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[2015] ZAWCHC 203
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Oro Africa (Pty) Limited v Currin (13051/2015) [2015] ZAWCHC 203 (17 December 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
CASE
NUMBER
: 13051/2015
DATE:
17 DECEMBER 2015
In
the matter between:
ORO
AFRICA (PTY)
LIMITED
.............................................................................................
Applicant
And
SHAUN NORMAN
CURRIN
...............................................................................................
Respondent
J
U D G M E N T
DAVIS,
J
:
This is
an opposed application in which the applicant seeks an order that
respondent be finally sequestrated. Respondent,
a chartered
accountant, was the chief financial officer of the applicant but
ceased working for it on 24 June 2015. Applicant
contends that
it has
locus standi
to bring the application as, in its view, respondent has defrauded it
of at least of R4.5m which the respondent owed a subsidiary
of the
applicant (ORO Africa and Design (Pty) Limited), a further amount of
R21 352.20 owed to the applicant in addition to
an amount of R15
077.13 (on the respondent’s own version).
The
applicant alleges that the respondent has committed an act of
insolvency by leaving South Africa in that he was out of South
Africa
and remained absent, having departed from his home with the intent of
evading or delaying the payment of his debts.
In addition,
applicant contends that respondent is factually insolvent given that
his liabilities exceed his assets. Applicant
alleges that this
application is to the advantage of creditors in that if respondent is
sequestrated, there would be a reasonably
significant dividend for
creditors. Trustees would also be able to investigate the
affairs of the respondent with a view
to setting aside various
transactions and ascertaining whether cash taken from the applicant
can be located.
In
response thereto, the respondent has raised a series of defences:
(1)
Respondent admits receiving money from the
applicant and its subsidiaries but claims that this was pursuant to
an oral agreement
in which he was granted a loan facility for up to
R5 million.
(2)
Respondent further contends that the loan
granted may be an affected by alleged non-compliance with certain
provisions of the National
Credit Act 34 of 2008 (‘NCA’).
(3)
Respondent further denies that he left
South Africa to avoid his creditors and avers that his absence from
South Africa was as a
result of a planned trip to Malawi.
(4)
He further contends that he is factually
solvent due,
inter alia,
to a loan of R4 687 521.00 which he made to Company Worx Group
(Pty) Ltd (‘Company Worx’) of which he appears
to be a
shareholder and which on the papers he appears to have founded.
The
basis upon which applicant argued the case before this Court was, as
Mr Irish, who appeared together with Mr Van Reenen on behalf
of the
applicant, contended, based almost entirely on the respondent’s
own version. Therefore applicant seeks to demonstrate
that it
is entitled to a final order of sequestration based on the version
which has been put up to this Court by respondent.
I turn
to deal with the various components of the case.
LOCUS
STANDI
:
Section
9(1)
of the
Insolvency Act of 1936
provides that:
““
A creditor (or his agent) who has
a liquidated claim for not less than £50 (R100) or two or more
creditors (or their agent)
who in the aggregate have liquidated
claims for not less than £100 (R200) against a debtor who has
committed an act of insolvency
who is insolvent may petition the
Court for the sequestration of the estate of the debtor.”
Section
9(2)
provides that:
“
A liquidated claim which is accrued but
which is not yet due on the date of the hearing of the petition shall
be reckoned as a liquidated
claim for the purposes of subsection
(1).”
As
shall become apparent later, this provision is of significance to the
disposition of this case. In this conection Meskin,
The
Law of Insolvency
at 2.1 writes:
“
A liquidated claim in this context is a
claim for an amount which is fixed either by agreement or by an order
of the Court or otherwise.
The mere fact that the claim is
disputed does not render it un-liquidated if nevertheless it is
capable of easy and speedy proof.
Thus, a claim for damages
whether arising in contract or delict which is yet to be quantified
by a judgment or agreement ordinarily
is an un-liquidated claim but a
claim for damages may be a liquidated claim, e.g., a claim for
damages in an amount equal to an
amount stolen where such latter
amount is established.”
In this
context, a claim is not a liquidated claim where its existence
depends on the fulfilment of the condition but it is a liquidated
claim where the condition relates only to the date for payment which
is not due as at the date of the hearing of the application
for
sequestration. A claim is not liquidated however where the
reason for why the payment thereof is not due is where the
creditor
has agreed to withhold proceedings against the debtor, pending the
fulfilment of a condition and this condition remains
unfulfilled.
Respondent
admits, save for the defences raised in terms of the NCA, that he
owes applicant money. His defence is that the
money is not yet
due but this point cannot be raised to dispute the applicant’s
locus standi
by virtue of
section 9(2).
As the Court stated in
Nedbank
Ltd v Fuls and Another
[2012] ZAWCHC
196
(12 November 2012):
“
More significantly the first respondent
never disputes that he owes the applicant a substantial sum of money
for the applicant have
locus standi
as a creditor that amount needs not be due.”
I
should add that this particular issue was hardly pressed by Mr
Tredoux, who appeared on behalf of the respondent.
THE
RESPONDENT’S LOAN:
The
respondent’s version of the loan agreement is that it was
authorised by applicant. In September 2013 he had a telephone
conversation with Mr Stephen Nathan, a director of applicant, while
Mr Nathan was overseas. Respondent’s case is that
he
asked for a loan in the amount of R5 million as he wanted “to
capitalise Company Worx Group (Pty) Ltd” and “perform
renovations on his property”. Respondent states that he
was not intent on investing in Company Worx Group (Pty) Ltd
but would
simply lend money to the entity.
