The SCA has sounded a warning to all companies to take liquidation proceedings seriously, even ones in which they are not the company being liquidated.

A Business Day report says Ilima, a construction company, was placed in liquidation in 2010 and at the time, held shares in Strategic Partners Group (SPG) – known for its work in the Gautrain project. Ilima’s liquidators had to valuate Ilima’s SPG shares and distribute the proceeds to its creditors. To do that, the liquidators requested that Ilima’s shareholding in SPG be valued.

SPG appointed valuators, who acted on a shareholders’ agreement that was in dispute. When the liquidators finally obtained the valuation, they rejected the calculation.

The liquidators appointed their own valuator and offered to sell Ilima’s shares back to SPG for R100m.

SPG rejected this, saying the amount was inflated. The disputed shareholders’ agreement set out the manner in which Ilima’s shareholding would be calculated on liquidation.

The liquidators applied to court to have this agreement set aside. The High Court granted the order, as it was found there was no proof all the shareholders had consented to the agreement.

A year after the judgment, SPG got another valuation, adds the Business Day report.

There were also various related disputes, including with Gauteng Province and a related company, that would affect SPG’s value and therefore Ilima’s shareholding. The liquidators then ran an insolvency inquiry, where subpoenas were issued.

SPG also made an application in the High Court to prevent the inquiry from obtaining more documents that SPG had promised. The liquidators then requested that the court intervene.

The court agreed with the liquidators, indicating that the new forced-sale provision would not apply to Ilima.

SPG appealed to the SCA. However, the SCA agreed with the High Court and thus the liquidators.

Judge Trevor Gorven concluded that when SPG was asked ‘inconvenient questions’ concerning its corporate governance, it acted in the ‘only way to avoid further disclosure’.

This was to pass the forced-sale provision. Gorven said: ‘The effect of (this provision) is to undermine the performance by the liquidators of their duties.’

He agreed with the court’s order to bracket off Ilima from the forced-sale provision. SPG also said the liquidators were not entitled to more documents because SPG could not identify them. But Gorven criticised SPG.

‘If undertakings had already been given (by SPG to the liquidators),’ he said, ‘it can hardly be contended that SPG cannot adequately identify the documents.’

The SCA dismissed SPG’s appeal, and has sent a strong warning to companies to not interfere with liquidation proceedings, lest they incur expensive legal costs and possible reputational damage.

Full Business Day report

Judgment