THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No: 168/09

In the matter between:

DUET AND MAGNUM FINANCIAL
SERVICES CC (IN LIQUIDATION)
Appellant

and

J H KOSTER
Respondent

Neutral citation:
Duet and Magnum Financial Services v Koster
(168/09) [2010] ZASCA 34 (29 March 2010)

Coram:
NUGENT, HEHER and VAN HEERDEN JJA and
THERON, SERITI AJJA

Heard:
15 MARCH 2010

Delivered:
29 MARCH 2010

Summary:
Insolvency – dispositions – liquidator’s right to apply
for setting aside under ss 26, 29 and 30 of Insolvency
Act 24 of 1936 – when extinctive prescription begins to
run.

___________________________________________________________
ORDER
___________________________________________________________________________

On appeal from: North Gauteng High Court, Pretoria (Preller J sitting as
court of first instance):
The appeal is dismissed with costs.

_____________________________________________________________
_

JUDGMENT
___________________________________________________________

NUGENT JA (HEHER and VAN HEERDEN JJA, THERON and SERITI
AJJA):

[1] The question in this appeal is whether a claim by a liquidator under
s 32 of the Insolvency Act 24 of 1936 to have a court set aside an
impeachable transaction, and to make a declaration that the liquidator is
entitled to recover the alienated property, prescribes under the Prescription
Act 68 of 1969, and if so, when prescription starts to run against the claim.

[2] Duet and Magnum Financial Services CC carried on business as a
micro-lender. An order for its winding up1 was made on 17 May 2001 and
the liquidators, the present appellants, were appointed on 18 July 2001.

1 Section 66 of the Close Corporations Act 69 of 1984 read with s 340(2)(a) of the Companies Act 61 of
1973.

[3] On 12 July 2005 the liquidators caused a summons to be served on
Mr Koster, the respondent, in which they alleged that certain dispositions
had been made by the close corporation that fell within the ambit of either
s 26(1)(b) or s 30(1) or s 29(1) of the Insolvency Act. They claimed an order
setting aside the dispositions, and an order declaring Mr Koster obliged to
pay to them certain moneys that were alleged to have been alienated under
the dispositions from September 2000 until the date of the winding-up order.
(Different amounts were claimed in the alternative but that is not material for
present purposes.)

[4] Mr Koster filed a special plea of prescription and pleaded over on the
merits. Only the plea of prescription is relevant here. Mr Koster pleaded that,
in respect of each of the dispositions relied on by the liquidators,
prescription commenced to run from a date before 12 July 2002 (which was
three years before the summons was issued) and averred that the liquidators
had knowledge of the relevant facts before that date, or could have acquired
such knowledge by exercising reasonable care. In the premises, so the plea
ran, the claim has expired.

[5] In a replication the liquidators raised two answers to the special plea.
They pleaded that, because the liquidators were not entitled to recover the
disposition until the court made the order sought by them, there was no
present ‘debt’ as contemplated by s 11(d) of the Prescription Act, and thus
prescription has not commenced to run. In the alternative, the liquidators
pleaded that they obtained knowledge of the facts upon which the claim was
based at an enquiry held in terms of s 152 of the Insolvency Act on 4 August
2003, having acted reasonably and with due care, and that the running of

prescription was thus delayed until that date under s 12(3) of the Prescription
Act.

[6] The matter came to trial before Preller J in the Pretoria High Court.
The court ordered, under Rule 33(4), that the only question to be tried
initially was whether ‘the plaintiff’s claims as formulated in the particulars
of claim constitute a “debt” as contemplated in sections 10, 11 and 12 of [the
Prescription Act]’ in which event the parties agreed that the claims had
become prescribed.

[7] After hearing argument the learned judge upheld the special plea with
costs. In doing so he declined to follow Barnard and Lynn NNO v
Schoeman,2 which concerned a similar claim, and adopted the contrary
conclusion reached by Nel J (Potgieter AJ concurring) in Burley Appliances
Ltd v Grobbelaar NO3 and by Goodey AJ in Barnard NO v Bezuidenhout,4
in relation to analogous claims. In view of the conflict between those
decisions Preller J granted the appellant leave to appeal to this court. During
April Mr Koster’s attorneys of record withdrew. We were advised by Mr
Koster in a letter received by the registrar of this court on 12 March 2010
that he would not be represented at the appeal, citing lack of funds to employ
counsel.

