Firm-O-Seal CC v Wynand Prinsloo & Van Eeden Inc. and Another

Firm-O-Seal CC (the appellant) instituted action in the Mpumalanga High Court against Wynand Prinsloo & Van Eeden Inc. (first respondent) and Mr Derick van Wyk (second respondent), an attorney and director of the first respondent. The claims arose from professional legal services rendered by the respondents to the appellant. The appellant had been placed under business rescue on 5 June 2019. Prior to issuing summons on 2 December 2020, the appellant's attorney sought the business rescue practitioner's consent. The practitioner's representative confirmed consent on 2 December 2020, and summons was subsequently issued. However, in January 2021, it emerged that the practitioner may not have authorized the action as his representative had confused it with another matter. Once aware of this confusion, the business rescue practitioner signed a power of attorney on 3 March 2021 authorizing and ratifying the action. The respondents raised five special pleas: four of prescription and one of lack of locus standi. The parties agreed that the special pleas be adjudicated separately. The high court upheld the special plea of lack of locus standi and dismissed the claims with costs.

• Whether a company under business rescue has locus standi to institute legal proceedings when the business rescue practitioner consents to the action
• Whether section 137(4) of the Companies Act 71 of 2008 renders an action void if initiated without prior approval of the business rescue practitioner
• Whether subsequent ratification by a business rescue practitioner can cure any defect in the original institution of proceedings
• What constitutes adequate locus standi in iudicio
• Whether the high court erred in confining itself to the single issue of locus standi without considering other special pleas or merits

1. The appeal is upheld with costs. 2. The order of the high court is set aside and replaced with the following: 'The special plea of lack of locus standi is dismissed with costs.'

Where a company is under business rescue proceedings and seeks to institute legal action, locus standi depends on whether the business rescue practitioner has approved the action as contemplated by section 137(4) of the Companies Act 71 of 2008. When adjudicating a special plea of lack of locus standi, a court must determine whether the specific claims asserted constitute 'actions' that require the practitioner's approval under the section. Where locus standi is challenged, the enquiry must proceed on the assumption that all factual allegations relied upon by the party whose standing is attacked are true. Consent or ratification by a business rescue practitioner confers the necessary authority on the company to institute proceedings. The practitioner's approval may be obtained before institution or through subsequent ratification, and either is sufficient to establish locus standi.

The Court observed that the real enquiry, properly construed, might be whether the claims as pleaded are bad in law rather than a question of locus standi, though this was not before the Court for determination and did not require adjudication. The Court also criticized the high court's approach of confining itself to a single issue without considering other special pleas or the merits, noting that such an approach 'opened the door to a fractional disposal of proceedings and the piecemeal hearings of appeals on each part so disposed of' - an approach that has little to commend it.

This case clarifies the application of section 137(4) of the Companies Act 71 of 2008 in relation to business rescue proceedings and the requirement for practitioner approval. It establishes important principles regarding locus standi when a company under business rescue seeks to institute legal proceedings. The judgment emphasizes that courts must carefully examine whether specific actions fall within the scope of requiring practitioner approval under section 137(4), rather than automatically finding such actions void. It also confirms that where consent is obtained from a business rescue practitioner (whether initially or through subsequent ratification), a company under business rescue has standing to litigate. The case reinforces procedural principles about how special pleas of locus standi should be adjudicated, requiring courts to assume the truth of the plaintiff's factual allegations. Additionally, it warns against the fractional disposal of proceedings that could lead to piecemeal appeals.