As
stated in his opposing affidavit, respondent says:
“
In September 2013 I had a telephone
conversation with Stephen Nathan whilst he was in Italy at the time
and informed him that I
needed a loan with the applicant in the total
amount of R5 million. I knew that Stephen had the authority to
approve such
a loan. I explained to him that I wanted to
capitalise company Worx Group (Pty) Ltd, start-up company, which my
brother wanted
to start and which was going to be managed by my
brother and perform some renovation work on my properties. I
explained to
him that the way I was going to do that was not to
invest it in company Worx Group (Pty) Ltd by becoming a shareholder
of that
company, but simply as a loan to that company. I was
therefore to become the major creditor of company Worx Group (Pty)
Ltd.
Mr Stephen Nathan immediately approved the loan. It
was agreed that the loan would be interest bearing at prime and
unsecured.
It was also agreed that the loan will only be
payable on demand. These were the expressed terms of the
agreement between
the two of us but that tacit or implied terms of
the agreement was that I would draw such amounts as and when I need
from time
to time up to the limit of R5 million provided that all
drawings by myself had to be properly accounted for. The
further
tacit or implied terms of the agreement was obviously that
once repayment of this loan was demanded the applicant and I would
have
to agree on a structure for the repayment of the loan. The
Nathan brothers was (sic) fully aware at all times of my financial
position and that it would never have been possible for me to repay
an amount of R5 million in a lump sum simply on demand.”
Mr
Irish sought to interrogate the basis of respondent’s version
concerning the terms of the loan by firstly contending that
the
respondent had not appreciated the difference between a tacit and an
implied term of an agreement. A tacit term of a
contract would,
of course, in terms of trite law be established by reference to the
intention of the parties as opposed to an implied
term in which case
the intention of the parties would not be relevant. See
Alfred
McAlpine and Son (Pty) Ltd v Transvaal Provincial Administration
1974 (3) SA 506
(A) at 531;
Van der
Merwe
et al
Contract:
General Principles
(4 ed) at 241 and
the cases collected at fn 216.
As Mr
Irish noted, there was no basis on which an implied term has been
alleged or established on these papers. If respondent’s
contention was that a tacit term existed, then, in order to decide
whether this was so, it was important to examine the express
terms
of the contract.
In this
connection Mr Irish referred to
Pan-American
Airways Inc v Fire and Accident Insurance Company Ltd
1965 (3) SA 150
(A) at 175C:
“
When dealing with a problem of an
implied term the first enquiry is of course whether regard being had
to the expressed terms of
the agreement there is room for importing
the alleged implied term. The existence of the tacit term is
determined by the
bystander test.” See also Christie,
The
Law of Contract in South Africa
(6
th
edition) at 174-176.
Courts
have generally been slow to infer a tacit term for, as stated, in
City of Cape Town (CMC Administration) v
Bourbon’Lefty N.N.O
2006 (3) SA
488
(SCA) at 494I-495B:
“
It follows that a term cannot be
inferred because it would on application of the well known officious
bystander test have been unreasonable
if one of the parties not to
agree to it upon the bystander suggestion nor can it be inferred
because it would be convenient or
might therefore very well have been
incorporated in a contract if the parties have thought to bide the
time. A proposed tacit
term can only be imported into a
contract if the Court is satisfied that the parties would necessarily
have agreed upon such a
term if it had been suggested to them at the
time ... if the inference is that the response by one of the parties
to the bystander
question might have been that he would first like to
discuss and consider the suggested term, the importation of the term
would
not be justified. Manifestly the onus of proving the
terms of the agreement from which it relies rests on the respondent
who has alleged the existence of such a term.”
The
difficulty for respondent is that he has failed to provide evidence
required to establish a tacit term. There is no basis by
which he
discharged the onus which rested upon him. Further, the tacit
term alleged would contradict the express terms that
the loan would
be repayable on demand. In short, the passage from the
respondent’s affidavit, which I have cited, is
riddled with
contradiction and most certainly cannot justify the various versions
which were set out therein. A tacit term
cannot be established
on this version.
Furthermore,
the replying affidavit of Mr Gary Nathan demonstrates very clearly
that the importation of a term would never have
been tacitly agreed
to between the parties. Mr Nathan says:
“
Stephen
and I deny that any such alleged oral loan agreement was concluded
with the respondent. Stephen recalls no such conversation
and
no such loan agreement would have been entered into for the following
reasons:
1.
The notion that Stephen would authorise a loan of up to R5 million is
simply insane. The applicant
has never made such a large loan
to a director who is not a shareholder. There would never have
been such a loan to a member
of staff such as the respondent.
2.
Stephen would never have made such a decision without speaking to the
other directors of the applicant.
3.
There was no way a loan of R5 million would be granted without the
agreement being adduced to writing
and would never have been granted
without some form of security.
4.
The alleged terms are also bizarre in that there are no terms of
repayment, that could never have been
the case.
5.
Every other loan to directors bore interest at above prime.
