Selective Empowerment Investments 1 Limited v Companies and Intellectual Property Commission

Selective Empowerment Investments 1 Limited (Selective) was a public investment company established to provide affordable access to JSE-listed shares for approximately 26,000 black and previously disadvantaged investors. Over several years, the Companies and Intellectual Property Commission (the Commission) found Selective in egregious non-compliance with numerous provisions of the Companies Act 71 of 2008, including: failure to maintain a securities register (sections 24(4) and 50); failure to prepare annual financial statements within six months (section 30(1)); failure to hold annual general meetings (section 61(7)); reckless trading (section 22(1)); and making false statements (section 214(1)(d)). The Commission issued notices to show cause on 17 October 2016 and 7 December 2017, requiring Selective to demonstrate it was not trading recklessly or in insolvent circumstances. Compliance notices were issued on 16 January 2017, 19 September 2017, and 14 February 2018, which Selective failed to fully satisfy. Despite repeated demands, Selective never obtained compliance certificates or reviewed the notices. Selective's only submitted annual financial statements (for the 2018 financial year) showed an operating loss of over R11 million. The Commission brought an application to wind up Selective as a solvent company under section 81(1)(f) of the Act, alternatively on the ground that it was just and equitable to do so. The Gauteng High Court, Pretoria, found that the requirements of section 81(1)(f) were not met, but nevertheless granted a final winding-up order on the basis that it was just and equitable to do so, also finding that Selective was insolvent. Selective appealed with leave of the Supreme Court of Appeal.

• Whether the Commission had standing to rely on the 'just and equitable' ground where it failed to satisfy the jurisdictional requirements in section 81(1)(f) of the Companies Act 71 of 2008
• Whether the Commission qualifies as an 'interested person' as contemplated in section 79(3) of the Act
• Whether Selective received adequate notice that it was being wound up as an insolvent company
• Whether Selective was insolvent (factually or commercially)
• Whether the high court erred in granting a final winding-up order without first granting a provisional winding-up order
• The proper interpretation and application of sections 79(3) and 81 of the Companies Act 71 of 2008 in relation to winding-up of companies
• The proper test for granting provisional versus final winding-up orders

MAJORITY ORDER (3-2 decision): 1. The appeal is upheld to the extent set out below. 2. The respondent's costs of the appeal, including costs consequent upon the employment of two counsel, are directed to be paid by the appellant as part of the costs of administration in its winding-up. 3. The final winding-up order granted by the high court is set aside and substituted with a provisional winding-up order, with directions for service on Selective, publication in the Government Gazette, Sowetan and City Press newspapers, and a return day of 22 July 2025. MINORITY ORDER (preferred by Norman AJA, Mokgohloa ADP and Mocumie JA): 1. The appeal is upheld with costs, including costs of two counsel. 2. The order of the high court is set aside and substituted with: 'The application is dismissed with costs, such costs to include costs of two counsel, where so employed.'

MAJORITY (Koen JA): 1. The Commission, as the regulatory authority whose objectives include promoting compliance with and enforcement of the Companies Act, qualifies as an 'interested person' for purposes of section 79(3), having inherited the oversight functions previously exercised by the Minister under the 1973 Act. 2. Section 79(3) does not require a separate substantive application by a third party. Where, during proceedings under section 81 for the winding-up of a solvent company, it is determined that the company 'is or may be insolvent', the court may proceed to wind up the company as insolvent on application by any interested person—which can include the original applicant if they qualify as an interested person. 3. For purposes of section 79(3), 'may be insolvent' requires that on the relevant material facts, the probabilities on a preponderance favor the conclusion that the company is or may be insolvent. Commercial insolvency (inability to pay debts as they fall due without liquidating fixed assets) suffices; it is not necessary to establish that liabilities exceed assets. 4. It is just and equitable to wind up a company that: (a) is or may be commercially insolvent; (b) has failed to comply with basic statutory formalities including maintaining a share register, preparing annual financial statements, and holding annual general meetings; (c) operates as a public company dealing with investments of disadvantaged persons while failing in its basic accountability responsibilities; and (d) has failed to demonstrate solvency despite repeated demands. 5. When winding up a public company with many shareholders, particularly where the share register is incomplete or unreliable, courts should ordinarily grant a provisional winding-up order first, to allow interested third parties notice and opportunity to participate before a final order is made. Proceeding directly to a final order denies interested parties the opportunity to be heard and presents them with a fait accompli. MINORITY (Norman AJA): 1. Section 81(1)(f) deliberately omits the words 'it is otherwise just and equitable for the company to be wound up' that appear in sections 81(1)(c) and (d). This omission is intentional and limits the Commission's standing to bring winding-up proceedings only where the specific jurisdictional requirements of section 81(1)(f) are met. 2. The Commission is not an 'interested person' as contemplated in section 79(3). That provision contemplates two separate applications: the first by an applicant (such as the Commission) based on the company's solvent status, and a second application by a different interested person (such as a creditor, shareholder, or director) based on insolvency. 3. Adequate notice requires compliance with section 346 of the 1973 Act, including facts demonstrating inability to pay debts. Without a section 345 demand or other concrete evidence of commercial insolvency (such as creditor claims or nulla bona returns), a finding of insolvency cannot be made. 4. Insolvency cannot be inferred from non-compliance with statutory requirements alone. There must be positive facts relating to the company's assets, liabilities, and inability to pay debts as they become due.

