Pick 'n Pay Retailers (Pty) Ltd v Ramalho, NO and Another

Lashka 167 (Pty) Ltd was a franchisee of Pick 'n Pay, operating a retail store. During 2016-2017, Lashka experienced financial distress and was indebted to Pick 'n Pay for R13,536,351.90. Pick 'n Pay perfected a general notarial bond over Lashka's assets. Following settlement negotiations, Lashka agreed to sell its business to Enthrall Trading (Pty) Ltd on 3 November 2017 for R25 million, with Pick 'n Pay's consent. The purchase price was to be paid into the trust account of White & Case Attorneys. The Sale of Business Agreement (clause 6) provided a mechanism for disbursing the funds: Lashka was to give payment instructions to White & Case to pay FNB and Pick 'n Pay. If Lashka failed to timeously deliver payment instructions, Lashka irrevocably authorized Pick 'n Pay to deliver such instructions and White & Case to act on them. The business was transferred to Enthrall on 26 November 2017. Lashka was placed into final liquidation on 19 February 2018. Lashka had not issued payment instructions to White & Case for payment to Pick 'n Pay before liquidation. On 25 June 2019, Pick 'n Pay signed and delivered payment instructions to White & Case, and was paid R21,627,758.91 on 2 July 2019, more than a year after liquidation. The liquidators sought repayment of this amount on the basis that the payment disregarded the concursus creditorum established by Lashka's liquidation.

• Whether the liquidators' affidavits disclosed a cause of action for repayment
• Whether the Sale of Business Agreement was an uncompleted executory contract that survived Lashka's liquidation
• Whether the respondent liquidators elected to abide by the agreement
• Whether the mandate given by Lashka to White & Case Attorneys and the authority given to Pick 'n Pay to issue payment instructions terminated upon Lashka's liquidation
• Whether the payment made to Pick 'n Pay after liquidation was unlawful due to the concursus creditorum

The appeal was dismissed with costs, including the costs of two counsel where so employed. Pick 'n Pay was required to repay R21,627,758.91 to the liquidators of Lashka 167 (Pty) Ltd.

A mandate given by a company (as principal) to an agent to make payment from funds held by that agent terminates automatically upon the liquidation of the principal company. Similarly, authority granted by the principal to a third party to issue payment instructions to the agent also terminates upon liquidation. This is consistent with the general principle that an agent's mandate ends when the principal becomes insolvent. Once liquidation intervenes and a concursus creditorum is established, no payment can be made to a creditor that would prefer that creditor over others, regardless of contractual mechanisms established before liquidation. A contractual provision authorizing payment does not constitute an uncompleted executory contract capable of surviving liquidation; rather, it is merely a payment mechanism that falls away upon insolvency. Any payment made by an agent after the principal's liquidation, pursuant to instructions from a third party authorized by the now-liquidated principal, is unlawful and must be repaid to the liquidators. The effect of allowing such payment would be to prejudice other creditors by enabling one creditor to receive payment in full while others participate only as concurrent creditors in the insolvent estate.

The Court stated that it was prepared to assume in favor of Pick 'n Pay that although it was not a party to the agreement, it nevertheless derived directly enforceable rights from the agreement, including the right to be paid its claims against Lashka, through the stipulatio alteri provisions in clause 6.5. This assumption was made without deciding the point definitively. The Court also commented on the inelegant pleading of the liquidators' cause of action but found that upon careful analysis, the essential elements were present. The Court expressed its gratitude for the supplementary heads of argument filed by the parties in response to questions posed after the initial hearing, indicating the importance of the mandate issue to the proper determination of the appeal. The judgment also reinforces the well-established principles regarding executory contracts in insolvency, citing extensively from Du Plessis and Another NNO v Rolfes Ltd and Ellerine Brothers (Pty) Ltd v McCarthy Ltd, though these principles were ultimately distinguished on the basis that the present case involved a mandate rather than an executory contract requiring ongoing performance.

This case clarifies the effect of liquidation on mandates and agency relationships, particularly in the context of sale agreements where third parties hold proceeds in trust. It reaffirms the principle that mandates terminate upon the principal's insolvency (following Klein NO). The judgment emphasizes the supremacy of the concursus creditorum principle in South African insolvency law, ensuring that no creditor can be preferred after liquidation, even where contractual mechanisms appear to provide for payment. It demonstrates that contractual provisions purporting to authorize payment after liquidation cannot override insolvency law principles designed to protect the general body of creditors. The case provides important guidance on distinguishing between executory contracts (which liquidators may elect to abide by) and completed contracts with mere payment mechanisms (which do not survive liquidation as executory obligations). The judgment reinforces that the purpose of the concursus is to ensure equal treatment of creditors and prevent post-liquidation dispositions that would prejudice the estate.