Chater Developments (Pty) Ltd (in liquidation) v Waterkloof Marina Estates (Pty) Ltd and H A Marais

Chater Developments (Pty) Ltd (in liquidation) was placed in final liquidation on 30 July 2002. Mr H A Marais was appointed as sole liquidator on 28 October 2002. On 30 January 2003, a meeting of creditors adopted a resolution authorising the liquidator to dispose of movable assets by public auction, private treaty or public tender at his sole discretion. However, no second meeting of members of Chater Developments was held, and members did not adopt the resolution. On 18 August 2004, Waterkloof Marina Estates (Pty) Ltd entered into a written agreement with Chater Developments to purchase forty percent of the issued shares in City Lake Marina (Pty) Ltd and certain claims for R6 million. The liquidator Marais concluded this agreement but without obtaining the required resolution from members as required by section 386(3)(a) read with section 386(4)(h) of the Companies Act 61 of 1973. Chater Developments refused to transfer the shares, asserting the agreement was invalid and unenforceable. Waterkloof Marina instituted action seeking delivery and transfer of the shares against payment. The parties agreed that for purposes of the stated case, the court should assume Waterkloof Marina acted bona fide as envisaged in section 82(8) of the Insolvency Act 24 of 1936.

• Whether an agreement of sale concluded by a liquidator of a company in liquidation without the required authorisation from members is valid and enforceable
• Whether section 82(8) of the Insolvency Act 24 of 1936 applies to companies wound up on the basis of inability to pay debts by virtue of section 339 of the Companies Act 61 of 1973
• Whether the Companies Act 61 of 1973 contains specific provisions dealing with sales by liquidators without authorisation such that section 82(8) of the Insolvency Act would not apply
• Whether sections 386(5) and 387(4) of the Companies Act constitute specific provisions that exclude the application of section 82(8) of the Insolvency Act

The appeal was dismissed with costs including the costs of two counsel. The agreement of sale was held to be valid and enforceable by virtue of section 82(8) of the Insolvency Act.

Where a liquidator of a company wound up on the basis of inability to pay its debts sells property without the required authorisation from members as required by section 386(3)(a) and 386(4)(h) of the Companies Act 61 of 1973, the sale is nevertheless valid if the purchaser acquired the property in good faith, by virtue of the application of section 82(8) of the Insolvency Act 24 of 1936 as incorporated by section 339 of the Companies Act. Section 339 renders provisions of insolvency law applicable to companies unable to pay their debts in respect of any matter not specifically provided for in the Companies Act. The Companies Act does not contain a specific provision validating purchases in good faith from liquidators acting without authorisation. Sections 386(5) and 387(4) of the Companies Act provide discretionary remedies but do not constitute specific provisions dealing with validation of unauthorised sales. Section 82(8) of the Insolvency Act provides substantive protection to bona fide purchasers and applies to company liquidations through section 339.

The court endorsed the reasoning in Woodley v Guardian Assurance Company that it is socially desirable that, as far as practicable, all consequences of the liquidation of an insolvent company should be similar to those of the insolvency of an individual, and there is no reason to assume the Legislature could not have meant what it said. The court observed that the rationale for section 82(8) as explained in Mookrey v Smith NO is that where a trustee or liquidator acts beyond the scope of authority given by creditors and members, the act is invalid, but some method must be devised to protect an innocent third party from the consequences of having entered into an unenforceable transaction. The court noted that a liquidator does not have inherent power to realise assets of a company but must be authorised to do so by resolutions of creditors and members or by the Master. The court characterized section 82(8) as conferring a substantive right that offers protection to innocent third parties from consequences of unenforceable transactions by validating purchases in good faith, distinguishing it from the discretionary remedies in sections 386(5) and 387(4) of the Companies Act.

This case is significant in South African company and insolvency law as it clarifies the application of section 82(8) of the Insolvency Act to company liquidations. It establishes that the protection afforded to bona fide purchasers under insolvency law extends to purchases from company liquidators acting without proper authorisation. The judgment reinforces the approach that insolvency law provisions apply to insolvent companies where the matter is not specifically provided for in the Companies Act, promoting consistency between the winding-up of insolvent companies and insolvent individuals. It confirms that purchasers dealing in good faith with liquidators are entitled to substantive statutory protection rather than being limited to discretionary remedies. The case provides important guidance on the interaction between the Companies Act and the Insolvency Act in the context of unauthorised sales by liquidators.