There was no reason why the applicant
would lend money at prime. If
such a discussion happened (which it did not) then Stephen and the
respondent would have certainly
reduced it to writing. Stephen
was in Italy in September 2015 from 26 September 2015 until October
2015, a total of 4 working
days. He attended a London Bullion
Metal Association Conference and was in meetings all day and had
functions at night and
then returned to South Africa. It is
also very strange that the respondent would call Stephen who is a
non-executive director
of the applicant regarding the loan when I
(being the CEO, director and shareholder in the applicant) was
sitting in the office
next door. Stephen and I also deny that
respondent stated that he needed the loan to capitalise company Worx
Group (Pty)
Ltd or renovate respondent’s properties. This
allegation cannot be true as company Worx Group was only registered
in
2014, some months after the alleged loan. The allegation
that the loan was required to renovate the respondent’s
properties
(i.e. more than one) was also incorrect. In 2013 he
owed the sectional title unit only. It was only 2014 when he
purchased
the Lakeside property(sic). This is apparent from the
property searches attached to my founding affidavit. Respondent
also give no details of the renovation which he allegedly concluded.”
In
reply respondent has sought to rely on a number of documents to
support his claim that an authorised loan existed between the
applicant and himself. These documents included the following:
1. A draft
order report which stated that:
“
The
provision of financial assistance to related parties as defined per
the Companies Act that are loaned to S Currin (director
of a
subsidiary) and loan to G Nathan (director in ORO Africa) do not have
proof of written board approval.”
No terms of
the loan are set out and the applicants’ representative did not
notice that entry in the draft report.
2. The annual
financial statements of the applicant for the year ending 31 March
2014 wherein it was stated
that the amount of R18 688 137.00 were
“loans to directors, managers and employees”. This
document however describes
amounts as loans which would bear interest
at rates ranging from prime to prime plus 1.5 and have no fixed terms
of repayment.
3. A
certificate of loan balance for the year ending 31 March 2014 signed
by the respondent on 30 October
2014. On 28 November 2014 a
correct loan certificate was signed, in which the respondent stated
that R751 380.00 (and later
R766 457.00) was owing to the applicant.
Both these documents state
inter alia
that the loan was payable on demand.”
The
respondent also appears to justify the conclusion that the loan was
repayable on demand when he claims:
“
I stated that the capital amount
advanced by the applicant to me under the authorised loan agreement
is
R453 865 762.31. The
total amount repayable as at 31 July 2015 would have been R4 748
610.00 which would have included the
interest of amount R362 048.00
if not for the provisions of the National Credit Act 34 of 2015.”
This
statement was made in an answering affidavit in the application for
referral to oral evidence. It is thus a document
of which I can
take cognisance.
In
short, it appears that the major defence which was raised by the
respondent when all the various allegations are interrogated
is one
based upon the NCA. Respondent contends that the applicant was
obliged to register as a credit provider and that the
applicant’s
failure to register as a credit provider would render the loan which
it made to the respondent unlawful in terms
of section 89 of the NCA.
Curiously
in these papers the respondent states that he is prepared to pay back
the loan on reasonable terms if this Court should
decide that the NCA
is inapplicable. I shall return to this claim presently.
Mr Irish contended that the difficulty
for respondent was that the
NCA only applied in respect of agreements concluded between parties
acting at arm’s length.
Section 4 of the NCA, to the
extent that it is relevant, provides:
“
(1) Subject to sections 5 and 6
this Act applies to every credit agreement between parties at
arm’s
length
and made within or having an
effect within the Republic except (iv) any other arrangement (aa) in
which each party is not independent
of the other and consequently
does not necessarily strive to obtain the utmost possible advantage
out of the transaction.”
(my emphasis)
In
Guide to the National Credit Act
the following is said at para 4.2 about this particular issue:
“
A notional commercial arm’s length
transaction on interest assumes a lender will insist on payment of
the interest he charges
and a borrower able to pay that interest.
Our Courts have held that an agreement between close acquaintances,
at the interest
rate charged to the credit provider by his bank was
not “at arm’s length”. In the context of the
law of
insolvency and in particular with regards to the question of
whether a debtor had the intention to prefer his creditor, it has
been accepted that parties were dealing at arm’s length when no
relationship between them existed other than that of debtor
and
creditor. It has also been held “that at arm’s
length” means that each party is independent of the
other and
will therefore strive to get the utmost possible advantage out of
transaction for himself. This view has been codified
in the
National Credit Act.”
Significantly
in an another analogous area of law, namely the Income Tax Act 58 of
1962, as amended, and, in particular section
103(1) of that Act (the
old tax avoidance section), the concept of arm’s length was
interrogated very carefully by courts
in a number of cases. In
particular in
Hicklin v CIR
1980 (1) SA 481
(A) at 495A Trollip, JA, in dealing with the concept
of “dealing at arm’s length” for the purposes of
this section
said:
“
It connotes that each party is
independent of the other and in so dealing will strive to get the
utmost possible advantage out of
the transaction itself.”
Mr
Irish submitted that, in the light thereof, the loan agreement was
not concluded at arm’s length. The applicant and
respondent were not independent parties. The respondent was the
CFO of the applicant. The loan, on respondent’s
own
papers, was informally concluded, was not reduced to writing and
indeed no attempt had been made to conclude a written agreement.
The loan was unsecured which was “extraordinary”, in Mr
Irish’s view, bearing in mind the amount of the loan.
The
interest rate which was fixed at prime was a lower rate than that
which a commercial enterprise would have charged for such
a unsecured
loan. There were no fixed terms of repayment and, upon
respondent’s version, the applicant could only invoke
a demand
requesting payment, which importantly would be on respondent’s
own terms.