[8] In support of their contention that their claim has not prescribed
counsel for the liquidators submitted that because Mr Koster is not yet liable
to repay the moneys that are now claimed, no ‘debt’ as envisaged by the

2 2000 (3) SA 168 (N).
3 2004 (1) SA 602 (C).
4 2004 (3) SA 274 (T).

Prescription Act is in existence. A similar submission5 was made in Burley
and rejected. Upon being asked during argument in this case when the cause
of action that has been pleaded will arise counsel for the liquidators said that
it will arise only once judgment setting aside the effective dispositions is
entered in favour of the liquidators. The notion that a claim can be founded
upon a cause of action that arises only once a court has given judgment on
the claim is not one that appeals to me.

[9] It seems to me that the liquidators misunderstand their own claim.
Prescription is about rights that have come into existence but have ceased to
exist by the passage of time. If a right has not come into existence then there
is nothing that is capable of expiring. That is why prescription is raised in a
plea. If no existing right has been alleged in the particulars of claim then the
particulars of claim are excipiable and will not attract a plea. It is only once
facts have been alleged that establish the existence of a right that the
question whether that right has expired is capable of arising.

[10] It is perfectly correct, as counsel for the liquidators submitted, that Mr
Koster has no present obligation to pay the moneys that are claimed. It is
also perfectly correct that Mr Koster will become obliged to pay the money
only once a court has made a declaration to that effect. But the claim of the
liquidators is not founded upon a present right to be paid by Mr Koster.

[11] Orders that are made by courts generally declare that a debt then
exists and allow for its enforcement by the ordinary process of execution.
But the declarations that are sought in this case are declarations of an

5 At 607D.

altogether different kind. They are declarations that have the effect of
bringing
into

existence a debt that did not exist before. The liquidators become entitled to
obtain such a declaration once certain events have occurred and that is the
right that they now seek to enforce. They do not ask the court to declare Mr
Koster to be an existing debtor. They ask the court to make Mr Koster into a
debtor when he was not a debtor before. If they were to show that the events
alleged in the particulars of claim have occurred then they are entitled to a
declaration of that kind and that is the existing right upon which they rely.

[12] The sections of the Insolvency Act with which we are concerned are
not merely a novel procedure for enforcing existing debts. They create for
liquidators a remedy in addition to any remedies that might be available at
common law. It might be that the liquidators have a claim against Mr Koster
for recovery of a present debt under the common law remedies for fraud, or
under the actio Pauliana,6 but they are not pursuing remedies of that kind. In
addition to those remedies the Insolvency Act creates a different and wider
remedy that is given to liquidators to recover assets that have been removed
from an estate before insolvency. A similar remedy is given to liquidators7
by s 424(1) of the Companies Act, in addition to any common law remedies
that creditors might have, to recover loss that has been brought about by
those who carry on the business of a company recklessly or with intent to
defraud creditors.

[13] In both cases a liquidator is entitled to have a declaration made by a
court that brings a debt into existence once it has been shown that a
particular event has occurred. In the case of the Insolvency Act that event is

6 Mars: The Law of Insolvency in South Africa 9 ed (eds) Eberhard Bertelsman et al (eds) p 138.
7 The remedy is available to others as well but I confine myself now to the position of liquidators.

a disposition of property that falls within the terms of ss 26 to 31. Once it is
shown that such a disposition has occurred then s 32(3) entitles the
liquidator to ask a court to set aside the disposition and to declare that the
liquidator is entitled to recover the property or its value. In the case of
s 424(1) of the Companies Act, once it is shown that the business of a
company has been carried on recklessly or with intent to defraud creditors,
the liquidator is entitled to ask a court to declare ‘any person who was
knowingly a party to the carrying on of the business’ in that manner to be
‘personally responsible for all or any of the debts or other liabilities of the
company as the Court may direct’. In both cases the declaration that is made
by the court brings into existence debts that did not exist before and
simultaneously enables the debts immediately to be enforced through the
ordinary process of execution.

