Requirements for applications for the recission of final liquidation orders

In the case of Louis Jonker and Johanna Jonker v the Land and Agricultural Development Bank of SA and others, the Free State Division of the High Court heard an application instituted by Louis and Johanna Jonker (‘the applicants’) for the setting aside of a final liquidation order granted against Jonker Products CC, an entity in which Louis was the sole member and Johanna was an employee and creditor.

The High Court examined allegations of intentional misrepresentations made by the party who had instituted the liquidation application – the Land and Agricultural Development Bank of South Africa (‘Land Bank’) – and the common law and statutory requirements to rescind the final winding-up order granted by the court of first instance.

Background facts

On 9 September 2020, Jonker Products CC was placed under provisional liquidation following an application made by the Land Bank, and a rule nisi was issued by the presiding judge with a return date of 29 October 2020. Jonkers opposed this on the basis that the Land Bank lacked locus standi to pursue their relief sought. However, a final liquidation order was ultimately granted by the judge, and no appeal process was initially pursued by the Jonkers.

Then, over three years after the final order was granted, the Jonkers launched an application in which they requested a final liquidation order to be set aside, and in the alternative, for an interim order prohibiting the liquidators from continuing with the liquidation process of Jonker Products CC pending finalisation of an action to be instituted by them within one month from the date of the proposed order to set aside the orders of liquidation and sequestration.

In their founding affidavit, the Jonkers indicated that the relief they claimed was in terms of the common law, and no reliance was placed on section 354 of the Companies Act. This section empowers a court to set aside a winding-up order that was previously granted. The application by the Jonkers was also not based on Uniform Rule 42, which deals with rescission of judgments.

The Jonkers alleged that the winding-up order of Jonker Products CC was improperly obtained as a result of the Land Bank knowingly and intentionally misrepresenting facts to the Court regarding its locus standi, at the time the provisional and final winding-up orders were granted. They argued that the Land Bank incorrectly asserted that it was an unpaid creditor of Jonker Products CC, even though all loan agreements relied upon were concluded between Jonker Products CC and Unigro Financial Services (Pty) Ltd (‘Unigro’), as opposed to the Land Bank.

The Jonkers further argued that the issue of locus standi had been disputed from the inception of the liquidation proceedings. However, the manner in which this issue was dealt with resulted in the court simply not addressing it in its judgment and merely accepting the Land Bank’s “say so” regarding locus standi. The Land Bank relied certain alleged cessions and sales agreements in terms which they had acquired the book debts of Unigro which, according to the Land Bank, proved Jonker Products CC’s indebtedness to it. The Jonkers averred that the Land Bank failed to provide this essential documentation notwithstanding a request for discovery in terms of Rule 35(12), which if placed before the presiding judge, would have persuaded him to dismiss the liquidation application.

The Jonkers also contended that they only became aware of the Land Bank’s intentional misrepresentation, when they were informed of a similar case wherein the Land Bank had made an application for the liquidation of the entity Somerhoek Boerdery (Pty) Ltd in 2022. According to the Jonkers, it was clear after reading the application documents in that case that the Land Bank knew that it did not possess the necessary locus standi in the Somerhoek case. Further reference was also made to other cases in which the Land Bank was found wanting in producing the required cession agreement to prove its locus standi.

In its answering affidavit, the Land Bank denied any allegations of misrepresentation before the court and maintained that although the presiding judge did not specifically deal with the dispute of locus standi, this issue had been fully canvassed in argument and the judge had found that Land Bank possessed the necessary locus standi. Additionally, the Land Bank noted that in the Somerhoek matter, they had received several written agreements from Somerhoek, which acknowledged its indebtedness to the Land Bank.

The Land Bank further submitted that the Jonkers should have appealed the court of first instance’s orders, and not waited over three years to bring this recission application. Indeed, as highlighted by the Land Bank, the setting aside of the final winding-up order would severely prejudice the creditors of Jonker Products CC and would furthermore be practically impossible given that all material assets of the CC had already been sold and transferred in the administration of the liquidated estate.

The High Court sheds guidance on recission applications

Upon review of the arguments put forth by both parties, the High Court referred to the judgment in Ferris & Another v Firstrand Bank, wherein the Supreme Court of Appeal held that an applicant in a recission application based on the common law must show ‘good cause’ for the granting of such relief. In short, for the Jonkers to succeed in setting aside the court of first instance’s judgment on the grounds of intentional misrepresentation, they must allege and prove that there was a misrepresentation and that the Land Bank subjectively knew that it did not possess locus standi.

The High Court noted that although the application was brought under the common law, reference must be made to section 354 of the Companies Act as well as the judgment of Ward and Another v Smither and Others which sheds guidance on the principles behind the recission of winding-up orders. The High Court highlighted that the purpose behind this judicial power is not to provide for a re-hearing of the winding-up proceedings, nor for the court to sit on appeal upon the merits of the judgment in respect of those proceedings.

The High Court referred to the judgment in Raubex Construction (Pty) Ltd v Bryte Insurance Company (Pty) Ltd which outlined that fraud will not be easily inferred where it is sought in motion proceedings. In this regard, the High Court held that the Jonkers had failed to prove on their papers that the Land Bank did not possess the necessary locus standi at the time, or that they had subjective knowledge of these facts with an intention to mislead the court in the winding-up proceedings.

The High Court concluded that the court of first instance had assessed and concluded the issue of locus standi. It would therefore be improper for this court to rescind the winding uporders as this would essentially amount to a “re-hearing of the winding-up proceedings” or amount to “sitting on appeal as a single judge upon the merits of a judgment by a different judge of similar status”. Accordingly, the application for the setting aside of the final liquidation order was dismissed with costs.

Aslam Moosajee

Executive / Dispute Resolution

amoosajee@ensafrica.com

Laurence Mort

Candidate Legal Practitioner / Dispute Resolution

lmort@ensafrica.com