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First meeting of creditors in relation to S40(1) of The Insolvency Act

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“There appears to be limited authority on the interpretation of section 40(1); therefore it seems that the correct legal position at present is that found in this case.”

Section 40(1) of the Insolvency Act, 1936 (Act 24 of 1936) (the Act) provides that the Master shall immediately convene a first meeting of the creditors of the estate by notice in the Government Gazette ‘on receipt of an order of the court sequestrating an estate finally’.

The events leading up to the first meeting of creditors may be crucial in appointing liquidators

Section 40(1) of the Insolvency Act, 1936 (Act 24 of 1936) (the Act) provides that the Master shall immediately convene a first meeting of the creditors of the estate by notice in the Government Gazette ‘on receipt of an order of the court sequestrating an estate finally’.

The purpose of the meeting is for the creditors to prove their claims and elect a trustee. Section 364(1)(a) of the Companies Act, No 61 of 1973 (old Act) contains a similar provision saying that the Master shall summon a meeting of the creditors of the company as soon as may be after a winding-up order has been made by the court.

In terms of Item 9 Schedule 5 of the Companies Act, No 71 of 2008 (new Act), Chapter 14 of the old Act continues to apply with respect to the winding-up and liquidation of companies, despite the repeal of the old Act. Section 364 of the old Act enjoins the Master to ‘summon’ a meeting of the creditors as soon as may be after a final winding-up order has been made by a court.

The Master’s obligations are very clear. First, there is an obligation on the Master to convene the first meeting, by notice in the Gazette. Second, and most importantly, such meeting can only be convened on receipt of the final liquidation order. Two important questions arise from the provisions of section 40(1), namely:

  • What is the meaning of the word ‘convene’?
  • What are the legal implications of the Master placing an advertisement in the Gazette prior to the granting of the final order?

In the unreported decision of the Witwatersrand Local Division (as it was then) in Industrial Development Corporation of South Africa Limited v The Master of the High Court Johannesburg and Others [2007] ZAWLD (01527/07), one finds a pertinent interpretation of this section.

The facts of this case were that prior to the granting of the final liquidation order, the Master dispatched an instruction to the Government Printer to advertise the first meeting of creditors. A final liquidation order was granted a month later, before the publication of the notice in the Gazette. By then, the instruction to publish had reached the Government Printer. The applicant attacked the validity of the first meeting of creditors as well as the decisions taken there and consequences thereof on the ground of contravention by the office of the Master of the provisions of section 40.

In casu the court held, per Snyders J, inter alia that:

  • The words determine a time at which the Master shall take steps and convene a meeting and that time is ‘on receipt of an order of the Court sequestrating an estate finally’. .
  • Only upon final liquidation does the procedure of convening the first meeting of creditors arise and only upon final liquidation is the Master entitled to decide on a date for such a meeting and a date for publication of the notice.
  • The word ‘convene’ in this section is used in the broad sense of the word as defined in the Greater Oxford English Dictionary: ‘To cause to come together.’
  • Deciding on a date for the meeting and a date for the publication of the notice is part of the process to convene and in terms of section 40(1) has, of necessity, to happen after final liquidation.

Although the matter was referred to the Supreme Court of Appeal on various grounds, the Court did not pronounce on the interpretation of this section as held by Snyders J above. There appears to be limited authority on the interpretation of section 40(1); therefore it seems that the correct legal position at present is that found in this case.

In conclusion, in order to safeguard the interests of a creditor with regard to the nomination and appointment of liquidator/(s), it is advisable for the creditor and/or his/her legal representatives to monitor events prior and leading up to the actual date of the first meeting of creditors.

Authors: Thabile Fuhrmann, BProc, LLB, Certificate in Energy Law, Admitted Attorney, Director, and Vincent Manko, Candidate Attorney, Dispute Resolution, Cliffe Dekker Hofmeyr.

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