The Development Bank of Southern Africa Limited v J H J Van Rensburg N O and Others

On 10 March 1999, the Development Bank of Southern Africa (appellant) lent R7,200,000 to the Agricultural Bank, which in turn lent the same amount to Serious Mills (Pty) Ltd. The loan was secured by a general notarial bond containing a perfection clause in favour of the Agricultural Bank, which the Agricultural Bank then ceded to the appellant in securitatem debiti. Serious Mills defaulted on payments from 31 March 1999. On 9 September 1999, upon learning that an application for winding-up of Serious Mills would be moved the next day, the appellant urgently obtained a rule nisi and interim order authorising it to take possession of all movable property covered by the notarial bond. The Sheriff attached the movable property on 10 September 1999. Later that same day, after the attachment, a provisional winding-up order was granted against Serious Mills. On the return day, the Bophuthatswana Provincial Division discharged the rule nisi on the grounds that a provisional winding-up order had been granted against Serious Mills after the rule nisi was issued. The appellant appealed with leave.

• Whether a provisional order of attachment executed before the commencement of winding-up proceedings should be confirmed after a provisional winding-up order has been granted but before the return day of the rule nisi
• Whether the 'commencement' of winding-up in section 348 of the Companies Act refers to a specific time of day or the entire day
• Whether a cessionary in securitatem debiti of a notarial bond has locus standi to perfect security by taking possession when the cedent is not in default but the principal debtor is
• Whether an interim order of attachment has definitive effect or merely a holding effect pending the return day
• Whether possession acquired pursuant to a provisional order converts the bondholder's rights into a real right immune to subsequent liquidation

The appeal was upheld with costs including costs of two counsel. The order of the Bophuthatswana Provincial Division was set aside. The rule nisi was confirmed to the extent that the appellant attached movable property covered by the notarial bond on 10 September 1999. The rule nisi was discharged in other respects. The respondents were ordered to pay the costs of the application.

The binding legal principles established by the majority are: (1) Section 348 of the Companies Act 61 of 1973 should be interpreted to mean that winding-up commences at the specific time of presentation of the application to court, not on the date generally; (2) A cessionary in securitatem debiti of a general notarial bond containing a perfection clause is entitled to foreclose and take possession of hypothecated property upon default by the mortgagor/debtor, even if the cedent is not in default to the cessionary, provided the cession transfers 'all rights' under the bond; (3) Where a bondholder obtains possession of hypothecated movable property pursuant to a valid interim order before the commencement of winding-up proceedings, the bondholder acquires a real right akin to that of a pledgee which is immune to the subsequent winding-up, and a rule nisi authorizing such possession should be confirmed to that extent.

Nienaber JA's dissenting judgment contains significant obiter observations: (1) An interim order of attachment obtained ex parte has only a holding or preservative effect pending the return day, not definitive effect that automatically converts possession into a real right; (2) On the return day of a rule nisi, the court should approach the matter as res nova and exercise discretion considering all circumstances, including the conduct of the parties and whether the application was precipitated by knowledge of impending liquidation; (3) The court should be reluctant to allow a creditor to gain preference over other creditors through tactical urgent applications on the eve of insolvency; (4) The analogy between cession in securitatem debiti and pledge has doctrinal difficulties that remain unresolved; (5) The reversionary interest retained by a cedent in a cession in securitatem debiti may in appropriate circumstances entitle the cedent to take steps to perfect security notwithstanding the cession. Nienaber JA also expressly left open whether section 359 of the Companies Act is conclusive and whether courts have discretion to authorize attachment after liquidation proceedings commence.

This case addresses the important practical issue of the priority between competing creditors when a debtor becomes insolvent, particularly the race between secured creditors seeking to perfect their security and general creditors seeking to place the debtor into liquidation. The judgment clarifies that 'commencement' of winding-up refers to a specific point in time, not the entire day, which can be crucial in determining the validity of transactions. It also confirms that a cessionary in securitatem debiti of a notarial bond has standing to perfect security when the principal debtor defaults, even if the cedent is not in default. However, the strong dissent highlights the unresolved tension between allowing secured creditors to gain advantage through urgent ex parte applications and protecting the concursus creditorum principle in insolvency. The case illustrates the practical difficulties and potential for manipulation when competing creditors race to court on the eve of insolvency.