- in Asia
- within Tax, Law Department Performance and Consumer Protection topic(s)
Purpose, Development & Constitutional Evolution
When it comes to corporate insolvency, few provisions have sparked as much legal and constitutional debate as Section 417 read with Section 418 of the Companies Act 61 of 1973. These sections empower liquidators to investigate the affairs of a company in winding-up, but they also raise important questions about fairness, privacy, and constitutional rights.
The Purpose: A Tool for Transparency
Section 417 was designed as an investigative mechanism. It allows the Master or the Court to summon individuals who may have knowledge of the company's affairs and examine them under oath. Section 418 complements this by enabling the appointment of a commissioner to conduct the enquiry, often a magistrate or legal practitioner.
Together, these sections aim to:
- Uncover hidden assets,
- Identify misconduct,
- Assist in the recovery of funds for creditors.
They are not adversarial proceedings, but rather fact-finding missions – a crucial distinction.
How the Process Works
Once a company is in liquidation, the liquidator may apply to the Master or Court to convene an enquiry. Witnesses are subpoenaed, examined under oath, and required to produce relevant documents. Legal representation is permitted, and the proceedings are recorded.
Importantly, these enquiries are not criminal trials, but the information gathered may inform future civil or criminal action.
Constitutional Challenge and Legislative Reform: Ferreira v Levin
Initially, Section 417 permitted the compelled examination of individuals, even where such testimony was self-incriminating – and critically, it allowed that evidence to be used in subsequent criminal proceedings. This raised significant constitutional concerns.
In the landmark case Ferreira v Levin, the Constitutional Court held that this violated the right to remain silent and not to be compelled to give self-incriminating evidence, as protected under Section 35 of the Constitution. Justice Ackerman, delivering the judgment, stated:
"When the principle of the duty to reveal all material information is balanced against the privilege against self-incrimination, the scales come to rest in such a way as to compel the production of the testimony, while ensuring that it is not used in evidence at a criminal trial."
As a result, the Act was amended to include Section 417(2)(c), which now provides statutory immunity: Any self-incriminating evidence given during the enquiry cannot be used in criminal proceedings except in very specific circumstances stated in the act.
This amendment reflects a deliberate effort to reconcile the need for thorough investigation in liquidation proceedings with the imperative to uphold constitutional rights.
Conculsion
Section 417 read with Section 418 remains a powerful tool in the liquidator's arsenal – but it is one that must be exercised with care, respect for constitutional rights, and procedural fairness.
This article forms part of a series exploring the nature and function of Section 417 read with Section 418 enquiries, with a focus on the roles, responsibilities, and rights of each participant – from commissioners and legal representatives to witnesses and affected parties.
Coming up in Part 2, we'll explore the responsibility and scope of power of the Commissioner, and how their role is shaped by the constitutional right to remain silent under Section 35.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
