Ellerine Brothers (Pty) Ltd v McCarthy Limited

Ellerine Brothers (Pty) Ltd leased business premises to Toits Motor Group (Pty) Ltd. The lessee fell into arrears with rental payments. On 16 January 2009 Ellerine gave written notice in terms of a lex commissoria clause requiring payment within seven days, failing which the lease would be cancelled. Before the seven-day period expired, on 21 January 2009, a creditor lodged an application for the liquidation of the lessee. The lessee failed to remedy the breach and on 27 January 2009 Ellerine cancelled the lease. The lessee was later finally wound up. McCarthy Limited, a sub-lessee, resisted claims for rental under the sub-lease, contending that the cancellation was invalid because it occurred after the deemed commencement of winding-up under s 348 of the Companies Act 61 of 1973.

The appeal was dismissed with costs, including the costs of two counsel.

The case authoritatively clarifies the effect of concursus creditorum on uncompleted contracts, particularly leases, in South African insolvency law. It confirms that liquidation does not suspend or terminate contractual rights and that a lessor may validly cancel a lease in accordance with its terms even after the deemed commencement of winding-up. The judgment reconciles common-law principles with s 37 of the Insolvency Act and provides certainty on the interaction between insolvency and lease cancellation.