Ditona bank account‟. This was confirmed
by the liquidators in the replying affidavit. It was stated that an examination of
the bank accounts of Ditona established that the funds were Ditona‟s funds
and that „there was no prior injection of funds from Mr Pretorius‟ mother as
alleged‟.

The issues
[10] The case of the liquidators, that they are entitled to recover the
payment made by Ditona to Eravin, rests on s 341(2) of the old Act. It
provides:
„Every disposition of its property (including rights of action) by any company being
wound-up and unable to pay its debts made after the commencement of the winding-
up, shall be void unless the Court otherwise orders.‟
It is not in dispute that Ditona was unable to pay its debts.

[11] Eravin‟s case, on the other hand, is that s 154(2) of the new Act
precludes the liquidators from recovering the debt. This section provides:
„If a business rescue plan has been approved and implemented in accordance with
this Chapter, a creditor is not entitled to enforce any debt owed by the company
immediately before the beginning of the business rescue process, except to the
extent provided for in the business rescue plan.‟

[12] The first argument raised in the court below by the liquidators was that
the entire business rescue proceedings were void and that therefore s 154(2)
of the new Act did not bar the recovery of debt. This was so because Eravin
had not complied with s 129 of the new Act in one respect: the business
rescue practitioner was not appointed within five business days of the filing of
the resolution, as required by s 129(3)(b). This argument was rejected by
Landman J.

[13] At the time, the issue was open, with different High Court judgments in
conflict as to whether a failure to comply with a requirement of ss 129(3) or (4)
had the effect, by operation of law, of rendering the business rescue
proceedings void.

[14] The divergence of views has now been resolved by this court in
Panamo Properties (Pty) Ltd & another v Nel & others NNO.4 Wallis JA held
that non-compliance with s 129 did not visit nullity on the business rescue
proceedings automatically. What was required in order to achieve this result

4 Panamo Properties (Pty) Ltd & another v Nel & others NNO 2015 (5) SA 63 (SCA).

was an application to court. As a result of Panamo Properties, this point was
abandoned before us.

[15] The second argument was that the debt was not a pre-business rescue
debt owed by Eravin to Ditona as it only arose – or became due – after the
commencement of the business rescue proceedings. That being so, the
argument proceeded, its recovery is not barred by s 154(2) of the new Act.
Landman J found that this was indeed so and granted the liquidators‟
application on this basis.

[16] He identified the issue to be addressed as being the meaning of the
word „debt‟ in s 154(2). Counsel for the liquidators had argued that the word
bore the same meaning in this context as in the context of the Prescription Act
68 of 1969. While Landman J held that this Act could provide guidance as to
the word‟s meaning, „one must be cautious in relying on this‟.5 Instead, with
reference to „the general context‟ of the new Act, he held that there was „much
to be said‟ for the idea that „debt in a wide and general sense denotes
“whatever was due . . . from an obligation”‟;6 that a „debt which is claimable is
one which is due [and] payable‟; and that a „claim arises when the cause of
action is complete‟.7

[17] He concluded in respect of the disputed payment:8
„The payment although void (but capable of being validated in a sense) is not due
and does not arise until, at least, a liquidator has been appointed and ascertains that
the payment has been made and the close corporation in liquidation is unable to pay
its debts. In addition the identity of the recipient of the disposition must be known.
Until it becomes known the cause of action is incomplete. On this basis the debt only
became claimable after 1 May 2013 when the applicants discovered the identity of
the recipient.‟
On this basis, he held that the debt was not a pre-business rescue debt and
its recovery was enforceable.

5 Para 14.
6 Para 15.
7 Para 16.
8 Para 19.

[18] Despite his own warning of the dangers of importing the concepts in
the Prescription Act into the different context of the old and new Companies
Acts, Landman J did precisely that. In so doing, he ignored a fundamental
difference between the two.

[19] The Prescription Act is concerned with fixing a time when a debt falls
due – when it may be claimed – because it has determined that to be the
point at which prescription starts to run.9 That point is only reached when the
creditor knows „the identity of the debtor and of the facts from which the debt
arises‟.10

[20] Section 341(2) of the old Act and s 154(2) of the new Act are different.
They are not concerned with when debts are due and can be claimed, but
when they are owed. On this account, the prescription analogy is not apposite
and, as was demonstrated in this case, is apt to mislead.