Significantly,
the nature of the loan appears in various contradictory documents
which are on the papers. For example in a
letter to the
accounting firm Grant Thornton on 30 October 2014 respondent writes:
“
I hereby certify that the amount of R75
138 owing by S Currin to the above company (applicant) at 31 March
2014 is correct and further
certify that (1) the amount owing is
secured as follows: unsecured, (2) the loan bears interest at
the rate of: interest
free, (3) the terms of repayment are as
follows: repayable on demand, (4) the company has issued the
following guarantees on or
provided the following security on my
behalf, movements of the loan account for the year as reflected in
the attached copy of the
ledger account are correct.”
There
is a further document which indicates that the entire interest
charged on an amount of R3 176 275,69 for the period September
2013
to December 2014 was R97 360.56. It thus appears that the
interest rate charged was less than 3%.
Mr
Tredoux submitted that each of the propositions which I have set out
and which form the basis of applicants’ contentions
regarding
the inapplicability of the NCA were open to serious question.
The
proposition that because the loan was unsecured and carried a prime
interest rate could not be invoked by the applicant because,
in his
view, it was clear that applicant had granted an unsecured loan to
Melamed Finance (Pty) Ltd in the amount of R5.8 million
at a prime
interest rate and a further loan to Sunset Point Properties ATA CC in
the amount of R4.6 million, although secured,
was also at a prime
interest rate. Further, the fact that the loan was informally
concluded could never on its own, in Mr
Tredoux’s view,
indicate that the parties were not independent of each other when the
loan was granted.
Mr
Tredoux also contended that the fact that there were no fixed terms
of repayment on respondent’s version was not unusual,
for
applicant granted loans to third parties on this basis.
Reference was made to a loan to Leuven Metals (Pty) which also
had no
fixed terms of repayment.
In Mr
Tredoux’s view, the applicant was left with one proposition,
namely that the respondent was the CFO and a senior manager
of the
applicant. Mr Tredoux submitted, on its own, this fact was not
sufficient to hold that the parties were not independent
of each
other. It was significant that the legislature considered
relationships in corporations and confined it to those
provided for
in section 4(2)(b)(i)(ii) of the NCA which clearly excluded
employees, irrespective of the seniority of the employee.
According
to Mr Tredoux,on a proper construction of section 4 of the NCA, it
had to be inferred that the legislature did not regard
loans to
senior employees as being covered by the exemption.
If this
Court follows the
Hicklin
test which in my view presents a correct interpretation of the
concept of arm’s length, as set out in the NCA, then
notwithstanding
the fact that it can be pointed that a couple of
other loans may well not have been arm’s length, does not on
its own detract
from a conclusion that the loan which respondent, on
his version, contends was made between himself and the applicant was
not concluded
arm’s length.
I
should, add that even if the agreement breaches the NCA, on its own
this would not be a sufficient defence to a claim. In
National
Credit Regulator v Opperman and Another
2013 (2) BCLR 170
(CC) the Constitutional Court stated at para 55:
“
The most plausible meaning of section
89(5)(c) is the one the High Court gave it. The interpretation
reflects what common
sense tells one the aim of the provision is, in
view of the NCA as a whole. Consumers have to be protected
against uncontrolled
credit providers and therefore credit providers
are required to register. Credit providers who do not register
in contravention
of the NCA face severe consequences; courts must
declare the agreement void and order either that all rights perceived
to follow
from the agreement (including the right to restitution) are
cancelled or forfeited to the State. In practice it may well
always be forfeited to the State.”
The Court in
Opperman
held that section 89(5)(c) of the NCA would result in
an arbitrary deprivation of property in breach of section 25(1) of
the Republic
of South Africa Constitution Act 108 of 1996.
Accordingly, at para 78, in dealing with the consequences of this
finding the
Court said:
“
As the High Court pointed out a credit
provider’s objective is to make money by way of interest.
A credit provider who
enters into a lawful agreement is not legally
entitled to the interest. Foregoing the interest is another
means to achieve
the aims of the NCA that is less restrictive than
the means employed by section 89(5)(c).
The effect of this decision is that section 89(5)(c)
of the NCA is invalid and the provisions thus has no effect on the
claim against
the capital of the debt.
An applicant may also have an enrichment claim
against the respondent in respect of the capital amount advanced,
which in this case
is R4 386 562.31, notwithstanding that the
defences insofar as the NCA might succeed.
Mr Tredoux submitted that in an
enrichment action, the defendant’s liability is confined to the
amount of his or her actual
enrichment at the time of the
commencement of the action. This would mean that where the
defendant’s enrichment is
diminished or lost before action is
instituted, his or her liability is likewise reduced or extinguished.
The
only authority which Mr Tredoux raised to support his argued was the
section on enrichment in LAWSA, Volume 9, authored by Lotz
and Brand
in which the learned authors state at para 209:
“
In an enrichment action, the defendant’s
liability is confined to the amount of his or her actual enrichment
at the time of
the commencement of the action. This means that
the defendant is not liable for benefits that he or she could have
derived
from the enriching fact but did not. It also means that
whether defendant’s enrichment is diminished or lost before
action is instituted, his or her liability is likewise reduced or
extinguished subject to the following qualifications:
(1)
From the moment that the defendant becomes
aware or should have been aware that he or she has been enriched,
sine causa
,
at the expense of another, his liability is reduced or extinguished
only if he is able to prove that the diminution or loss of
his
enrichment was not due to his own fault.
(2)
From the moment the defendant is in
mora,
the rule
mora debitoris perpetuat
obligationem
applies. From that
moment his liability to reduce or extinguished only if he is able to
prove that the event which diminished
or extinguished his enrichment
would also have operated against the plaintiff if performance had
been made timeously.”
