A creditor would usually seek leave to intervene in a pending application for the liquidation of one of its debtors, originally brought by another creditor, in order to support the liquidation application and to ensure that it is seen through to the end.

However, as with all things in life, nothing is simple or certain. What happens if the original applicant creditor changes its mind, or settles with the debtor, especially after a provisional liquidation order has been granted? Where does that leave the intervening creditors?

This was the question that the court was asked to determine in the matter of Botes and Others v Tariomix (Pty) Ltd t/a Forever Diamonds and Gold and Others [2024] 2 All SA 830 (NWM).

On 23 February 2023, a provisional liquidation order was granted against Tariomix, trading as Forever Diamond and Gold, after an application brought by the original applicants, Mr Botes and Mr Viljoen, who alleged that Tariomix operated an unlawful business model, operating as a pyramid scheme where investors bought into diamond parcels, which Tariomix then undertook to sell at high profits.

The scheme resulted in significant financial losses for Tariomix, which ultimately led to its indebtedness to the original applicants.

This led to the granting of the provisional liquidation order, whereafter a return date was set. Tariomix and other interested parties were then invited to show cause as to why the provisional order should not be finalised.

After the granting of the provisional liquidation order, another creditor of Tariomix brought an application for leave to intervene as a creditor in the liquidation application.

Also, prior to the return day for the provisional order to be made final, the original creditors elected to withdraw their initial application.

Notice to withdraw

Morgan AJ, on the return day for the provisional order, had to venture into unchartered waters to assess the issues that had transpired. In particular, whether a notice of withdrawal by the original applicants, delivered after Tariomix had been placed under provisional liquidation, could terminate the liquidation proceedings without more; and the status of intervention proceedings by other affected creditors in such a case.

The company argued that purely because of the withdrawal of the application by the original creditors, the provisional order had to fall since it had no application in law or in fact. Following this, there would be no application or case for future liquidating creditors to intervene.

The court first discussed the general characteristics of liquidation, noting that it is trite that a liquidation order is a watershed moment that marks the beginning of the end of a company in its current form. It changes the legal status of a company by suspending the ordinary powers of management and initiates a comprehensive restructuring of its affairs under the auspices of the court.

Most significantly, the court noted that the mere withdrawal of the application cannot render the courts’ ultimate discretion redundant and nugatory. A court must satisfy itself entirely that there is cause shown by the company or any interested parties that the company should not be liquidated and in fact, this is something that the spirit and object of the legislative framework requires.

This stance does not force liquidating creditors to remain party to the liquidation but merely reinforces the centrality of the court and its obligations.

Finding

Ultimately the court found there to be no reason to discharge the provisional liquidation order and, inter alia, granted the intervening creditors leave to intervene and placed the company under final liquidation.

This landmark judgment ultimately reaffirms the courts’ unwavering commitment to ensuring that the rule of law remains a steadfast beacon of justice in our constitutional framework, which also underscores the courts’ discretion as a crucial element in upholding justice and equity.

Morgan AJ’s decision to finalise the provisional liquidation order reflects the courts’ duty to prevent the erosion of fundamental constitutional principles and to protect the integrity of the legal system. Importantly, this judgment provides substantive guidance, clarifying that a withdrawal application after a provisional order for liquidation has been granted would not automatically nullify that order.