Cash Paymaster Services (Pty) Limited (In Liquidation) and Others v Freedom Under Law NPC and Others

Cash Paymaster Services (Pty) Limited (CPS) had a contract with the South African Social Security Agency (SASSA) to pay social grants. On 17 April 2014, the Constitutional Court declared the initial five-year contract invalid but suspended the declaration to ensure continued payment of social grants. The suspension was extended twice (17 March 2017 and 23 March 2018) on the same terms. The Court's orders required CPS to file audited profit statements and SASSA to obtain independent verification of these statements. CPS was placed in final liquidation on 16 October 2020 at SASSA's instance. Provisional liquidators were appointed on 30 October 2020. On 1 April 2021, the Court issued an order requiring various steps to determine profits earned by CPS from the grant payments (the April 2021 order). On 23 May 2021, the provisional liquidators applied to vary the April 2021 order and to join SARS. They argued that final liquidators had not yet been appointed and that SARS was conducting a tax audit involving similar issues. The application was not processed due to an administrative lapse until November 2021.

• Whether SARS should be joined as a party and whether the April 2021 order should be varied to align SARS' audit process with the RAiN verification process
• Whether the description of CPS in the April 2021 order should be amended to add '(in liquidation)'
• Whether the rights and obligations in the April 2021 order concerning CPS should be varied to refer to final liquidators rather than CPS
• Whether section 359(1)(a) of the Companies Act 61 of 1973 operated to stay proceedings against CPS pending appointment of final liquidators
• Whether provisional liquidators have legal competence to ensure CPS' compliance with the April 2021 order

The application was dismissed. No order as to costs was made given there was no formal opposition.

A company in liquidation remains bound to comply with court orders made against it prior to liquidation. Section 359(1)(a) of the Companies Act 61 of 1973, which provides for suspension of civil proceedings against a company in liquidation until appointment of a liquidator, does not relieve a company from obligations under existing court orders. Provisional liquidators have custody and control of all company property (including books, records and documents) under section 361(1) and power to compel delivery of company property under section 362(1), and are therefore legally competent to ensure company compliance with court orders. Where court orders require compliance that has nothing to do with winding up in the narrow sense of realizing assets and distributing proceeds, but rather concern just and equitable relief in exercise of constitutional jurisdiction, provisional liquidators must ensure compliance and cannot delay compliance pending appointment of final liquidators. Joinder of a party requires demonstration of a direct and substantial interest in the subject matter of the case - a legal interest which could be prejudicially affected by the court's order - and mere administrative convenience is insufficient.

The Court noted that if the provisional liquidators' letter of 18 January 2021 had reached the Registrar before the April 2021 order was issued, arguably the proceedings might have needed to be stayed, at least as against CPS, until final liquidators were appointed. However, the Court stated it was unnecessary to decide whether section 359(1)(a) would actually have been operative in the circumstances, given various factors including that: (a) the April 2021 order merely provided additional machinery to ensure compliance with earlier orders; (b) the earlier orders were made against CPS not as an ordinary commercial entity but as an organ of state; (c) all affidavits and submissions had been filed by the time of liquidation and CPS had not opposed the relief granted; and (d) the provisional liquidators had been granted extended powers including power to institute and defend proceedings. The Court also observed that section 49(5) of the Companies Act 61 of 1973, which required companies in liquidation to include the statement 'in liquidation' after their name, has not been carried forward into the Companies Act 71 of 2008, though the authors of a leading commentary suggest it may be incorporated by implication.

This case clarifies important principles regarding the operation of section 359(1)(a) of the Companies Act 61 of 1973 in relation to existing court orders. It establishes that a company in liquidation remains bound to comply with court orders made before liquidation, and that provisional liquidators have the legal competence and duty to ensure such compliance. The judgment reinforces that compliance with Constitutional Court orders is not optional and cannot be delayed based on whether creditors or the Master authorize liquidators to comply. It also provides guidance on the test for joinder, requiring a party to demonstrate a direct and substantial interest in the subject matter, not merely administrative convenience. The case is significant in the context of the broader CPS/SASSA social grants litigation, ensuring that orders made to give effect to constitutional remedies following declarations of invalidity are not frustrated by subsequent liquidation proceedings.