Visser,
Unjustified Enrichment
cites this paragraph of Lotz and Brand and then notes that the limit
of the defence, as has been stated by these two authors, is
that from
the moment that the defendant becomes aware or should have been aware
that he has been enriched
sine causa
at the expense of another, his liability is reduced or extinguished
only if he is able to prove that the extinction or loss of
his
enrichment was not due to his fault.
Visser
at 736 states further:
“
[I]t should be noted that the question
whether a defendant has been unjustifiably enriched by the receipt of
money, should not be
regarded as having been permanently enriched has
also been raised in this country. Some argue (in particular De
Vos,
Verrykingsaanspreeklikheid
at 201ff (2
nd
edition)) that once the value of an estate has been increased by the
addition of the sum of money, it is impossible to trace the
fate of
the specific amount which later forms the object of the enrichment
action. The answer to this argument I believe
must be that this
is simply not so and the sophisticated law of tracing in common law
jurisdictions amply demonstrates that it
is not impossible to trace
the fate of a particular sum. Of course it will often be very
difficult and sometimes one will
in fact not be able to do so, but
that should not prevent the acceptance in principle of the notion
that a specified, identified
monetary value may be lost from an
estate.”
In this
case respondent did not plead any such extinction. This
argument appears to come as a desperate and last attempt to
stave off
the averments regarding enrichment. The very basis of
respondent’s defence to insolvency is predicated on
the
argument of a loan owing by Company Worx which exceeds the so-called
amount of money owing to applicant. Hence it is
not possible
for respondent to plead the very point that Mr Tredoux attempted to
raise in an attempt to stave off the obvious,
namely that the
respondent has been enriched. There is no basis on these papers
to show how the enrichment has been diminished.
Accordingly on
the clear application of the available law, there is an enrichment
claim which is sufficient to justify the basis
of applicant’s
case.
ACT OF INSOLVENCY
This
brings me to the question of the act of insolvency.
Section
8(a)
of the
Insolvency Act provides
:
“
A debtor commits an act of insolvency
(a) if he leaves a company or being out of the Republic, remains
absent there from or departs
from his dwelling or otherwise absence
himself with intent by so doing to evade or delay the payment of his
debts.”
Meskin
in
The Law of Insolvency
says at 2-65 in regard to this section:
“
The essence of each of these acts of
insolvency is that by the particular conduct the debtor has intended
to evade or delay the
payment of his debts. The test in relation to
the debtors intention is a subjective one but such intention is
established by a
process of inferential reasoning and is not
dependent on the mere
ipse dixit
of the debtor. Thus while his leaving the Republic or leaving his
dwelling gives rise to an inference that such intention was present,
it is insufficient in itself to justify a conclusion, even
prima
facie
that an act of insolvency has
been established since there may be other explanations for such
conduct. But the other circumstances
of a particular case e.g.
that the debtor owes numerous creditors substantial amounts and has
departed without any prior reference
to them or any attempt to
provide for satisfaction of their claims, may justify an inference
that the debtor acted with the requisite
intent. In determining
whether the requisite intention existed, the Court “must weigh
up all the relevant factors,
facts and circumstances in order to
determine what, on the balance of probabilities, was the dominant
operative or effectual intention
in substance and truth of the
debtor”.
Respondent
alleges that in February 2015 he and his father, who is employed in
Malawi, decided that the former would visit the latter
for one month,
sometime after 30 June 2015. On 24 June 2015 respondent decided
to depart to Malawi early on 26 June 2015.
Hower,
he sent an email to the Nathan brothers on 26 June 2015 calling for a
meeting at 2h00 pm as he intended to use the
skype
facilities in the applicants’ boardroom later that day.
At 1h36 pm on 26 June 2015 he wrote to the Nathan’s:
“
I have taken legal advice from my
attorney. I have been advised that I must not have further
direct communication with you.
Any further communication
between you and I will be via my attorney. I will therefore
need to postpone the 14h00 meeting
to a later date.”
This
email needs to be read in conjunction with one written on the same
day, that is on 26 June 2015 at 6h30 in which respondent
writes:
“
Let me start with a time frame; it is
now 6h30 in the morning on Friday 26 June 2015. On Wednesday 24
June 2015 I arrived
at the office and was called directly into Gary’s
office and then into a meeting where Fay was being confronted with
questions
and allegations being made. There were two matters
raised; the first regarding Faye’s alleged duplicating of
invoices
and alleged paying of these amounts into her bank account.
I say alleged as I was not privy to any information evidence and
could only go on what I heard in the morning. I made it very
clear in this meeting that I had no knowledge that this was
happening
and from my brief inspection of paperwork presented, I did not see my
signature on either document.
The second matter, there were amounts of R60 000.00
and R120 000.00 relating to petty cash which is alleged to have been
given to
me. I state that I did not receive these amounts and
for all amounts that I did receive from petty cash I paid into ORO
Africa
account from my personal bank account. Post Faye been
suspended Gary had a meeting with me and said that as I was in
control
of the department that the company is considering taking
legal action against me and that it is best that I leave now among
other
details.
The afternoon of Wednesday you started sending
threatening SMS’s to my phone. I received another
threatening SMS on
Thursday indicating I had stolen money which is
money I had on loan account.”
Respondent
then sets out a range of ‘facts’ and continues:
“
The fact is further that you and Gary
both had borrowed from ORO Africa as directors with no written
authority to do so. This
is not considered a threat?
