Moodliar and Others v Recycling and Economic Development Initiative of South Africa NPC

This case involved two consolidated matters concerning former liquidators of two companies - Recycling and Economic Development Initiative of South Africa NPC (Redisa) and Kusaga Taka Consulting (Pty) Ltd (KTC). Both companies had been placed under provisional winding-up orders in June 2017 at the instance of the Minister of Environmental Affairs, on the basis that it was just and equitable to do so. The Minister alleged that Redisa's directors had not disclosed their relationship with KTC and that this enabled misappropriation of public funds. Liquidators were appointed to both entities. At the time of winding-up, Redisa held cash reserves exceeding R170 million and KTC held over R9 million. The companies appealed the winding-up orders. A week before the appeal hearing in October 2018, the Redisa liquidators transferred R20 million from Redisa's account into their attorneys' (Bowman Gilfillan) trust account, and the KTC liquidators transferred R2 million from KTC's account into the same trust account, purportedly to secure payment of their proposed fees. In January 2019, the Supreme Court of Appeal upheld the appeals and discharged the provisional winding-up orders. The liquidators then delivered draft accounts claiming fees of just over R14 million for Redisa and just over R1.5 million for KTC. They paid back the difference between the amounts transferred and the claimed fees, but retained approximately R17.8 million in the attorneys' trust account. The companies disputed the liquidators' entitlement to retain these funds and launched proceedings seeking their return.

• Whether liquidators are entitled to appropriate or retain company funds to pay or secure their proposed fees (as yet untaxed) before restoring control of the company's assets to its directors after discharge from winding-up
• Whether liquidators may retain assets of a company upon discharge of a provisional liquidation order to cover their remuneration
• Whether liquidators may draw remuneration before the estate account has been taxed and confirmed
• The proper interpretation of section 384 of the Companies Act 61 of 1973 regarding liquidators' remuneration
• The proper interpretation of Regulation 24 and Annexure CM101 and CM104 regarding liquidators' fees
• Whether attorneys were holding the disputed funds as stakeholders

The appeal was dismissed with costs, including costs of two counsel. The order of the High Court was amended only in respect of costs of the counter-applications, which were dismissed without a costs order against the liquidators (the original order had awarded costs against the liquidators). The relief sought by the companies - that the disputed funds held in Bowman Gilfillan's trust account be paid over to them - was confirmed. The joinder applications were dismissed with costs.

Upon discharge of a company from provisional liquidation, liquidators are divested of all their powers and must restore control of all the company's assets to the directors. Liquidators are not entitled to appropriate or retain company funds (even to secure their proposed fees) before restoring assets to the company. The Companies Act 61 of 1973 and its Regulations do not permit liquidators to retain any company assets upon discharge of a provisional liquidation order. At common law and under the statutory framework, liquidators may not draw their remuneration until the estate account reflecting such remuneration has been taxed and confirmed. While liquidators are entitled to reflect their proposed fees in the estate account, they have no right to retain control over company assets to secure payment of their claim for remuneration. Once liquidators' powers end upon discharge, they have a claim for their taxed or agreed remuneration, but no right to retain assets. Company assets in liquidation remain the property of the company (they do not vest in the liquidator unless a specific order under section 361 is made), and therefore all assets must be returned to the company upon discharge.

The court made observations about the stakeholder argument, noting that the liquidators' version that they transferred monies to Bowmans in anticipation of the appeal being upheld and their fear of not being paid contradicted the allegation that Bowmans was acting as a stakeholder. The court noted this position was only belatedly raised many months after the transfer. The court also observed it was unclear how a tripartite stakeholder agreement could have been formed between the liquidators (acting both in their own interests and on behalf of the companies) and Bowmans. The court commented that the liquidators conceded they did not make out a case for an anti-dissipation interdict and conceded they would not be entitled to hold the funds under a lien, yet their conduct had the characteristics of a lien. The court noted that sections 403, 406, 407 and 408 of the Companies Act dealing with estate accounts lying for inspection and objections apply to provisional liquidators, despite the liquidators' submission to the contrary, citing with approval the reasoning in Strydom NO v The Master of the High Court on this point. The court also observed that the liquidators' distinction between remuneration and other company assets was ill-conceived.

This judgment clarifies the rights and duties of liquidators regarding their remuneration when a company is discharged from liquidation. It establishes important principles about the restoration of company assets upon discharge and the procedure that must be followed for liquidators to be paid. The case reinforces that liquidators cannot unilaterally retain company funds to secure their fees, even if they have a valid claim for remuneration. It confirms that the common law principle preventing trustees from drawing remuneration before taxation and confirmation of accounts applies equally to company liquidators. The judgment provides important guidance on the interpretation of section 384 of the Companies Act 61 of 1973 and the relevant Regulations, particularly Annexure CM101.5. It also clarifies the distinction between liquidation and sequestration regarding vesting of assets. The case is significant for insolvency practitioners, company directors, and creditors in understanding the procedural and substantive rights regarding liquidators' remuneration and the restoration of company control after discharge from winding-up.