Mirror Trading International (Pty) Ltd (MTI) operated an internet-based cryptocurrency club that pooled investor members' cryptocurrency for speculative trading. MTI was placed under provisional liquidation on 29 December 2020 with a final order granted on 30 June 2021, representing one of South Africa's largest insolvencies with over R1 billion in bitcoin held at liquidation. The business model was declared an unlawful multi-level marketing (pyramid/Ponzi) scheme. The first applicant claimed to be a 50% shareholder and creditor for approximately R135.5 million in cryptocurrency 'loaned' to the company. The respondents (liquidators) alleged the first applicant was complicit in the fraudulent scheme and was actually indebted to MTI. The applicants sought removal of the six liquidators, alleging breach of fiduciary duties, dishonesty regarding a claim by related entity JNX Online, bias in treatment of creditor claims, conflict of interest due to connections between JNX and MTI liquidators, and failure to properly administer MTI's tax affairs resulting in a R931 million SARS assessment.
The application was dismissed. The applicants were ordered to pay costs jointly and severally on the attorney-client scale, including the costs of the interlocutory application by SARS to intervene and the costs of two counsel where employed.
The removal of a liquidator is an extreme and radical form of relief requiring 'good cause' which must be measured by reference to the real, substantial, and honest interests of the liquidation. Mere allegations of bias, partiality, or errors of judgment without more do not suffice. The court must assess the liquidator's conduct in its full context, and removal will not be granted unless it is to the general advantage of all parties interested in the winding-up. A liquidator is not automatically disqualified by connections with liquidators of related entities where they operate independently, and a liquidator may properly dispute a creditor's claim or impeach transactions without this constituting bias.
The court noted that even if there had been some merit in the complaints, given the length of time the company had been in winding-up, the considerable expense incurred, and the extensive work done by the liquidators (including questioning more than 154 witnesses, issuing over 60 summonses, and bringing various anti-dissipation applications), it would in any event be wholly against the interests of creditors and interested parties for the respondents to be removed at that stage.
This case provides important guidance on the high threshold for removal of liquidators in South African insolvency law, particularly in complex, large-scale insolvencies involving cryptocurrency and alleged Ponzi schemes. It reinforces the principles that removal is an 'extreme step' requiring 'good cause' measured against the real interests of the liquidation, and that liquidators are entitled to scrutinize creditor claims without this constituting bias. The case also addresses the duty of liquidators regarding tax affairs where company records are non-existent or in disarray.