It brings into question your motives given my
departure, I will bring into focus other potential irregulations for
which I require
further clarity that will cause question on your
credibility. If you have laid a charge please provide me with
your evidence
so that I can assess its validity and context? I
owe ORO Africa loan funds and interest. I intend fighting you
on this
matter of alleged theft as this is not true...I would like to
talk to you at ORO at 14h00 today to discuss the above and the
evidence.
I am attempting to get legal support to attend with
me. I request that prior to the meeting you send me the
evidence so that
I have an opportunity to review alternatively I will
do so without time in the meeting (sic).”
Mr
Irish submitted that respondent had left the country in order to
avoid repaying the applicant and hence in order to avoid his
obligations as he wanted to prevent a criminal prosecution. He
only returned to South Africa once he was assured by his attorneys
that he would not be arrested. In this connection, Mr Irish
referred to a letter generated by Liddell Weeber and Van de Merwe
Incorporated of 14 July 2015 to respondent which, inter alia, reads
thus:
“
I had several telephonic conversation
with Luzanne at ORO Africa. She has continued to promise to
send me the contact details
of their attorneys in the criminal case
number but to date I have not received anything from her. On
Monday 13 July 2015
I received a call from a person introducing
himself as Stephen Nathan who informed me
inter
alia
as follows; that he was presently
overseas and speaking to me from his mobile car phone, that he has
reported and opened a case
of theft at the Priority Crime Detectives
in Bellville and that the matter is being investigated by Lieutenant
Colonel Kellerman;
that Shaun has apparently absconded and the police
are looking for him at his various addresses to arrest him and that
the company’s
legal representative is also searching for him;
that he was not interested in my instructions that a loan account
existed and that
it amounted to nothing less than theft and fraud
totalling R4.5 million and a further half a million rand, both of
which are being
investigated by Lieutenant Kellerman .. After our
discussions it appears to be that Sergeant Jacobs is sharing my views
that this
was not a fraud matter but rather a civil matter and that
ORO Africa and its directors were attempting to engage the police in
pursuing a possible civil action against Shaun and that the matter
should not at all be in the criminal Court ... Sergeant Jacobs
assured me that there was no warrant for the arrest of Shaun and that
on the basis of which I had explained to him he would not
apply for
such a warrant until he had met with Senior Public Prosecutor next
week and obtained a decision in respect of prosecution.”
This
email has to be read together with the balance of respondent’s
own version. Regrettably respondent has not been
candid with
this Court. It is clear that, notwithstanding respondent’s
version, he must, on any basis, have left South
Africa on the morning
of 26 June 2015. At best for him, he would then have taken a
flight from Cape Town at either 06h00,
or at the latest at 07h00, in
order to catch the flight from Johannesburg to Malawi on that date.
There was absolutely no
basis by which he was going to, could have,
wanted to or was willing to attend a meeting at 14h00 in applicant’s
offices
on that day. Hence his version is a blatant lie. It is
regrettable that the respondent, as unfortunately has been the case
on more than one occasion in his papers, not been candid with this
Court. After all, he is a chartered accountant who should
maintain the highest standards of probity which is regrettably is
manifestly not the case.
Respondent
left South Africa in circumstances where he represented to the
(Nathan) to whom he owed a considerable sum of money,
that he would
present himself at their offices. The irresistible inference is
that the emails sent, particularly the one
at 06h30, was a subterfuge
and contained a commitment that could never be implemented.
Regarding the idea that the respondent
had a return ticket, as Mr
Irish correctly submitted, a return ticket to South Africa is a
necessity because it is not possible
for a foreigner to obtain the
necessary visa to enter Malawi without a return ticket. This
attempt at justification can thus
be discounted. However, it is
not strictly necessary for me to make a finding in this regard
because I can make the necessary
finding in respect of factual
insolvency.
FACTUAL
INSOLVENCY
Meskin
at 2.19 writes:
“
However one
may seek to establish act for insolvency directly by adducing
evidence of circumstances indicative thereof, e.g. the
fact that
debts remain unpaid or that the debtor sought a moratorium or that
his endeavour to compromise with his creditors. But
the Court must be
cautious in inferring insolvency from such circumstances. It is
submitted however that it suffices if such
an inference can be drawn,
notwithstanding that the precise amount of the deficiency is
uncertain.”
According
to the papers, respondent has listed assets in a schedule which are
attached to his answering affidavit. There are
low and high
values which are set out therein. On a low value of the various
assets, he claims that he has assets to the
value of R9 761 642.00.
On the high value, the amount is R11 339 476.00. Taking account
of bond and overdraft and a
loan to the applicant in the amount of R4
748 610.00, he lists his liabilities as R7 723 816.00.
Accordingly on this basis,
he is solvent on either account.
However the assets cited create certain difficulties.
Respondent
claims to have cash which is held by the applicant of R1 .2 million.
This is the most puzzling averment, namely
that the applicant holds
R1.2 million of respondent’s cash. On what basis this
claim is made, I do not know.
No explanation is provided, no
justification is given and this amount cannot be taken into account.
The inclusion of the respondent’s
pension fund is manifestly
incorrect because in terms of
section 23(7)
of the
Insolvency Act of
1936
, any pension fund is excluded from the insolvent estate.
Certain
of the properties were already sold. For example, the
Muizenberg property was sold not at the low value of R1.85 million
but for R1.65 million. Whatever the reason, the fact is that
R1.65 million was obtained. These figures significantly
reduce
the respondent’s assets. Crucially the question then
arises; what is the true value of the Company Worx loan?
Without this asset respondent’s estate is manifestly insolvent.
