The SCA recently considered an appeal concerning a payment made to Pick ‘n Pay by attorneys on behalf of their franchisee, pursuant a sale of business agreement. In the case of Pick ‘n Pay Retailers (Pty) Ltd v Ramalho, NO and Another [2025], a dispute arose because the payment was made after the commencement of liquidation proceedings.
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The High Court held that the payment was affected by the concursus creditorum (meeting of the creditors) and subsequently ordered Pick ‘n Pay to repay the liquidators the amount it received.
In considering this matter, the SCA delivered a clear and authoritative judgment that protected the rights and principles of the concursus creditorum, highlighting that upon liquidation, all rights and obligations under an uncompleted contract vest in the liquidators, who then have the authority to act accordingly.
Facts of the case
In this case, Pick ‘n Pay Retailers had entered into a franchise agreement with Laska 167, a franchisee trading as Pick ‘n Pay family store in Midrand.
After experiencing severe financial distress during 2016 and 2017, the franchisee was unable to meet its obligations, including payments to Pick ‘n Pay, and was ultimately placed in final liquidation on 19 February 2018.
Prior to liquidation, Pick ‘n Pay obtained a notarial bond over the franchisee’s assets due to an outstanding debt of over R13.5m, thereby effectively taking control of the business.
Despite the financial difficulties, the franchisee and Pick ‘n Pay continued settlement discussions regarding the outstanding debt. As a result of these discussions, it was agreed that the franchisee would sell the business to a suitable third party.
Pick ‘n Pay agreed to assist with procuring potential buyers, and in due course, Enthrall Trading concluded a sale of business agreement with the franchisee.
According to the material terms of the sale agreement, Pick ‘n Pay was required to consent to the sale and waive its rights of first refusal as contemplated in the franchise agreement.
Furthermore, for the agreement to take effect, Pick ‘n Pay had to approve the transaction on the terms of the agreement and release the security it had perfected over the movable assets (ie. the notarial bond).
Both requirements were fulfilled and Enthrall subsequently paid R25m into the trust account of the attorneys as the consideration for the purchase of the business.
Lara Horne and Werner Lotter 3 Jun 2025 Attorneys would settle outstanding debts
Clause 6 of the agreement set out the process of distributing the purchase price and provided that the amount would be paid into the trust account of White & Case.
Thereafter, White & Case would be responsible for settling any outstanding amounts owed First National Bank and Pick ‘n Pay. In the event that the franchisee failed to deliver the instruction timeously, White & Case would be authorised to act on a payment instruction given by the Pick ‘n Pay.
On 26 November 2017, the business was transferred to Enthrall.
On 5 December 2017, the first payment instruction was completed, signed, and delivered by the now ex-franchisee to White & Case, authorising the payment of the First National Bank loan.
On 12 December 2017, a further payment instruction was completed, signed, and delivered to White & Case authorising the payment of a First National Bank overdraft facility.
However, by the time of its liquidation in February 2018, the ex-franchisee failed to deliver a payment instruction regarding its indebtedness to Pick ‘n Pay.
As a result, on 25 June 2019, Pick ‘n Pay proceeded to sign and deliver the payment instruction to White & Case in terms of clause 6 of the sale of business agreement. In accordance with this instruction, Pick ‘n Pay was paid R21,627,758.91.
Notably, this payment was made more than a year after the liquidators had been appointed.
Voidable disposition
A dispute arose between the liquidators and Pick ‘n Pay, with the liquidators seeking to set aside the transaction as a voidable disposition, claiming the repayment of the amount paid to Pick ‘n Pay, along with interest thereon and the costs of the application.
In addressing the application, Pick ‘n Pay raised several objections. They argued a preliminary point, claiming that the liquidators had failed to disclose a cause of action in their affidavits. They further opposed the application on the basis that the incorrect sections of the Insolvency Act had been relied on, and that, because matter involved a dispute of fact, the liquidators should have instituted action proceedings instead of an application.
Pick ‘n Pay also contended that the payment was made and received pursuant to an uncompleted executory contract, which the liquidators had elected to abide by, and that, as a result thereof, the payment was unaffected by the meeting of creditors.
The High Court granted an order in favour of the liquidators. In addressing the arguments made by Pick ‘n Pay, the High Court held that the essential nature of the agreement was that of an ordinary sale and purchase of a business, and that the agreement applied only to the purchaser and seller under its terms.
