Introduction

Liquidations are stressful situations, especially for creditors who await payment of their claims. In a recent matter (ie Mantis Investments Holdings v De Jager N O (696/2022) [2023] ZASCA 134) this long and tedious process was further complicated by the fact that an allowed claim of a creditor was challenged incorrectly.

Facts

Mantis Investment Holdings (Pty) Ltd (Mantis), the first appellant, is a shareholder in Watt Street. Mr Adrian John Faulkner Gardiner (Mr Gardiner), the second appellant, is a director of both Mantis and Watt Street. The appellants appeal against the judgment and order of the Eastern Cape Division of the High Court, in which it, inter alia, made an order that the appellants are not lawfully entitled to contest the claims proved by the Eastern Cape Development Corporation (ECDC) in the liquidation proceedings of Watt Street.

Shortly before the commencement of the trial in the ECDC action, Mantis, represented by Mr Gardiner, brought an application in the Gqeberha High Court, for the liquidation of Watt Street. Mantis contended, in this application, that it was a creditor of Watt Street for an amount of about R2.5 million arising from certain unsecured and interest-free loans advanced to Watt Street, without specified repayment terms. In November 2014, the Gqeberha High Court placed Watt Street in final winding-up.

The appellants admitted that ECDC had proved a claim against Watt Street in the amount of about R19 million. They, however, denied that the amount claimed (or any lesser amount) was due, owing, and payable to ECDC. They also denied that the restructuring, rationalization and declaration of a dividend constituted a collusive agreement which prejudiced the creditors of Watt Street, and more particularly ECDC. The appellants furthermore pleaded that, from time to time, Bushman Sands (the principal debtor) had effected payments to ECDC and continued to do so.

A collusive agreement is one that in terms of the Insolvency Act 24 of 1936 (the “Act”):

‘31 Collusive dealings before sequestration

(1)   After the sequestration of a debtor’s estate the court may set aside any transaction entered into by the debtor before the sequestration, whereby he, in collusion with another person, disposed of property belonging to him in a manner which had the effect of prejudicing his creditors or of preferring one of his creditors above another.

(2)    Any person who was a party to such collusive disposition shall be liable to make good any loss thereby caused to the estate, by way of penalty, such sum as the court may adjudge, not exceeding the amount by which he would have benefited by such dealing if it had not been set aside; and if he is a creditor he shall also forfeit his claim against the estate.

(3)    Such compensation and penalty may be recovered in any action to set aside the transaction in question.’

Two questions arose, namely whether the appellants were entitled to:

(a) contest the claim of ECDC as against the principal debtor; and,

(b) revisit the indebtedness and quantum of  ECDC’s claim against the surety. 

The Act deals comprehensively with the procedure for the proof of liquidated claims against an insolvent estate.

In Breda N O v Master of the High Court, Kimberley [2015] ZASCA this Court observed that: ‘[a] presiding officer does not adjudicate upon the claim as a court of law, is not required to examine a claim too critically and only has to be satisfied that the claim is prima facie proved’. Thus, the Master must examine the proof of claims’ documents to determine whether they disclose prima facie the existence of an enforceable claim.

A liquidator may not review the decision of the Master to admit the claim. unless the liquidator has followed the procedure contemplated in section 45(3) of the Act, is peremptory. A creditor who has unsuccessfully objected to the Master’s decision to admit the claim may take the Master’s decision on review in terms of section 151 of the Act.

The Master’s decision to reject a creditor’s proved claim may also be taken on review by the aggrieved creditor. However, where no steps are taken to review the Master’s decision to admit or reject a proven claim, that claim becomes conclusive and enforceable in law against the company in liquidation. In that event, the Master’s decision would stand.

The appellants, in the present matter, did not challenge the Master’s decision to admit ECDC’s claim in terms of section 151 of the Act.

Thus, several consequences arise from the final winding-up of a company. Foremost is the creation of a concursus creditorum, the effect of which was described by this Court in Walker v Syfret NO 1911 AD “. . . the hand of the law is laid upon the estate, and at once the rights of the general body of creditors have to be taken into consideration. No transaction can thereafter be entered into about estate matters by a single creditor to the prejudice of the general body. The claim of each creditor must be dealt with as it existed at the issue of the order.’

To require this of the liquidators, in the face of ECDC’s pre-existing proved claim, is to negate the comprehensive set of measures in the Act to protect creditors.

Conclusion

It is therefore vital that professional advice is sought during liquidation proceedings to challenge claims correctly. Contact a solution-driven expert at SchoemanLaw today!