Van Staden NO and Others v Pro-Wiz Group (Pty) Ltd

Oljaco CC was placed in provisional liquidation in February 2015 and final liquidation in May 2015. The three appellants were appointed as liquidators. On 12 April 2016, Pro-Wiz Group (Pty) Ltd, represented by Ms Prinsloo, brought an urgent application citing the liquidators as respondents to place Oljaco under business rescue in terms of s 131(1) of the Companies Act 71 of 2008. The application was made on the very day that Mr Smith, the sole member of Oljaco, was due to be interrogated under s 418 of the Companies Act 61 of 1973; he did not attend and an arrest warrant was issued. The liquidators and SARS (the principal creditor owed R70 million) opposed the application on grounds that it was an abuse of process designed to avoid interrogation and conceal assets. Oljaco had not traded since at least 2014. Two days before the hearing scheduled for 14 August 2017, Pro-Wiz withdrew the application, tendering costs to SARS but not to the liquidators. The liquidators sought costs under rule 41(1)(c). The high court (Mokose AJ) refused the costs order, holding that s 131(6) of the Act deprived liquidators of power to continue administration once a business rescue application was made, re-vesting those powers in the member. Leave to appeal was initially refused but granted by the Supreme Court of Appeal.

• Whether the appeal was moot under s 16(2)(a) of the Superior Courts Act 10 of 2013
• Whether liquidators (provisional or final) have locus standi to oppose a business rescue application brought under s 131 of the Companies Act 71 of 2008 in relation to a company or close corporation already in liquidation
• Whether the high court erred in concluding that s 131(6) of the Companies Act 71 of 2008 deprived liquidators of their powers upon the filing of a business rescue application
• Whether the business rescue application constituted an abuse of process justifying a punitive costs order on an attorney and client scale

The appeal was upheld with costs, including costs for two counsel. The high court order was set aside and replaced with an order that Pro-Wiz pay the liquidators' costs in the high court on an attorney and client scale. The Court declined to award punitive costs for the appeal itself, holding that Pro-Wiz was entitled to defend the appeal and argue the mootness point.

The binding legal principles established are: (1) Liquidators of a company or close corporation in liquidation (whether provisional or final) have locus standi to oppose business rescue applications brought under s 131 of the Companies Act 71 of 2008. (2) When a company is in liquidation, service of a business rescue application on the company must be effected on the liquidators, as they are in custody and control of the company. (3) Section 131(6) of the Companies Act 71 of 2008 does not disentitle liquidators from opposing business rescue applications or deprive them of their powers to administer the company. (4) Parties who are cited as respondents in legal proceedings are entitled by virtue of their joinder to participate in those proceedings, and an applicant cannot later contend they were misjoined to resist an adverse costs order. (5) Where a business rescue application is brought for ulterior purposes (such as avoiding interrogation under s 418 of the Companies Act 61 of 1973, delaying liquidation, or concealing assets) and constitutes an abuse of process, a punitive costs order on an attorney and client scale is appropriate. (6) An appeal on costs alone will not automatically be moot under s 16(2)(a) of the Superior Courts Act where the court below failed to exercise a discretion due to an error of law and the issue is of fundamental importance to a class of litigants.

The Court made several non-binding observations: (1) Wallis JA noted (without fully endorsing) Cloete JA's view in Naylor v Jansen that a failure to exercise a judicial discretion would 'at least usually' constitute an exceptional circumstance for purposes of s 16(2)(a)(ii) of the Superior Courts Act, but agreed that where an error of law prevents any exercise of discretion regarding costs, this will ordinarily be exceptional. (2) The Court observed that business rescue has been intended for rehabilitation of companies fallen on hard times but capable of restoration to profitability, or where it will enhance creditor dividends. (3) The Court commented that the use of business rescue to delay winding up or to afford those behind business operations an opportunity not to account for their stewardship 'should not be permitted.' (4) The Court noted that from the time leave to appeal was refused until the Maroos appeal was decided, the issue of liquidators' locus standi in business rescue applications was 'an issue of fundamental importance to all liquidators, provisional or final, and generally to those who might become involved in liquidation and business rescue proceedings.' (5) The Court observed that the decision in Maroos (which the high court relied upon) did not deal expressly with the locus standi issue that arose in this case.

This judgment is significant in South African company law and insolvency practice for several reasons: (1) it clarifies that liquidators (whether provisional or final) have clear locus standi to participate in and oppose business rescue applications brought in relation to companies or close corporations already under liquidation; (2) it establishes that upon liquidation, the company is deemed to be in the custody or control of the liquidators, and they are the proper parties to be served with business rescue applications; (3) it confirms that s 131(6) of the Companies Act 71 of 2008 does not deprive liquidators of their powers when a business rescue application is filed; (4) it demonstrates the court's willingness to impose punitive costs orders where business rescue procedures are abused for ulterior purposes such as delaying liquidation proceedings or avoiding interrogation; (5) it reinforces that business rescue exists for genuine rehabilitation of viable businesses or enhancing creditor returns, not as a tactical device to frustrate liquidation; (6) it provides guidance on when a costs-only appeal will not be considered moot under s 16(2)(a) of the Superior Courts Act - specifically where the decision involves an error of law rather than exercise of discretion and raises issues of public importance.