Education and Training Unit NPC v Mwanandimai (38645/22) [2025] ZAGPPHC 829 (21 August 2025)

Case Note

Education and Training Unit NPC v Edward Mwanandimai
High Court of South Africa, Gauteng Division, Pretoria
Case No 38645/22 — Judgment delivered 21 August 2025

Reportability

This judgment is reportable because it deals comprehensively with three recurring questions in South African insolvency litigation: (a) the evidential status of “without-prejudice” correspondence relied on to prove an act of insolvency; (b) the interaction between alleged factual solvency and statutory acts of insolvency under section 8 of the Insolvency Act 24 of 1936; and (c) the content of the “advantage to creditors” requirement when substantial but opaque assets are asserted. The decision synthesises earlier authorities, clarifies the circumstances in which admissions of indebtedness or inability to pay contained in privileged negotiations can nevertheless be used, and re-affirms the wide investigative purpose of sequestration where assets are concealed or uncertain. For these reasons the judgment is of interest to both insolvency practitioners and the broader commercial bench and bar.

Cases Cited

Jili v South African Eagle Insurance Co Ltd 1995 (3) SA 269 (N)
Naidoo v Marine and Trade Insurance Co Ltd 1978 (3) SA 666 (A)
MacKay v Cahi 1926 (4) SA 193 (O)
Absa Bank Ltd v Hammerle Group (Pty) Ltd 2015 (5) SA 215 (SCA)
Chenille Industries v Vorster 1953 (2) SA 691 (O)
Standard Bank of South Africa Ltd v Court 1993 (3) SA 286 (C)
Goldblatt’s Wholesalers (Pty) Ltd v Damalis 1953 (3) SA 730 (O)
Lynn & Main Inc v Naidoo 2006 (1) SA 59 (N)
De Waard v Andrew and Thienhaus Ltd 1907 TS 727
Absa Bank Ltd v Rhebokskloof (Pty) Ltd 1993 (4) SA 436 (C)
Van Wyk Von Ludwig & Hanekom Inc v Ferguson [2001] 2 All SA 592 (C)
Wilkens v Pieterse 1937 CPD 165
Paarl Wine & Brandy Co Ltd v Van As 1955 (3) SA 558 (O)
Standard Bank v Van Zyl 1999 (2) SA 221 (O)
Meskin & Co v Friedman 1948 (2) SA 555 (W)
Hillhouse v Stott; Freban Investments (Pty) Ltd; Botha v Botha 1990 (4) SA 580 (W)
Dunlop Tyres (Pty) Ltd v Brewitt 1999 (2) SA 580 (W)
Realizations Ltd v Ager 1961 (4) SA 10 (N)
Trust Wholesalers & Woollens (Pty) Ltd v Mackan 1954 (2) SA 109 (N)

Legislation Cited

Insolvency Act 24 of 1936
(No other legislation was determinatively applied.)

Rules of Court Cited

The judgment did not turn on any specific Uniform Rule; no particular rule is cited in the reasons.

HEADNOTE

Summary

The applicant, Education and Training Unit NPC (ETU), sought a final sequestration order against its former accountant, Edward Mwanandimai, after uncovering a sophisticated misappropriation of funds exceeding R17 million. ETU relied on three separate acts of insolvency contemplated in sections 8(c), 8(e) and 8(g) of the Insolvency Act. The respondent opposed the application, claiming factual solvency in excess of R145 million, disputing the quantum of the indebtedness, and contending that sequestration would yield no advantage to creditors.

The court ruled that two letters written by the respondent’s attorneys, though marked “without prejudice”, contained unequivocal notices of inability to meet debts and thus constituted section 8(g) acts of insolvency. Payments totalling approximately R2,25 million to a preferred creditor (Mr Pillay) at a time when the respondent professed inability to meet ETU’s claims were held to be dispositions in fraudem creditorum and therefore acts of insolvency under section 8(c).

Finding that the respondent had failed to give a frank and verifiable account of his asserted wealth, the court held that a trustee’s investigation under the Insolvency Act would probably locate and realise assets for the benefit of the concursus creditorum. A final sequestration order was accordingly granted.

Key Issues

Whether “without-prejudice” correspondence may prove an act of insolvency
Distinction between factual solvency and statutory acts of insolvency
Threshold for “advantage to creditors” where the debtor claims large but unsubstantiated assets
Court’s residual discretion once the section 12 facta probanda are satisfied

Held

1. Statements in the September and October 2021 letters amounted to written notices of inability to pay debts, satisfying section 8(g).
2. Preferential payments to Mr Pillay constituted dispositions intended to prejudice ETU and triggered section 8(c).
3. The respondent’s unverified balance sheet did not rebut the applicant’s prima facie case; his lack of candour justified scepticism under De Waard v Andrew & Thienhaus.
4. There was good reason to believe sequestration would benefit creditors through a trustee’s investigation of opaque assets and questionable dispositions.
5. The court exercised its discretion in favour of granting a final sequestration order.

