Cloete Murray N O and Others v Humansdorp Co-operative Limited

Cape Concentrate (Pty) Ltd, while under business rescue, paid substantial sums into its attorneys’ (Pagdens Incorporated) trust account. These funds were used via Standard Bank’s Third Party Fund Administration (TPFA) system to issue six Standard Bank demand guarantees in favour of Humansdorp Co-operative Limited (the Co-op), securing production loans advanced by the Co-op to the Tyefu Community Farming Trust. The Trust defaulted on its obligations, and on 7–8 May 2015 the Co-op demanded payment under the guarantees. Pagdens effected payment of R22 268 848.85 to the Co-op. After Cape Concentrate was liquidated in 2016, its liquidators sought to have the payment set aside as a disposition without value under s 26 of the Insolvency Act 24 of 1936, contending that the payment was made by Cape Concentrate using its own funds rather than by Standard Bank under the guarantees.

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

The case clarifies the treatment of payments made pursuant to demand guarantees in insolvency proceedings, confirming that payment under a valid bank guarantee is regarded as payment by the bank, not by the insolvent debtor. It reinforces the autonomy and enforceability of demand guarantees and limits the ability of liquidators to attack such payments as dispositions without value.