Ukubona 2000 Electrical CC and another v City Power Johannesburg (Pty) Limited

Supreme Court of Appeal -155/03 Hearing date: 17 May 2004
  Judgment date: 1 June 2004
Section 84 of the Insolvency Act 24 of 1936 does not create a statutory hypothec for a creditor who does not own the merx at time of the insolvency of the debtor. Definition of 'instalment sale transaction' in s1 of the Credit Agreements Act 75 of 1980 interpreted to include a sale in terms of which the purchase price is payable in one lump sum in the future.

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On June 2004, the Supreme Court of Appeal (SCA) dismissed an appeal brought by Ukubona 2000 Electrical CC (first appellant) and ABB South Africa (Pty) Limited(second appellant). The appellants, who were manufacturers and suppliers of electrical and electronic components, had unsuccessfully applied to the Johannesburg High Court for an order, amongst other relief, that they be declared secured creditors in respect of certain assets of an insolvent company Drivecor (Pty) Limited by virtue of s 84 read with s 83 of the Insolvency Act 24 of 1936. With the leave of that Court they had appealed to the SCA

The factual background to this case, very briefly, is the following. In 2001 Drivecor entered into a contract with the respondent, City Power Johannesburg (Pty) Ltd in terms of which they undertook to manufacture, supply, install and commission control panels at two electrical substations run by City Power on behalf of the municipality of Johannesburg. Some of these components which were required for the manufacture of the control panels were purchased by Drivecor from the appellants. Drivecor had not fully paid for these components when it was wound up. City Power had made substantial payments to Drivecor in terms of the contract and claimed that by agreement entered into with Drivecor prior to its insolvency, they had acquired ownership of the very components supplied by the appellants to Drivecor. The action in which City Power claims ownership has as yet not been finalised in the Johannesburg High Court.

It was not disputed that the appellants had not paid their own suppliers for these components. Further the suppliers of the appellants had reserved ownership over these components. It was common cause that the appellants were not the owners of these components over which they claimed to have a preferrent right. It was the appellants case that they were secured creditors in terms of Sect 84 of the Insolvency Act because their contracts with Drivecor were ‘instalment sale transactions’ because Drivecor had undertaken to settle its indebtedness to them in a lump sum at a future date. On this leg of the enquiry the SCA was satisfied that the appellants qualified.

However, the SCA held that before a creditor can claim any preferrent right in terms of section 84 it must have been the owner of the goods supplied to a debtor at the time of the insolvency of the debtor. Because both the appellants were not the owners of the components supplied by them to Drivecor they enjoyed no preference in terms of Sect 84 of the Insolvency Act.

The appellants were ordered to pay the costs of the appeal.