[14] Those special remedies originate from comparable English legislation
that has been exported to other countries as well. In Burley, to which I will
return, Nel J referred to the decision of the Court of Appeal of New Zealand
in Re Maney and Sons De Luxe Service Station Limited; Maney v Cowan,8
which I have found to be helpful. That case concerned s 320 of the
Companies Act 1955 of that country, which is comparable to s 424(1) of our
Companies Act. The decision is not directly in point because nobody was so
bold as to suggest in that case that the cause of action arose only once the
declaration of liability was made. But it is nonetheless instructive for the
basis upon which the case was argued and decided.

[15] The question under consideration was whether the limitation period

provided for in s 4 of the Limitation Act 19509 commenced to run when the
delinquent act occurred, or whether it commenced only when the company
was placed under winding-up. It was argued in support of the former that the
section created no new rights, but merely provided for a summary procedure,
available to a liquidator upon winding-up, to recover an existing
indebtedness that arose when the delinquent act occurred, and thus the cause
of action accrued at that date.10 North P rejected that submission in the
following terms:
‘In my opinion it is plain that s 320 does create a new cause of action for it confers on a
liquidator, a creditor or a contributory on liquidation the right to ask the Court, in the
circumstances stated, to require the offending party to pay the debts or other liabilities of
the company. This is surely a new liability and a new right not previously known to the
law…. I am accordingly of the opinion that the liquidation is a material part of the cause
of action and therefore the period of limitation does not begin to run until the
commencement of the winding up and perhaps not until the appointment of a liquidator
(a distinction which is of no importance in the present case).’

[16] In Burley Nel J also referred to what was said by the authors of a
standard English work on company law, Gore-Browne on Companies, in
relation to s 214 of the Insolvency Act 1986 of that country. Under that
section a court may, on the application of the liquidator of a company,
‘declare [a director or former director of the company] to be liable to make
such contribution…to the company’s assets as the court thinks proper.’  In
the current edition of that work the authors say the following:11

8 [1969] NZLR 116.
9 The effect of s 4 of the Limitation Act 1950 was that ‘actions to recover any sum recoverable by
virtue of any enactment … shall not be brought after the expiration of six years from the date on which
the cause of action accrued’.
10 At 123 lines 20-30.
11 Alistair Alcock, John Birds and Steve Gale (eds) Gore-Browne on Companies Vol. 2 Part XIII (update
76) para 21B.

‘Proceedings under s 214 must be commenced within six years of the company’s going
into insolvent liquidation, which is the date when the “cause of action” accrues for
purposes of s 9 of the Limitations Act 1980.’

[17] One of the cases cited by the authors in support of that statement is the
decision of the Court of Appeal (Civil Division) in Re Farmizer Ltd.12 It was
argued in that case that the limitation period under s 9(1) of the Limitation
Act 198013 never commences to run against actions under s 214 of the
Insolvency Act, though for reasons different from those that were advanced
before us. In the Chancery Division Blackburne J rejected the submission in
the following terms, and the Court of Appeal agreed:
‘In my view it is clear that the facts which a liquidator must prove to establish a claim for
wrongful trading are those set out in subs. (2) of the section and no others. The statutory
cause of action created by the section accrues on the occurrence of the latest of the
matters to which the subsection refers: that is self-evidently when the company in
question goes into insolvent liquidation’.

[18] In both those cases it was recognized by the respective courts that the
relevant legislation gave to liquidators a new right in addition to any rights
that they or creditors might otherwise have – which was the right to have a
debt created where no debt might have existed before. The provisions of the
Insolvency Act give to liquidators a similar right and that is the right that the
liquidators now seek to enforce.

[19] That was also recognized by Nel J in Burley. In that case a creditor of
a close corporation claimed declarations under ss 64(1) and 65 of the Close

12 [1995] 2 BCLC 462.
13 ‘An action to recover any sum recoverable by virtue of any enactment shall not be brought after the
expiration of six years from the date on which the cause of action accrued’.

