Overview Of Liquidators Ordered To Leave Office
In the matter of Prinsloo v The Master of the High Court and Others (28039/2017)  ZAGPJHC 594 (“Prinsloo”) two Liquidators were ordered to leave office and relieved of their duties. But why?
This Blog looks at removal of Liquidator applications when they sprout.
We have examined them in the Courts in the UK, Ireland, Canada and Australia. There are many similarities between these various jurisdictions in terms of the principles applied by the Court. Let’s see if South Africa adopts a similar approach.
Perhaps unsurprisingly the Liquidators opposed the application. It is conceivably axiomatic that no Liquidator will readily or with alacrity welcome being booted out of office.
The application in Prinsloo sprouted from the conduct of Liquidators in the administration of the PMC Waterproofing and Roofing CC (“PMC”).
The applicant was a member of PMC who had historically applied to remove the Liquidators on the basis that certain assets of PMC had been removed. She suggested the Liquidators were not acting independently and or in the best interest of creditors.
The applicant said the Liquidators had not been impartial, their conduct irregular and feared there was bias towards the fifth respondent who was also a member of PMC.
Irregularities Complained About
The irregularities complained about by the applicant included:
- The release of PMC assets to the fifth respondent who sold some of them.
- The Liquidators did not take proper control of the estate assets and its books and records.
- The debtors of PMC were not collected.
- There was conduct on the part of the liquidators to the prejudice of PMC and its creditors.
Robust Defence By The Liquidators
The Liquidators disagreed. They said:
- There was no improper or irregularity with respect to their conduct.
- The application was vexatious.
- The applicant has held up the Liquidation for four years.
- The application was motivated to avoid enquiry of PMC’s affairs.
- They wanted punitive costs ordered against the applicant.
The Court said that the Liquidators’ duties encompassed:
- A position of trust.
- To act in the best interests of creditors.
- Need to be wholly independent.
- Have regard equally for the interests of all creditors.
- Conduct the Liquidation without fear, favour or prejudice.
Grounds For Liquidator Removal
Grounds for Liquidator removal via a court application would arise if there was sufficient concern about partiality, independence and conflicts of interest:
A Court will exercise its discretion to remove a liquidator if it appears that he or she, through some relationship, direct or indirect, with the company or its management or any particular person concerned in its affairs, is in a position of actual or apparent conflict of interest. In exercising that discretion Bowen LJ in Re Adam: Eyton Ltd: Ex parte Charlesworth (1887) 36 Ch D 299 at 306 said:
Of course fair play to the liquidator himself is not to be left out of sight, but the measure of course is the substantial and real interest of liquidation.
In this case, it was said that the Liquidators’ response to the application did not sufficiently address matters:
… the liquidators’ affidavits failed to do so and they merely baldly disputed the applicant’s averments
Liquidators Control Of Books And Records
One of the Liquidators, Mr Smit took control of PMC’s premises on 25 January 2016.
The applicant produced photographic evidence that she left the records and computer equipment with Mr Smit.
The Liquidators said they were not in possession of complete financial records, being confined to those from PMC’s auditors.
The fifth respondent owned the premises and was given free access to them. As a result, the applicant said the Liquidators failed to secure PMC’s records and allowed the fifth respondent access to the premises enabling the removal of PMC’s assets.
Vague Responses By The Liquidators
The applicant alleged:
that PMC Contractors, allegedly a sole proprietorship of the fifth respondent, was the same entity as PMC, and that the names and trading activities were used interchangeably. She averred that the documents which should have been in the liquidators’ possession, would evidence this. The liquidators did not meaningfully address this issue in their papers.
The liquidators disputed these averments but in various instances addressed them only broadly and in vague terms, without meaningfully grappling with the substance of the applicant’s averments. Their version rather focused on attacking the veracity of the applicant’s version and alluding to her dishonesty aimed at seeking to avoid an enquiry. There papers further did not make a full disclosure of exactly what information they obtained from the fifth respondent or how they independently verified the correctness of such information.
Release Of The Assets
The Liquidators said that most of the assets at the PMC premises were not the property of PMC. However, the Court was unimpressed:
… what is glaringly absent is a full record of exactly what investigations the liquidators conducted and how they came to the conclusion that the majority of the assets did not belong to PMC. On the papers, there are allegations and counter allegations that both the applicant and the fifth respondent acted fraudulently in relation to the affairs of PMC and the registration of vehicles in different names. There are conflicting registration certificates in relation to some of the vehicles, indicating that the ownership details have been amended. The documentation provided is not conclusive and cannot be accepted without further investigation. Conclusions were proffered by the liquidators, without all the necessary substantiating documentation being provided to clarify the issues. It appears that the liquidators heavily relied on the version proffered by the fifth respondent
There is also no indication that the liquidators investigated the inter relationship between PMC Contractors and PMC as averred by the applicant. The applicant averred that the businesses of PMC and PMC Contractors were intertwined and the names were used interchangeably in conducting the same business. This issue was not meaningfully dealt with by the liquidators in their affidavits. It does not appear anywhere from the liquidators’ affidavits how these matters were fully investigated. It appears that the liquidators relied on affidavits from the fifth respondent, although those affidavits do not form part of the application papers. Although the liquidators averred that they received information from the fifth respondent, no confirmatory affidavit from the fifth respondent was produced as part of their papers.
Apprehension Of Bias
The Liquidators’ seem to have been found by the Court to have relied upon information from the fifth respondent:
On a conspectus of the evidence, the liquidators also did not act independently and adopted a biased view in favour of the fifth respondent and against the applicant. It is not clear on what basis the fifth respondent’s advices were accepted, whilst the applicant’s averments were rejected out of hand. It appears clear that the applicant was to be the main focus of the enquiry proceedings, despite the liquidators’ glib contention that the fifth respondent would also be involved. At the very least, the liquidators adopted a hostile approach towards the applicant, did not keep her or her legal representatives abreast of developments or their investigations and simply accepted the fifth respondent’s ipse dixit without much further ado. There is thus merit in the applicant’s contention that she has a reasonable suspicion of bias on the part of the third respondent in favour of the fifth respondent and that the liquidators did not act impartially in relation to the administration of the PMC estate.
Result: Court Orders Liquidators To Leave Office
Notably, the Court said that taken in isolation the applicant’s complaints might not all merit removal of the Liquidators but when viewed together they did. The Liquidators were ordered to pay the costs of the application to date.
It can be seen that the approach adopted by the South African court was consistent with those in many other jurisdictions such as the UK, Canada, Ireland and Australia when considering such a removal application.
- 1 Overview Of Liquidators Ordered To Leave Office
- 2 Irregularities Complained About
- 3 Robust Defence By The Liquidators
- 4 Liquidator Duties
- 5 Grounds For Liquidator Removal
- 6 Liquidators Control Of Books And Records
- 7 Vague Responses By The Liquidators
- 8 Release Of The Assets
- 9 Apprehension Of Bias
- 10 Result: Court Orders Liquidators To Leave Office
- 11 What Next?
- 12 Recent Posts / View All Posts
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