Consolidated News Agencies (Pty) Ltd (In Liquidation) v Mobile Telephone Networks (Pty) Ltd

CNA and M-Tel (a cellular product marketer within the Johnnic group) concluded a Retailer Agreement in April 1999 creating an exclusivity relationship with income warranties for three trading years. M-Tel warranted minimum income to CNA (R65m, R77m, R84.7m for successive years). In February 2001, Wooltru sold CNA to Gordon Kay & Associates (GKA) for R150 million, but GKA defaulted on providing required guarantees. To facilitate the sale and address relationship difficulties, MTN and M-Tel entered into an Amended Retailer Agreement (ARA) in March 2001 whereby: (i) CNA waived its second year warranty claim; (ii) CNA undertook to pay income into a trust account; (iii) MTN provided guarantees totaling R84.6m to Wooltru; (iv) CNA ceded rights and provided security to MTN. In June 2002, MTN paid approximately R86m under the guarantees. CNA was provisionally wound up in July 2002. The liquidators sought to set aside certain ARA provisions as voidable dispositions under s 26 of the Insolvency Act.

• Whether MTN and M-Tel were entitled to rely on s 33(1) of the Insolvency Act 24 of 1936 to resist restoration of benefits received under allegedly voidable dispositions
• What constitutes 'good faith' under s 33(1), particularly in relation to contemplation of insolvency
• Whether there was reciprocity ('in return for') between the dispositions and the parting with property or loss of rights
• How to determine the 'directing mind and will' of a company for purposes of establishing corporate intention and good faith
• Whether M-Tel parted with property or lost a right in return for the dispositions
• Whether the ARA was an indivisible holistic transaction

Appeal dismissed with costs including costs of two counsel. Both MTN and M-Tel (per majority) are not obliged to restore property or benefits received under the dispositions unless the liquidators indemnify them in accordance with s 33(1) of the Insolvency Act.

Section 33(1) of the Insolvency Act 24 of 1936 protects a party who has parted with property or lost a right in return for a voidable disposition, provided they acted in good faith, from being obliged to restore benefits unless indemnified. 'Good faith' in this context means absence of contemplation of insolvency (whether sequestration or liquidation) as a real prospect at the time of the transaction. The test is objective, to be determined from the terms of the agreement itself and the surrounding circumstances, not merely subjective testimony. There must be genuine reciprocity - a causal connection between the disposition and the parting with property or loss of right, such that the party would not have parted with the property or lost the right but for the disposition. In assessing corporate good faith, the 'directing mind and will' of the company may be found in persons other than directors, depending on who had management and control over the particular transaction in question. Where a multi-party transaction is holistic and indivisible, the contributions of related parties should be viewed cumulatively, not individually dissected.

The court warned against piecemeal litigation through stated cases, noting that issues initially thought to be discrete are often inextricably linked, and expeditious disposal is often best served by ventilating all issues at one hearing. A trial court must be satisfied it is convenient and proper to try an issue separately. The court noted with concern that even after this appeal, numerous issues remained outstanding between the parties, and that the assumption (without concession) that dispositions were made without value complicated matters, as the court's reasoning on the s 33(1) issue might well affect the outstanding question of whether there was indeed a disposition without value. The court emphasized that the 'directing mind and will' of a company for a particular act or state of mind depends on factors including: the agent's seniority in the company hierarchy; their significance and freedom to act in the particular transaction; the degree to which the board is informed; and the extent to which the board was put upon inquiry.

This case provides important guidance on the application of s 33(1) of the Insolvency Act, particularly: (1) the meaning of 'good faith' in the context of corporate transactions where insolvency is alleged, establishing that good faith requires absence of contemplation of insolvency as a real prospect; (2) the test for determining when a party has acted 'in return for' a disposition, requiring genuine reciprocity and causal connection; (3) the approach to identifying the 'directing mind and will' of a company, clarifying that this can reside in persons other than directors who have management and control over the particular transaction; (4) the proper approach to holistic multi-party commercial transactions where benefits and burdens are interlinked; and (5) important obiter regarding the dangers of piecemeal litigation through stated cases where issues may not be truly discrete.