John Malcolm Griffin First v The Master of the High Court

Cape Trails CC was placed under provisional winding-up on 26 March 1998 at the instance of the first appellant and finally wound up on 2 December 1998. At the time of liquidation, the first appellant held a 1/6 share in the members' interest and the respondents held the remaining 5/6 in equal shares. A first meeting of members and creditors was convened on 29 December 1998, attended only by the first appellant, where a resolution was adopted. No claims were lodged for proof at this meeting. The appellants subsequently tendered three claims for proof against the Close Corporation which were initially admitted by the liquidator and reflected in the liquidation and distribution account. Following an objection by the respondents, the liquidator framed an amended liquidation and distribution account which excluded the appellants' claims. On 13 August 2003, the appellants lodged an objection with the Master which was refused on 5 August 2003. Erasmus J in the Cape High Court dismissed the appellants' application, holding that the liquidator had not been granted authority to compromise or admit any claim.

• Whether the liquidator was authorized in terms of s 386(3)(a) of the Companies Act to admit the appellants' claims in terms of s 386(4)(c)
• Whether a liquidator of a close corporation requires authorization from both creditors and members to exercise powers under s 386(4)(c) of the Companies Act
• Whether the resolution passed at the first meeting of members and creditors constituted proper authorization for the liquidator to admit claims

The appeal was dismissed with costs.

In terms of s 386(3)(a) read with s 386(4)(c) of the Companies Act 61 of 1973 made applicable to a close corporation by s 66(1) of the Close Corporations Act 69 of 1984, a liquidator of a close corporation is required to be authorized by meetings of creditors and members or contributors or on the directions of the Master in order to admit any claim against the close corporation. The words 'creditors and members' must be read conjunctively, not disjunctively. A members' resolution alone will not suffice. Only creditors who have proved claims can give the liquidator the necessary authority. The grant of authority is not merely a condition for the exercise of the liquidator's powers under s 386(4) but a necessary condition for their existence.

The Court observed that there is no possibility of a deadlock occurring in the winding-up of a close corporation due to the requirement for authorization from both creditors and members, because s 386(5) of the Companies Act gives the Court the power to grant leave to a liquidator to do 'any other thing which the Court may consider necessary for winding up the affairs of the company and distributing its assets'. The Court also noted the parallel position in s 78(3) of the Insolvency Act 24 of 1936, which similarly requires a trustee to be authorized to admit claims by creditors who have proved claims against the estate, or if no claim has been proved, by the Master.

This case is significant in South African corporate and insolvency law as it clarifies the scope of a liquidator's authority when winding up a close corporation. It establishes that the requirement for authorization from both creditors and members under s 386(3)(a) of the Companies Act applies equally to close corporations as it does to companies, and that there is no basis for interpreting the provision disjunctively in the context of close corporations. The case reinforces the principle that the grant of authority is not merely a condition for the exercise of liquidator's powers but a necessary condition for their existence. It also confirms that only creditors who have proved claims can authorize a liquidator through resolutions, and that a members' resolution alone is insufficient to grant the required authority.