[21] The question to be answered in this case is thus when the debt was
owed. That must be answered in the first instance with reference to s 341(2)
of the old Act. It states expressly that a disposition in the terms contemplated
by it „shall be void‟. The recipient has no right, on this account, to retain it.
Consequently, it owes a debt to the body which made the prohibited
disposition, and that debt is owed as soon as the disposition was received.

[22] Section 154(2) of the new Act is as clear: if a debt was owed by a
company „before the beginning of the business rescue process‟ – before, in
other words – the filing of the resolution when a company places itself under
business rescue – then the creditor „is not entitled to enforce‟ that debt.

[23] In this case, the payment was made on 21 October 2010 and, being
void, its repayment was immediately owed by Eravin. Its business rescue
proceedings began on 26 September 2012, being the date on which the

9 Prescription Act, s 12(1).
10 Prescription Act, s 12(3).

resolution was filed with the CIPC. As the debt was owed prior to 26
September 2012, the debt may not be recovered.

[24] A further point was argued in this court, but was not raised in the court
below. It was that s 154(2), properly interpreted, only applies to creditors who
have been given notice of the business rescue proceedings.

[25] The argument arises in this case presumably because Eravin did not
know that the payment of a judgment debt by Ditona was a void disposition
and so did not know that the liquidators, who had then taken no steps to
recover the debt, were creditors. As a result, it did not give the liquidators
notice of the business rescue proceedings, and they obviously played no part
in them.

[26] In these circumstances, it was argued that s 154(2), being draconian in
the sense that it provided for certain debts to be rendered unenforceable
against the company under business rescue, should be restrictively
interpreted in order to minimise the prejudice to creditors.

[27] In my view, the argument has no merit. The meaning of the section is
clear and unambiguous: all creditors – as opposed to creditors who had been
given notice of the business rescue proceedings – are precluded from
enforcing pre-business rescue debts. I can see no justification for reading into
the section a limitation that the legislature would have provided for expressly,
had it wished to.

[28] A creditor who has not been given notice, but who knows of the
business rescue proceedings, has a remedy. He or she may apply to set
aside the business rescue proceedings for want of compliance with the
requirements of s 129 of the new Act. If he or she succeeds in doing so,
s 154(2) would no longer be a bar to the recovery of the debt.

[29] To the extent that some creditors may not know about the business
rescue proceedings until after they have been concluded, that may indicate a

defect in the provisions of the new Act concerning the giving of notice. If that
is so, that is a matter for the legislature to attend to. It is not the proper
function of the court to attempt to remedy such difficulties by means of
interpretative sleight of hand.

[30] For the reasons that I have given, the appeal must succeed and the
order of the court below must be set aside and replaced. It was argued on
behalf of the appellant that as the case involved a novel point, the costs of two
counsel was justified. I disagree. Novel as the point may have been, it was
straightforward.

The order
[31] I make the following order.
1 The appeal is upheld with costs.
2 The order of the court below is set aside and replaced with the following
order:
„The application is dismissed with costs.‟

___________________
C Plasket
Acting Judge of Appeal

APPEARANCES:
For Appellant:

AB Rossouw SC (with him J H A Saunders)
Instructed by:
George Loock Attorneys, Mahikeng
McIntyre & Van der Post, Bloemfontein

For Respondents:
M P van der Merwe SC
Instructed by:
Couzyn Hertzog & Horak, Mahikeng
Spangenberg Zietsman & Bloem Attorneys,
Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

23 March 2016

STATUS

Immediate

Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.

Eravin Construction CC v Bekker NO (20736/2014) [2016] ZASCA 30 (23 March 2016).

The Supreme Court of Appeal (SCA) today handed down judgment concerning the recoverability of a
payment made by a close corporation after the effective date of its winding-up – a void disposition –
to a company that was later placed under business rescue.