The High Court further held that, once liquidation intervened, Pick ‘n Pay’s legal position under clause 6 was no different from that of any other creditor to whom a debt was owed. As a result, Pick ‘n Pay was not entitled to exercise its rights under clause 6.1, and its rights were limited to that of an ordinary concurrent creditor in an insolvent estate.
Pick ‘n Pay took the decision made by the High Court on appeal, arguing that the court should have upheld their preliminary point, and submitted that the High Court erred in two respects:
First, in finding that the liquidators disputed the executory nature of the contract, despite the fact that the liquidators had, according to Pick ‘n Pay, admitted this in their papers.
Second, in finding that the rights and obligations established under the agreement were solely between Enthrall and the ex-franchisee, and that upon payment of the purchase price and delivery of the business to Enthrall, the contract was complete.
On the other hand, the liquidators maintained that the agreement was complete, asserting that the mandate outlined in clause 6.1 came to an end upon the winding-up of the ex-franchisee company. They argued that any payment made to Pick ‘n Pay after the liquidation was irregular and in disregard of the meeting of creditors.
Julian Jones, Joon Chong, Caellyn Eedes and Rohan Baijnath 19 Nov 2021 The SCA’s findings
The SCA had to consider two main legal issues on appeal: first, whether the liquidator’s affidavit had disclosed a valid cause of action, and second, whether the agreement constituted an uncompleted executory contract that the liquidators were required to abide by.
The SCA held that the first issue regarding the affidavit failed, as the claim was indeed based on the principles applicable to the meeting of creditors. The court noted that, when analysing the averments in the founding affidavit, it is clear that the liquidator’s argument was that the payment made to Pick ‘n Pay was effected in a manner that disregarded the concursus and prejudiced the general body of creditors.
When assessing the effect of insolvency on uncompleted contracts, the SCA noted that the court in Du Plessis and Another NNO v Rolfes Ltd held that, at common law, a liquidator or trustee is not bound to perform unexecuted contracts unless he and the creditors agree that it is in their best interest.
In terms of the reasoning in Du Plessis, the liquidator has a right to elect whether or not to abide by the contract.
Additionally, the SCA cited Ellerine Brothers (Pty) Ltd v McCarthy Ltd, where it was noted that the liquidator inherits the uncompleted contract in its entirety and must perform whatever is required of the insolvent, including any unfulfilled past obligations.
The court emphasised that the purpose of the concursus is to provide equal protection to all the creditors without undue preference, and to preserve and distribute the estate to the benefit of them all.
The liquidator should be the one deciding whether it would benefit the community of creditors to continue performing the insolvent’s obligations under an uncompleted contract. The claims of parties under such contract are treated equally with all other creditors in the insolvent estate.
Julian Jones, Caellyn Eedes & Liso Potwana 28 Mar 2025 All creditors are treated fairly
In considering Pick ‘n Pay’s claim, the SCA agreed that although Pick ‘n Pay was not a party to the agreement, it derived directly enforceable rights from the agreement, including the right to be paid its claims against its ex-franchisee.
However, the court noted that the mandate given by ex-franchisee to White & Case to make payment, and the rights given to Pick ‘n Pay to issue payment instructions to White & Case, terminated upon the ex-franchisee company’s liquidation.
The court expressly stated that White & Case was not permitted to execute the instructions given by Pick ‘n Pay, as the ex-franchisee’s agent, because White & Case was not permitted to issue any payments after insolvency. Any mandate in respect of payment failed to be enforceable after the ex-franchisee company’s insolvency.
The SCA held that the contract was not executory, as the sale of business had been performed. The mandate given to White & Case was merely to make payment of the proceeds of sale; this mandate confers authority but does not require further performance. Consequently, it was not executory in nature.
The SCA concluded that the payment to Pick ‘n Pay after the liquidation was unlawful and the funds paid should be repaid.
This judgment holds significant implications to creditors and parties involved in business transactions with companies undergoing liquidation.
It underscores the paramount importance of respecting the principle of the meeting of creditors, which ensures that all creditors are treated fairly and equitably during insolvency proceedings.
One must understand that any payments made to creditors after liquidation without the express authority of the liquidators may be deemed unlawful and subject to recovery.
Additionally, the ruling clarifies that mandates or instructions related to payment from an insolvent estate terminate upon liquidation, emphasising the liquidator’s exclusive control over the estate’s assets and obligations.
This serves as a vital reminder for creditors and service providers to engage directly with liquidators seeking payment, avoiding unilateral actions that may jeopardise their claims.
Overall, this decision promotes transparency, fairness and legal certainty in the administration of insolvent estates.
