What are your rights should you receive a subpoena to attend an insolvency enquiry?

In Roering & Another NNO v Mahlangu (581/2015) [2016] ZASCA 79 heard recently, the Supreme Court of Appeal (SCA) considered the circumstances that might justify a witness under subpoena applying for enquiry proceedings to be set aside or for the witness to be excused from attending those proceedings.

29 Jun 2016 4 min read Dispute Resolution Alert Article

The general rule is that a subpoenaed witness is compelled to attend, subject to procedural requirements being met, and the evidence sought being relevant to the insolvent company or entity.

In the Roering matter a subpoena was issued to a witness to attend an insolvency enquiry convened in terms of s417, read with s418 of the Companies Act, No 61 of 1973 (Act). The liquidators were of the view that the witness would be able to provide important information about a possible claim against another entity by the company in liquidation.

The witness contended that the enquiry was an abuse of process as she was a potential witness in current or future litigation proceedings and her examination may result in the liquidators possibly acquiring unfair insight into what the witness might say when giving evidence at the later trial. (This is commonly referred to as improper or unfair litigation advantage.)

The subpoena was set aside by the High Court but that decision was overturned by the SCA. The SCA rejected the witness’ argument which in essence was that whenever civil litigation may involve an insolvent entity, a potential witness in that litigation could never be subpoenaed to appear at an insolvency enquiry in respect of that insolvent entity.

Reference was made to the well-known Bernstein and others v Bester and others NNO [1996] ZACC 2; 1996 (2) SA 751 (CC) case where the Constitutional Court held that the liquidator is entitled to obtain information - not only to ascertain whether the company has a cause of action but also in order to assess whether the case is sufficiently strong to spend the creditors’ money in pursuing it, and conversely to ascertain whether there is an adequate defence to a claim against the company. The SCA held that the process involved in making such an assessment could not, in the normal course, constitute an abuse. However, in certain circumstances enquiry proceedings could indeed constitute an abuse.

Courts have the power, and indeed the obligation to restrain the use of power of an enquiry where it would “constitute an abuse”. It is, however, difficult to legislate exactly what constitutes an abuse.

Courts will generally not permit liquidators or commissioners to abuse its process by using an examination solely for the purposes of obtaining “a forensic advantage”. What constitutes an improper forensic advantage will depend on the facts of each case.

An examination may be an abuse where:

  • the advantage is solely for the benefit of a third party, such as a creditor and not for the liquidators and the general body of creditors;
  • the subpoena is directed at obtaining pre-trial discovery when a discovery order had been refused in proceedings that were already ongoing;
  • an enquiry is engineered shortly before a trial in which the liquidators are the plaintiff - in order to obtain ammunition to attack the defendant in the trial; and
  • evidential material is available to the liquidators from alternative sources or can be obtained by simple alternative means, without resort to an enquiry, this may show that the liquidators have ulterior motives. Ulterior motive and harassment are also well recognised grounds to challenge enquiry proceedings generally.

The SCA concluded its findings by stating that the fundamental issue in determining where an abuse had occurred was “whether the enquiry was being used for a purpose not contemplated by the Act”.

Put differently in the case of Excel Finance Corporation Ltd John Frederick Worthley v Richard Anthony Fountayne England [1994] FCA 1251 the use of the process or abuse of it will “depend on purpose rather than result”.

In the Roering matter the appeal was upheld with costs and the application to set aside the insolvency enquiry proceedings, as far as the witness was concerned, was reversed.

There are three other fairly common instances, besides the one discussed in the Roering case, where a recipient of a subpoena may object to attending or testifying. These are where:

  • the evidence presented may be incriminating in nature - no person interrogated is entitled to refuse to answer a question on the ground that the answer may incriminate them. However if they do refuse, they are obliged to answer the question provided that the Master or Officer presiding has consulted with the Director of Public Prosecutions in that area. This obligation is subject to the rider that any incriminating answer or information obtained and derived from the interrogation is not admissible as evidence in subsequent criminal proceedings subject to certain limited exceptions. It is, however, admissible in subsequent civil proceedings;
  • the notice is unreasonable (it is generally accepted that three weeks’ notice is sufficient) or the reasonable attendance costs and witness fees have not been tendered; and
  • the person’s evidence cannot be relevant with reference to whether that person is capable of giving information concerning “the trade, dealings, affairs and property of the company in liquidation”, or not.

A person subpoenaed to appear at an insolvency enquiry is always entitled to legal representation at the enquiry. If you receive a subpoena or summons to attend any form of insolvency enquiry you should immediately approach an attorney to obtain advice as to your legal rights. It may be that you are not obliged to attend and it may be that you will prejudice yourself if you do not attend without being represented.


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