An application for the winding-up of Ditona Construction (Pty) Ltd (Ditona) was brought in the North
West Division of the High Court, Mahikeng on 20 October 2010, being the effective date of the
winding-up in terms of s 348 of the Companies Act 61 of 1973 (the old Act). A provisional winding-up
order was made on 9 December 2010, and a final order was granted on 3 March 2011. However, on
21 October 2010, a day after the effective date, a payment of R389 593.49 was made by Ditona to
the appellant, Eravin Construction CC (Eravin). On 24 September 2012, Eravin’s board resolved to
place it under business rescue in terms of s 132 of the Companies Act 71 of 2008 (the new Act).
Notice to commence business rescue proceedings was filed in the offices of the Companies and
Intellectual Property Commission (CIPC) on 26 September 2012, thus beginning the business rescue
process. A business rescue practitioner was appointed on 5 October 2012 and a business rescue
plan was adopted on 25 January 2013. The business rescue was terminated on 31 May 2013 and a
notice was filed that substantial compliance with the business rescue plan had been achieved.

Ditona’s liquidators, the respondents in the appeal, having established that the disputed amount had
been paid to a firm of attorneys, Grobler, Levin and Soonius Inc, instructed their attorneys to
ascertain the basis of the payment. They did so on the premise of s 341(2) of the old Act, which
provides that dispositions of property made by a company being wound-up are void unless the court
orders otherwise. Eravin’s argument, on the other hand, was that s 154(2) of the new Act precluded
the liquidators from recovering the debt. This section provides that a creditor may not recover a pre-
business rescue debt.

It had been argued by the liquidators in the court a quo that the entire business rescue proceedings
were void and therefore that s 154(2) of the new Act did not bar the recovery of debt. It was argued
that this was so because Eravin had not complied with s 129 of the new Act in that the business
rescue practitioner had not been appointed within five business days of the filing of the resolution as
required by s 129(3)(b) of the new Act. This argument was rejected by the court a quo. It was also
argued that the debt was not a pre-business rescue debt owed by Eravin to Ditona as it only became

due after the commencement of the business rescue proceedings, and was thus recoverable. The
court a quo had found that this was indeed so and had granted the liquidators’ application on that
basis.

On appeal, in respect of the first argument, the SCA held that it had now been settled by the court in
Panamo Properties (Pty) Ltd & another v Nel & others NNO [2015] ZASCA 76; 2015 (5) SA 63 (SCA),
that non-compliance with s 129 did not vitiate the business rescue proceedings automatically, but that
what was required in order to achieve that result was an application to court.

In respect of the second argument, the SCA found that s 341(2) of the old Act and s 154(2) of the
new Act are both concerned with when debts are owed, rather than when they are claimable (or fall
due). The court found on this account that the prescription analogy that had been adopted by the
court a quo was misleading for determining when the debt was owed.

The SCA held that s 341(2) of the old Act expressly provides that a disposition in the terms
contemplated by it ‘shall be void’; and thus that the recipient has no right, on this account, to retain
property so disposed. Consequently, the recipient owes a debt to the body that made the prohibited
disposition, and that that debt is owed as soon as the disposition had been received.

The SCA further held that s 154(2) of the new Act which provides that if a debt was owed by a
company ‘before the beginning of the business rescue process’, ie before the filing of the resolution
when a company places itself under business rescue – then the creditor ‘is not entitled to enforce’
that debt. The Court held that in this case, the payment was made on 21 October 2010 and, being
void, its repayment was immediately owed by Eravin. Its business rescue proceedings had begun on
26 September 2012, being the date on which the resolution had been filed with the CIPC. As the debt
had been owed prior to 26 September 2012, the debt was a pre-business rescue debt and could not
be recovered.

On the further argument that was raised for the first time on appeal, the SCA held that all creditors –
as opposed to only those creditors who had been given notice of the business rescue proceedings,
as had been argued by the appellant – are precluded from enforcing pre-business rescue debts. The
court held that there was no justification for reading into the section which was not expressly provided
for.

The appeal thus succeeded and the order of the court below granting the liquidators’ application was
set aside and replaced with an order dismissing the application with costs.

--- ends ---