THE
COMPANY WORX LOAN
In his
answering affidavit respondent stated the following about the loan
which he made to Company Worx:
“
I have also provided for the loan
payable by Company Worx to me. In this regard I wish to annexe
a copy of certificate of
loan balance dated 31 July 2015 and signed
by my brother Wesley Currin evidencing the indebtedness of company
Worx to me in the
amount of R4 687 521.00.”
In an
application for referral of oral evidence, respondent in reply to the
criticism of the manner in which he had dealt with the
loan, sought
to set out the terms thereof. In his answering affidavit in
that application, he stated that on 18 March 2014
the respondent sold
the business of Growth Accountants to Company Worx for R3.5 million.
The sale was made up of a loan account
to Company Worx in the amount
of R3.5 million. This was not a cash loan however but a
convenient accounting entry.
As at
31 July 2014 the Company Worx loan was valued at R4 687 521.00.
There was also a cash amount of R990 260.00 which was
paid to
Company Worx. The terms of the loan to Company Worx is
evidenced from an undated agreement of loan facility which
provides
that respondent will not be able to demand payment of the loan for a
period of 3 years form the effective date, that is
3 years after 1
March 2014. At the end of the 3 year period the respondent and
Company Worx would mutually agree the payment
for the balance of the
loan facility and, if no agreement can be reached, respondent will
have the right to demand repayment from
1 March 2017.
Mr
Tredoux’s major argument was to rely on a judgment of Mantame,
J in which the learned Judge dealt with an application by
the
applicant; in this case for referral to oral evidence (case number
13051/2015: judgment of 30 October 2015). In her judgment
the
learned Judge said the following about the Company Worx loan:
“
I tend to agree with Mr Tredoux that
respondent would not have been expected to provide the details of
this loan. Company
Worx is indebted to the respondent and not
the applicant. Applicant does not have a right of recourse
against Company Worx
but against the respondent. If respondent
is satisfied with the terms and conditions of the loan, it is not for
the applicant
to question such a contract. It may be that
applicants’ suspicions were raised due to the proximity of the
relationship
between lender and the borrower. Again a company
is a distinct entity from its members. The business
relationship cannot
be confused with the personal relationship.
Besides the applicant has no right to undermine the value in
existence of an
independent company more especially that when the
loan was made it was not with Company Worx to put bear to the
applicant who is
the third party, with no interest to its existence,
their income and expenditure (sic).
In my view applicant should have made an
enquiry and / or investigation to respondent’s financial status
before approaching
this Court on an urgent basis for a provisional
order of sequestration. This application is based on suspicions
on the part
of the applicant that should have been investigated
before bringing the application. As the suspicions and / or
inferences
stand, they cannot even amount to probabilities, that they
can be ascertained from affidavits and be balanced to tilt the
scales.”
paras13-14
Mr
Tredoux also contended, on the strength of this passage from Mantame,
J’s judgment, that respondent’s valuation of
the loan
buttressed by the relevant loan agreements should be accepted without
more. If this is indeed what the learned Judge
said (and I am
by no means certain that this description does represent her finding)
it cannot be an accurate exposition of the
law. On the basis of
the general approach to affidavit evidence (see
Plascon
Evans Paints v Van Riebeeck Paints
[1984] ZASCA 51
;
1984
(3) SA 623
(A)) and towards provisional applications for
sequestration see
Kalil v Decotex (Pty)
Ltd and Another
1988 (1) SA 943
(A) at
980G-H, respondent must be able to dispute applicant’s
contentions on a reasonable and
bona
fide
basis.
This
means his “say so” is insufficient, as manifestly would
be the case in the present situation. That approach
can never
be the basis by which Courts resolve disputes with regard to these
matters. If this was the case, any valuation
claimed by
respondent would (trump) applicant. Accordingly, one must ask
the question, what is the value of the loan.
Meskin at para 213
says the following:
“
One may seek to establish actual
insolvency directly by adducing evidence of the debtors’
liabilities and of the market value
of his assets at the date of the
application. In relation to the valuation of the assets, it is
submitted that the same principles
obtained in the case of
determining whether liabilities exceed the value of assets for the
purposes of the application of
section 26
,
29
of the
Insolvency
Act.”
>
At the very least a ‘quick judicial peep’
is required into respondent’s claim.
In respect of these sections Meskin states:
“
In this context as in those of
section
29
,
30
of the
Insolvency Act, the
issue is to whether the insolvent’s
liabilities exceeded his assets at any particular date must be
determined on a balance
of probabilities. Such a determination
entails inter alia fixing at least the probable market value i.e.
temporary value
of each of the assets at such date…For the
purpose of proving insolvent’s liabilities at the relevant
date, reliance
may be placed on the accepted proof of debt which are
admissible as
prima facie
proof of the liabilities as at the date of sequestration and as such
affording some evidence for the amount of the liabilities
at the
former date. Reliance may be placed also on the insolvent’s
books and records which are admissible insofar as
they afford prima
facie evidence of his liabilities. In evaluating evidence in
this context one may not presume that an insolvent’s
financial
position at the one date was unchanged at another. It is
submitted that in this context as in those sections of
29, 30 of the
Insolvency Act the
liabilities envisaged are exclusively actual and
contingent liabilities i.e. a liability which by reason of existing
vinculaum juris
between the creditor and the debtor may become an enforceable
liability on the happening of some future event. Hence
liability
under a suretyship would qualify as an actual liability in
this context.”