THE FACTS

During 2014–2020 the respondent served as accountant for ETU. Over this period he diverted numerous payments intended for SARS and other creditors into accounts controlled by himself or his company, Lopdale Services and Investments (Pty) Ltd. He also fabricated suppliers, invented a fictitious employee on the medical aid scheme, manipulated payroll data and installed unauthorised debit orders.

Once his conduct surfaced, an internal forensic audit confirmed misappropriations exceeding R17 million, with a reconciled capital debt of R6 797 715.60. Confronted, the respondent signed a detailed acknowledgment of debt (AOD) on 11 September 2020 admitting theft “in excess of the capital debt”. He made intermittent repayments totalling R7,1 million and allegedly paid SARS R6,24 million on ETU’s behalf, but by July 2021 more than R11 million remained outstanding.

Two letters from his attorneys followed. On 6 September 2021 the respondent offered to settle R1 777 000 in monthly instalments of R100 000, citing Covid-19 and civil unrest as reasons for reduced capacity. On 11 October 2021 he proposed paying R10 907 928.90 over 72 months. Meanwhile he and Lopdale Energy (Pty) Ltd acknowledged owing R18,75 million to investor Mr Pillay and effected payments of at least R2,25 million from the respondent’s own business account and about R12,55 million from related company accounts.

THE ISSUES

First, did the two “without-prejudice” letters constitute admissible evidence of acts of insolvency under section 8(g)? Second, did the payments to Mr Pillay amount to prejudicial dispositions under section 8(c)? Third, notwithstanding the respondent’s claim of sizable assets, had the applicant shown a reasonable prospect of benefit to creditors? Finally, should the court exercise its discretion to grant a final sequestration order?

ANALYSIS

The court began by interrogating the evidential status of the September and October 2021 letters. Relying on Jili v South African Eagle Insurance and Naidoo v Marine & Trade Insurance, the court reiterated that the “without-prejudice” label does not shield admissions of insolvency, because public policy demands that such admissions be available to creditors and to the court in sequestration proceedings. Objectively construed, the letters conveyed an inability to meet debts except by extended instalments and thus satisfied section 8(g).

Turning to the payments to Mr Pillay, the court applied the test in section 8(c). The respondent’s diversion of substantial funds to a single creditor at a time when he sought indulgence from ETU constituted a disposition intended to prefer that creditor and prejudice others. The court rejected the respondent’s argument that the payments were made by separate corporate entities, noting that bank records traced funds from his personal business account and related companies under his control.

The respondent’s alleged solvency rested on a self-produced balance sheet (“EM1”) showing assets of R153 million, but it contained arithmetic errors and lacked supporting documents or a confirmatory affidavit from the accountant. Following De Waard and Absa Bank v Rhebokskloof, the court held that a debtor who pleads lavish solvency yet does not pay an admitted debt invites scepticism. The respondent’s failure to make even reduced instalments, coupled with opaque asset disclosures, left the applicant’s prima facie case of insolvency unrebutted.

Finally, on advantage to creditors, the court adopted the Meskin & Co v Friedman approach: it is enough to demonstrate a reasonable, non-remote prospect of pecuniary benefit. Here the respondent claimed four immovable properties and substantial shareholdings; a trustee armed with sections 80bis and 82 could realise those assets or investigate further dispositions. The court regarded the potential recovery, coupled with preventing further preferential payments, as a tangible advantage warranting sequestration.

REMEDY

The court placed the respondent’s estate under final sequestration, vested control in the Master pending the appointment of a trustee, and directed costs in the ordinary course.

LEGAL PRINCIPLES

First, correspondence marked “without prejudice” is not invariably privileged; where it objectively conveys an admission of inability to pay, it is admissible to prove an act of insolvency because public policy favours transparency in insolvency proceedings.

Second, a debtor’s factual solvency is irrelevant once a creditor has proved an act of insolvency under section 8; nevertheless, if the debtor asserts solvency, the onus rests on him to furnish cogent, verifiable evidence. Bald or error-laden balance sheets will not suffice.

Third, to satisfy the “advantage to creditors” requirement it is unnecessary to show existing free assets; it is enough to demonstrate a reasonable prospect that a trustee’s statutory powers of investigation and realisation may yield a dividend or prevent further prejudice.

Fourth, preferential payments made while professing inability to pay another creditor constitute dispositions that trigger section 8(c), irrespective of whether the funds flow through interposed corporate entities under the debtor’s control.

Fifth, once the three statutory elements of section 12(1) are proved, the court retains a discretion but will rarely refuse sequestration unless compelling equitable considerations suggest otherwise.

These principles collectively reinforce the protective and investigative purpose of South African insolvency law, ensuring that debtors cannot shield assets behind procedural privilege or opaque corporate structures.