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The impact of issuing and serving liquidation proceedings under the companies act of 2008

Would it be enough for a liquidation application to be issued and not served on the company for the purpose of section 129 (2) of the Companies Act of 2008 (the Companies Act)?

Sections 129 (1) & (2) of the Companies Act, reads as follows:

“129 (1) The board of a company may resolve that the company voluntarily begin business rescue proceedings and place the company under supervision, if the board has reasonable grounds to believe that:

(a) the company is financially distressed; and

(b) there appears to be a reasonable prospect of rescuing the company

(2) A resolution contemplated in subsection (1)

(a) may not be adopted if liquidation proceedings have been initiated by or against the company; and

(b) has no force or effect until it has been filed.”

 

In essence, section 129 (2) of the Companies Act allows for a company to proceed with business rescue proceedings via resolution adopted, provided that the resolution has not been adopted if liquidation proceedings have already been initiated.

In the case of Tjeka Training Matters (Pty) Ltd vs KPPM Construction (Pty) Ltd and Others 2019 6 SA 185 (GJ), the Court had to deal with the question of whether the mere issue of liquidation papers was enough to be considered as “initiation” of liquidation proceedings as provided for by the Act.

The facts of the case were simply that the Applicant (Tjeka) had issued liquidation papers in the High Court during April 2019 and had only served a copy thereof on the First Respondent (KPPM) on 28 May 2019, after the First Respondent had already adopted a resolution in terms of Section 129(2) of the Companies Act on 15 May 2019.

In casu, the Applicant relied on the dictionary interpretation of the word “initiated” which literally means the “first step taken” a synonymy thereto would be “commenced” and argued that the fact that the liquidation application had already been issued, meant that proceedings have already been initiated for purposes of section 129(2) of the Companies Act.

The Applicant drew the court’s attention to the case of Firstrand bank Ltd vs Imperial Crown Trading 143 (Pty) Ltd 2012 (4) SA 266, where a comparison was made to the Companies Act of 1963 (the Old Act) particularly sections 348 and 352 thereof (which dealt with the winding up of companies) as compared to sections 129 (2) and 131 (6) of the Companies Act of 2008. The Old Act specifically defined the word “commenced” and although the word “initiated” has not been defined in the Companies Act of 2008, the court looked at section 131 (6) thereof which, refers to “proceedings having been commenced by or against the company at the time that application is made for an Order placing the company under supervision and commencing business rescue proceedings”. The court in the Crown Trading case therefore concluded that the word “commence” and “initiated” should have the same meaning “by virtue of the clear definition of the word commencement of proceedings” in terms of the Old Act.

The court in casu found that the dictum in the Crown Trading case “to be misconceived” and held that the functions of section 348 of the Old Act is completely different to that of section 129 (2) of the Companies Act of 2008. The court then looked at the case of Marine Trade Insurance Co Ltd. vs Reddinger 1966 (2) SA 407 A, where it was stated that “although action commenced when Summons is issued, the Defendant is not involved in litigation until service has been effected”.

As such, the court concluded that the word “initiated” in the Companies Act of 2008 could not mean the same as “commenced” in terms of the Old Act and held that liquidation proceedings in terms of section 129 (2) of the Companies Act of 2008 must be served on the company and not merely issued. The court thus ruled that the resolution taken by the First Respondent on 15 May 2019 to voluntarily begin business rescue proceedings trumped the service of the liquidation application by the Applicant.

PREPARED BY:

NOORI EDROS
SENIOR ASSOCIATE
DISPUTE RESOLUTION  

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. (E&OE)