MAJORITY (Koen JA): 1. The Commission has a responsibility to maintain professional distance from companies it regulates. It would be impossible and constitute overreach for the Commission to advise on the day-to-day running of all registered companies. Companies and their directors bear primary responsibility for compliance with statutory requirements. 2. Section 158 of the Companies Act requires courts to develop the common law as necessary to improve realization and enjoyment of rights under the Act, and to promote its spirit, purpose and objects. This includes developing the grounds on which it may be just and equitable to wind up a company. 3. The grounds for 'just and equitable' winding-up are not exhaustive and are 'constantly undergoing development as new instances...develop, are recognised and are accepted. This flexibility is necessary to cater for changing business circumstances.' 4. Practice manuals and directives suggesting courts should grant final winding-up orders directly may be appropriate where there are good reasons, but the salutary practice of first granting provisional orders should ordinarily be preferred where appropriate and required in the interests of justice. 5. Directors who fail, by reason of 'indifference, ignorance or careless disregard' to comply with statutory duties, fail in their duty to the company and their fiduciary responsibilities. MINORITY (Norman AJA): 1. The functus officio doctrine promotes certainty and stability and ameliorates prejudice to those who rely on decisions. A court that dismisses an application to file supplementary affidavits cannot subsequently consider those affidavits in its judgment. 2. When interpreting statutes in a constitutional context, courts must start with the Constitution as supreme law and promote the spirit, purport and objects of the Bill of Rights, but this does not permit disregarding the plain language of statutory provisions. 3. As a creature of statute, a regulatory body such as the Commission cannot act outside the ambit of the Act that created it. The Legislature's deliberate omission of certain language from provisions relating to the Commission's powers must be respected. 4. Allowing a regulator to use non-compliance infractions as a basis for winding-up based on insolvency, without establishing actual insolvency through the prescribed procedures, creates a risk of the regulator 'using the term that it is acting in the public interest whilst causing harm to the company.' 5. A loss incurred ten years before winding-up proceedings does not automatically mean a company is insolvent. Each case must be assessed on current financial position. 6. Provisional winding-up orders have serious consequences: the company is divested of assets, liquidators take control, and all employment contracts are automatically terminated. Courts should not grant such orders without proper factual foundation.

This case is significant in South African company law for several reasons: 1. **Interpretation of section 79(3)**: It clarifies when and how a winding-up application initially brought on the basis of solvency can be converted to one based on insolvency, and what procedural requirements apply. 2. **Standing of the Commission**: The majority and minority reached different conclusions on whether the Commission, as regulator, qualifies as an 'interested person' entitled to seek winding-up on 'just and equitable' grounds when it fails to meet the specific requirements of section 81(1)(f). This has implications for the Commission's enforcement powers. 3. **Limits on regulatory powers**: The minority judgment articulates important principles about statutory regulators being creatures of statute with limited powers, and the need to interpret those powers strictly to prevent overreach. 4. **'Just and equitable' winding-up**: The case develops the jurisprudence on when it is just and equitable to wind up a company, particularly in cases of persistent non-compliance with statutory requirements even where traditional insolvency may not be clearly established. 5. **Procedural safeguards**: The majority emphasizes the importance of granting provisional orders before final winding-up orders, particularly for public companies with many shareholders, to ensure interested parties have notice and opportunity to be heard. 6. **Commercial vs factual insolvency**: The judgment discusses the distinction between these forms of insolvency and how they can be established on affidavit evidence. 7. **Protection of disadvantaged investors**: The case highlights the court's role in protecting the interests of previously disadvantaged investors who may lack the resources to hold directors accountable. The split decision (3-2) indicates this is a contested area of law with reasonable arguments on both sides, particularly regarding the proper interpretation of the interaction between sections 79(3) and 81 of the Companies Act 71 of 2008.