What is
the value of this loan? In an application to Investec Bank
Limited for a loan in a document which appeared somewhat
later in the
papers, respondent generated the following in an email to Mr
Samsodien of 14 October 2014:
“
Hi Hashiem. I can confirm a
meeting for 14h00 at Investec. Please can you arrange parking
for me in the interim, this
is my thinking. I have been banking
with Investec Private Bank since 2002 (12 years). All my
personal banking is with
Investec and I have no debt or accounts as
of today (one may ask what all happened to the debt owing to
applicant). As you
are aware I have started Company Worx (Pty)
Ltd, a private company, which provides a suite of simplified
accounting and administrative
services ... Company Worx does bank
with Nedbank because the commercial service that are offered are in
line with our strategy
and requirements. I want to take out a
personal loan of R3 million in a secured manner.”
Respondent
then lists his assets and liabilities and significantly includes the
following:
“
Loan to CW, that is Company Worx, of
R1,400.00. This is a loan to Company Worx. The company
has about R325 000.00 in
cash. The remainder of the loan is
goodwill and start-up expense funding.”
Respondent
continues:
“
I am seeking R3 million personal loan
finance repayable monthly over 20 years at an interest rate of 9.25%
(prime) and I am offering
the following security and in return.”
I
should add that he then writes as follows:
“
I am a 100% shareholder of Company Worx
(Pty) Ltd which has a 100% of the Company Worx entities. I will
provide an irrevocable
option to Investec to acquire the shares in
company Worx in the event of my default on the personal loan.”
This
last claim is clearly incongruent with that which we now know when
the papers are read as a whole. By now respondent
was no longer
a shareholder. The fact that the loan was set out at R1.4
million clearly created some level of justified concern.
As a
result I afforded respondent an opportunity to file a further
affidavit to explain the discrepancy between the R1.4 million
and the
R4.5 million which is claimed by him in these proceedings as being
the value of the loan. Respondent provided a further
answering
affidavit in which he said:
“
In the email to Investec the value of
the loan from me to CWJ was disclosed at R1.400.000. I was
referred to the cash that
CWJ had valuable at the time and the
goodwill being the intangible assets consisting of Intellectual
Property. At the date
of drafting the email it was prudent for
me to assess the value of the loan for recoverability of the
following reasons:
The majority of the R4351067.23 loan balance was made
up of R350000.00 constituting the purchase price of Intellectual
Property
...
The companies in the Group had only been training
from 1 March 2014 which is less than 9 months at the time and the
revenue and
the costs of the business when considered prudently and
conservatively could not support the full valuation of R3500 000.00
as
on 14 October 2014.
I believe that disclosing the loan of my estimated
recoverable value was the honest and open approach that would be
expected of
a chartered accountant in preparing proposed notes for
discussion with Investec and further detail would have been discussed
later
should Investec have been interested in pursuing the proposed
loan facility.
The assessment of the loan value and recoverability
was considered informally as this email was simply a proposal,
therefore I did
not perform detail calculations to support such an
assessment at the time. There are therefore no contradictions
as alleged
by the applicant. The applicant has decided to draw
inferences from this email without thorough investigation consistent
with the theme in this case.
I have requested the management of CWG to
provide me with a report on the recoverability of my loan to CWG as
it is repayable on
1 March 2017.”
As a
result, there is a further affidavit deposed to by Mr Kronk, who
described himself as the general manager of Company Worx.
He
provides a report in which he estimates that by March 2017 Company
Worx will have generated R5.9 million of profit after tax
and hence
if one takes these calculations, this would then mean that by this
date the full amount of respondent’s loan could
be repayable.
There
are many different ways in which to respond to this argument.
In the first place these are only calculations, admittedly
based on a
relatively conservative 11% growth rate consistently through a period
of leading up to 2017. These are however
figures which are
based on nothing more than speculation. There is no guarantee
that a few months of growth will be reproduced
consistently.
With start-up companies it is notorious that to evaluate them at an
early stage is extremely difficult; hence
the risky nature of such on
investment.
Leave
this observation aside; if one looks at the position at November
2015, then between October and November on figures which
I presume
are more accurate, the company finally made a profit of R20 807.00 in
October and R141 998.00 in November.
If the approach is
followed, which the respondent, as a responsible accountant adopted
with Investec, the loan would have to be
valued today for the
purposes of an insolvency calculation. One could not value the
loan in March 2017. In short, respondent
has, in effect, given
two contradictory versions, only one of which can be correct.
That
one which is correct is most likely the one he adopted with Investec,
namely a value of the loan in terms of its prospects
of recovery
today, not in a year and a half time on speculative figures.
Manifestly there is no basis by which Company Worx
can repay the loan
today nor tomorrow. Its value for the purposes of insolvency
can never be R4.9 million. It must
be vastly less.
This
therefore means that if the loan is reduced drastically, it is clear
that respondent is factually insolvent. According
to the
figures/assets which will be recoverable, the amount of assets will
be R1 235 736.00. This is the probable financial
picture as at
December 2016. It means that, as Mr Irish has described the position
of respondent, he is in a hopelessly insolvent
state.
As a
result it must follow that the only question is whether there is an
advantage to creditors. On the basis of the figures
offered by
applicant there would be a dividend of something around 27c in the
rand. Given the mendacity which has been
shown in this
case, even on respondent’s own version, there is an obvious and
pressing need for an independent enquiry into
respondent’s
estate which can be done by trustees who would be empowered to so do.
IN
THE RESULT THEREFORE, ALL OF THE DEFENCES MUST BE REJECTED. THE
PROVISIONAL ORDER IS MADE FINAL.
DAVIS,
J