Deregistration no longer offers refuge for the scoundrel

On 24 March 2017, the Supreme Court of Appeal handed down judgment in the matter of ZNK Investments CC v Luckytso Transport and Construction CC & 7 Others (328/2016) [2017] ZASCA 20, which dealt with the validity of a sale in execution of a judgment debtor’s property if the sale took place when the judgment debtor had been deregistered.

26 Apr 2017 3 min read Dispute Resolution Alert Article

The appellant in this case, ZNK Investments CC, purchased immovable property belonging to the judgment debtor, Luckytso Transport and Construction CC, through a sale in execution. At the time of the sale, Luckytso had been deregistered due to a failure to file annual returns, but there was no evidence that the Sheriff of the High Court, ZNK and/or Absa (the mortgagee and judgment creditor) were aware of Luckytso’s status. Subsequent to the sale, Luckytso and its sole member approached the High Court for an order reinstating Luckytso, and declaring the sale of the immovable property invalid and setting it aside.

The High Court reasoned that Luckytso’s deregistration put an end to its existence which rendered Absa’s claim against it unenforceable. In addition, the deregistration meant that ownership of Luckytso’s property vested in the state and so the sale was invalid and fell to be set aside. The High Court granted the order sought, thereby reinstating Luckytso and declaring the sale invalid and setting it aside. ZNK’s application for leave to appeal to the High Court was unsuccessful, but its application to the SCA was granted on very limited grounds – the appeal was constrained to whether the retrospective operation of the reinstatement of Luckytso had the effect that the sale in execution of its immovable property was valid. 

In a unanimous judgment, Van der Merwe JA stated it is true that upon deregistration of a company or close corporation, that entity’s property becomes bona vacantia and passes to the state without any form of delivery. However, the crucial issue for the SCA, in this case, was the legal effect of the reinstatement of a close corporation in terms of s82(4) of the Companies Act, 2008. This issue had not been considered by the High Court, but had been considered previously by the SCA in Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd 2015 (4) SA 34 (SCA). In that judgment, Brand JA concluded that:

  1. reinstatement of registration by the CIPC in terms of s82(4) of the Companies Act, 2008 automatically and retrospectively revests a company (or close corporation) with its property and validates its corporate activities during the period of its deregistration; and
  2. even after reinstatement in terms of s82(4), a party who is prejudiced by the automatic retrospective effect is given the opportunity to seek relief in terms of s83(4), in which event the court may grant the relief it considers just and equitable.

Accordingly, the reinstatement of Luckytso by the High Court automatically and retrospectively revested the immovable property in Luckytso and validated its corporate activities during the period of deregistration. The attachment of its immovable property, and the subsequent sale in execution of that property constituted corporate activities of Luckytso during it’s deregistration. No case had been made out by Luckytso for relief in terms of s83(4), and the SCA also took note of the fact that Luckytso and its sole member did not deny knowledge of Luckytso’s deregistration, nor did they allege that they had a defence to Absa’s claim. For these reasons, the SCA found that the High Court should have refused to set aside the sale in execution and therefore upheld ZNK’s appeal with costs.

The position adopted by the SCA is encouraging for judgment creditors, as it clarifies that deregistration of a judgment debtor does not necessarily mean that a judgment creditor can never execute its judgment against the property of the judgment debtor.

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