Corporations Act 69. Section 64(1) is in much the same terms as s 424(1) of
the Companies Act. Section 65 entitles a court to declare that a close
corporation ‘is to be deemed not to be a juristic person’ in certain
circumstances, which has consequences for the liability of its members.

[20] The plaintiff took exception to a plea of prescription on much the
same lines that the plea was resisted in this case. According to the judgment
the submission that was made by counsel in support of the exception,
echoing what was submitted in this case, was that
‘the action instituted by Burley in terms of ss 64 and 65 of the Close Corporations Act is
not affected by the provisions of the Prescription Act in that the Prescription Act only
applies to “debts”, and before a Court “directs” in terms of s 64 or “declares” in terms of
s 65, no “debt” exists.’14
The exception was dismissed. In a thoughtful and helpful judgment, the
learned judge concluded as follows:
‘In my view, s 64 of the Close Corporations Act (and the corresponding section in the
Companies Act) created a new remedy, or “right” which becomes available to a creditor
in the circumstances set out in the section.’15

[21] The limitation statutes in England and New Zealand at the time those
cases were decided provided for the expiration of the right to bring an action
rather than the expiration of the right itself that was sought to be enforced.
The same approach was adopted in this country before 1969. Under the
Prescription Act 1943 extinctive prescription was ‘the rendering
unenforceable of a right by the lapse of time’, but the right itself remained in
existence for a further period, and could thus operate to set-off

14 At 607D.
15 At 612 I-J.

countervailing debts.16 But the Prescription Act 1969 operates instead to
extinguish the right – referred to in the Act as a ‘debt’ – with the natural
consequence that nothing remains to enforce (or to set-off against
countervailing debts).

[22] Under the Act of 1943 every civil action for the enforcement of a right
expired at one time or another – if only after expiry of the default period of
thirty years. Unless it is to be said that the 1969 Act was intended to remove
some rights from the scope of prescription – and I do not think that was the
case – then it seems to me that ‘debt’ under the 1969 Act must be taken to
encompass all those rights that were subject to prescription under the 1943
Act, which would include the right that is asserted by the liquidators in this
case.

[23] Indeed, it is not unusual when dealing with prescription for courts to
ask only when the ‘right of action’ arose, leaving it to implication that its
complement is a ‘debt’.17 Thus in Mazibuko v Singer,18 which has often been
cited in this court, Colman J referred to the ‘right of action’ prescribing,
implying that its complement was a ‘debt’. Trollip JA said that expressly19 in
Evins v Shield Insurance Co Ltd,20 when he said
‘“Cause of action” is ordinarily used to describe the factual basis, the set of material
facts, that begets the plaintiff’s legal right of action and, complementarily, the

16 The debt itself expired after thirty years.
17 Oertel v Direkteur van Plaaslike Bestuur 1983 (1) SA 354 (A) at 366C-H; Sentrachem Ltd v Prinsloo
1997 (2) SA 1 (A) at 15E-16D; Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (In
Liquidation) 1998 (1) SA 811 (SCA) at 826A-G; Drennan Maud & Partners v Pennington Town Board
1998 (3) SA 200 (SCA) at 212E-G; Provinsie van die Vrystaat v Williams NO 2000 (3) SA 65 (SCA) paras
24-25.
18 1979 (3) SA 258 (W) at 265D-F.
19 See, too, Eksteen JA in Sentrachem, above, at 15G-H,
20 1980 (2) SA 814 (A) at 825F-H.

defendant’s “debt”, the word used in the Prescription Act.’

