The Supreme Court of Appeal has ordered Blue Label Distribution to repay more than
R347 000 to the liquidators of a failed Cape Basic Products (CBP).
Blue Label Distribution is the largest distributor of prepaid e-tokens, specialising in the electronic distribution of virtual merchandise including airtime, data and electricity. It is part of Blue Label Telecoms group.
The judgment centres on eight payments adding up to R347 531.81 made by Cape Basic Products (CBP) to Blue Label after the company had already been placed under provisional liquidation.
Payments ‘were void in law’
The court found that these payments were void in law and must be returned with interest, confirming an earlier decision by the Johannesburg high court.
At the heart of the case was whether payments made after the start of liquidation proceedings could be retained by a creditor but the court ruled unequivocally that they could not.
The SCA held that once liquidation proceedings begin, any disposal of a company’s assets is automatically invalid unless a court specifically allows it. In this case, all eight payments were made after CBP was provisionally liquidated on March 2 2020. Due to the timing, the payments were deemed void from the outset.
“This Court has repeatedly emphasised that the default position is that dispositions as contemplated by s 341(2) of the Act have no force and effect in the eyes of the law. They are regarded as if they had never occurred, they are void ex lege.
“This means that once a disposition of property is made after the commencement of winding-up, it is void ab initio unless validated by a court order in terms of s 341(2). Nullity is the default position and validation the exception,” reads the court papers.
Blue Label had argued that the funds were effectively recycled through its system and that CBP’s financial position had not worsened.
However, the court rejected this argument, saying the key issue was not whether the company’s assets were ultimately restored, but that the payments were made unlawfully after liquidation had begun.
Caution over unfair advantage
Crucially, the court found that allowing Blue Label to keep the funds would unfairly advantage it over other creditors, who must wait for a share of the remaining assets through the liquidation process.
“The practical implication of the payments to Blue Label is that it would be in a more advantageous position than other creditors. Blue Label is a creditor which has received full payment after CBP’s liquidation, while CBP’s remaining creditors are required to submit claims to receive a dividend,” reads the court papers.
Blue Label also argued that it acted merely as an intermediary or agent, passing payments on to third-party suppliers.
But the court disagreed, finding that the contractual relationship showed a debtor-creditor arrangement between Blue Label and CBP, not a simple agency role.
As a result, Blue Label was deemed the true recipient of the funds and therefore liable to repay them.
In its final order, the Supreme Court of Appeal dismissed the appeal with costs, confirming that the liquidators are entitled to recover the full amount.
- The Supreme Court of Appeal ordered Blue Label Distribution to repay over R347,000 to the liquidators of Cape Basic Products (CBP) following its provisional liquidation.
- Payments made by CBP to Blue Label after liquidation began were ruled void by law and must be returned with interest, confirming a previous high court ruling.
- The court emphasized that any disposal of assets after the start of liquidation is automatically invalid unless a court specifically approves it.
- Blue Label's arguments claiming recycled funds or an intermediary role were rejected; it was deemed the true recipient of the funds and unjustly advantaged over other creditors.
- The court dismissed Blue Label's appeal with costs, affirming the liquidators' right to recover the full amount.
R347 000 to the liquidators of a failed Cape Basic Products (CBP).
Blue Label Distribution is the largest distributor of prepaid e-tokens, specialising in the electronic distribution of virtual merchandise including airtime, data and electricity. It is part of Blue Label Telecoms group.
At the heart of the case was whether payments made after the start of liquidation proceedings could be retained by a creditor but the court ruled unequivocally that they could not.
“
“
Blue Label had argued that the funds were effectively recycled through its system and that CBP’s financial position had not worsened.
However, the court rejected this argument, saying the key issue was not whether the company’s assets were ultimately restored, but that the payments were made unlawfully after liquidation had begun.
Crucially, the court found that allowing Blue Label to keep the funds would unfairly advantage it over other creditors, who must wait for a share of the remaining assets through the liquidation process.
“
Blue Label also argued that it acted merely as an intermediary or agent, passing payments on to third-party suppliers.
But the court disagreed, finding that the contractual relationship showed a debtor-creditor arrangement between Blue Label and CBP, not a simple agency role.
As a result, Blue Label was deemed the true recipient of the funds and therefore liable to repay them.
In its final order, the Supreme Court of Appeal dismissed the appeal with costs, confirming that the liquidators are entitled to recover the full amount.
