Insamcor (Pty) Ltd v Dorbyl Light & General Engineering (Pty) Ltd

The parties were bound by a 1985 tri-partite sub-licence agreement involving Insamcor (Pty) Ltd, Stewarts & Lloyds of South Africa Ltd (whose rights were later assumed by DLG) and Saunders Valve Company Limited. The agreement granted Insamcor the right to manufacture and sell certain diaphragm valves under sub-licence in exchange for quarterly royalty payments. In March 1996, DLG was deregistered under s 73(5) of the Companies Act 61 of 1973 following a group restructuring. In September 2001, DLG's former business was sold to Dynamic Fluid Control (Pty) Ltd. When that transaction proved problematic, Dorbyl Ltd (DLG's parent company) applied for restoration of DLG's registration under s 73(6) of the Companies Act. On 2 March 2004, Cachalia J granted the restoration order without issuing a rule nisi and without joining Insamcor as a party, despite Insamcor being specifically named in the order. DLG then claimed royalties from Insamcor for the period from September 2001 onwards. Insamcor subsequently discovered the deregistration and restoration and applied to set aside the restoration order. Meyer AJ dismissed the stay application and granted judgment in favour of DLG in the royalties proceedings. Blieden J later set aside the restoration order. Two appeals resulted.

• Whether a third party with a direct and substantial interest in the outcome of a s 73(6) restoration application should be joined as a necessary party to those proceedings
• Whether a restoration order granted without prior issue of a rule nisi or joinder of necessary parties should be set aside
• Whether the effect of a restoration order under s 73(6) of the Companies Act is merely to return parties to the status quo ante without potential prejudice to third parties
• Whether Insamcor had locus standi to oppose the restoration application and to seek to set it aside
• The consequences for a royalties claim brought by a company whose restoration to the register has been set aside with retrospective effect

The appeal by DLG (case 319/2006) against the setting aside of the restoration order was dismissed with costs, including costs of two counsel. The appeal by Insamcor (case 63/2006) against the royalties judgment was upheld with costs, including costs of two counsel. The royalties application was dismissed with costs.

A restoration order under s 73(6) of the Companies Act 61 of 1973 can cause prejudice to third parties by reviving obligations retrospectively, validating acts done on behalf of a non-existent company, and depriving third parties of defences based on deregistration. Third parties who will or may suffer prejudice from a restoration order have a direct and substantial interest in the outcome of the restoration application and must be joined as necessary parties or given notice through a rule nisi. Where necessary parties are identifiable, service of the rule nisi should be directed on them; where they are numerous or unknown, publication may suffice. A restoration order granted without proper joinder of necessary parties or issue of a rule nisi is liable to be set aside. The setting aside of a restoration order operates retrospectively, with the consequence that any proceedings conducted on behalf of the purportedly restored company during the period it was registered are treated as having been brought by a non-existent party.

The court noted that the 'moving finger may have moved on' during the period between deregistration and restoration, such that the deeming provision in s 73(6) cannot truly restore the status quo ante. Brand JA observed that it is an 'over simplification' to regard a restoration order as merely an 'as you were' (para 24). The court cited with approval examples from other jurisdictions (Smith v White Knight Laundry Ltd; Tyman's Ltd v Craven) recognizing prejudice from restoration orders. The court also observed that a stay of the royalties proceedings pending the setting aside application would have been the appropriate procedural solution, though it refrained from deciding the royalties claim on its merits. The court expressed the view that Ex Parte Varvarian had been 'in effect' overruled by subsequent cases, though it did not expressly overrule it.

This judgment is significant in South African company law for clarifying the procedural requirements for restoration applications under s 73(6) of the Companies Act 61 of 1973. It establishes that restoration orders can have wide-ranging prejudicial effects on third parties and are not merely neutral returns to the status quo. The judgment confirms as best practice that restoration applications should be preceded by a rule nisi to afford potentially affected parties the opportunity to oppose or seek protective directions. It recognizes that third parties with a direct and substantial interest must be joined or given notice through a rule nisi. The case effectively overrules the more restrictive approach in Ex Parte Varvarian and endorses the procedural safeguards adopted in Ex Parte Sengol Investments and Ex Parte Jacobson. It also demonstrates the retrospective effect of setting aside restoration orders and the consequences for rights purportedly exercised by the restored company.