[24] A ‘debt’ for purposes of the Act is sometimes described as entailing a
right on one side and a corresponding ‘obligation’ on the other.21 But if
‘obligation’ is taken to mean that a ‘debt’ exists only when the ‘debtor’ is
required to do something then I think the word is too limiting. At times the
exercise of a right calls for no action on the part of the ‘debtor’ but only for
the ‘debtor’ to submit himself or herself to the exercise of the right. And if a
‘debt’ is merely the complement of a ‘right’, and if all ‘rights’ are
susceptible to prescription, then it seems to me that the converse of a ‘right’
is better described as a ‘liability, which admits of both an active and a
passive meaning.22

[25] Having found that the Close Corporations Act created a new ‘right’
the learned judge in Burley went on to find that the complement of that right
was a ‘debt’ against which prescription commenced to run once the right had
accrued. The approach that was taken in that case has the support of the
authors of all the standard texts in this country on the law of insolvency and
company law23 and I have pointed out that other jurisdictions that have
similar remedies take the same approach. The only case that I am aware of,
either in this country or abroad, that supports the proposition that was
advanced by the liquidators, is the decision in Barnard and Lynn NNO v

21 See, for example, Electricity Supply Commission v Stewarts and Lloyds of SA (Pty) Ltd 1981 (3) SA 340
(A) at 344F-G; Joint Liquidators of Glen Anil Development Corporation Ltd (In Liquidation) v Hill Samuel
(SA)(Pty) Ltd 1982 (1) 103 (A) 110A-111E; Desai NO v Desai 1996 (1) SA 141 (A) at 146I-147A.
22 Shorter Oxford Dictionary ‘1. Law The condition of being liable or answerable by law or equity 2. The
condition of being subject to something’.
23 Eberhard Bertelsmann et al (eds) Mars: The Law of Insolvency in South Africa p 249; Justice P.A.M.
Magid, Prof Andre Boraine, Jennifer A. Kunst and Prof A. Burdette (eds) Meskin: Insolvency Law (Service
Issue 31) para 5.31.1; Sharrock, Smith and Van der Linde Hockly’s Insolvency Law 8ed p 138; Jennifer A.
Kunst, Prof Piet Delport and Prof Quintas Vorster (eds) Meskin: Henochsberg on the Companies Act

Schoeman.24 That case concerned the statutory provisions that are now
before us. It was found that the claim by the liquidators was not subject to
prescription and four reasons were given for that conclusion. Three of those
reasons were convincingly rebutted by Nel J in Burley and I need not repeat
what the learned judge said in that regard. The fourth reason given by the
learned judge for his conclusion is little more than a statement of the
proposition that is now contended for by the liquidators.

[26] It seems to me that the conclusion that was reached in Barnard and
Lynn is inconsistent with a considerable body of authority and is inconsistent
with the principles underlying every decision of this court on prescription. In
my view that case was incorrectly decided and it must be taken to be
overruled.

[27] I agree with the conclusion of Nel J in Burley, and with his reasons for
that conclusion,25 and in my view they apply as much in this case. I think it
is clear that the sections of the Insolvency Act with which we are concerned
give a right to a liquidator, in prescribed circumstances, to have a person
declared to be a debtor of the estate, and its complement is a ‘debt’ for
purposes of prescription, in that the person concerned is liable to have such a
declaration made. This case is distinguishable from Burley only in this
respect that under the Insolvency Act the right accrues only in a winding-up.
Whether the relevant date for the commencement of prescription is the date

(Service Issue 30) pp 914-915.
24 Above.
25 The same conclusion was reached by Goodey AJ in Barnard NO v Bezuidenhout, but for different
reasons.

that the winding-up commences, or the date that a liquidator is appointed, is
not a matter with which we need concern ourselves – the effect of s 12(3) of
the Prescription Act is that that question will never arise. It is sufficient to
say that prescription ordinarily commences to run no later than the date upon
which a liquidator is appointed. Whether the commencement of prescription
has been delayed in this case under the provisions of s 12(3) of the
Prescription Act is not a matter that we are called upon to decide.

[28] The fact alone that the particulars of claim are not excipiable is
enough to tell one that the liquidators assert an existing right and its
complement, a ‘debt’. What is required is only to identify the last event that
was required to have occurred for the particulars of claim not to be
excipiable. There is no merit in this appeal and it is dismissed with costs.

___________________
R W NUGENT
JUDGE OF APPEAL

APPEARANCES

APPELLANT:
G Wickins

Instructed by Brooks & Brand Inc, Johannesburg;

C/O E G Cooper & Majiedt Inc, Bloemfontein

RESPONDENT:
-