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[2021] ZAWCHC 176
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Silkstar 178 (Pty) Limited v Smit (11494/2020) [2021] ZAWCHC 176 (3 September 2021)
IN THE
HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case No:
11494/2020
In
the matter between:
SILKSTAR
178 (PTY) LIMITED
Applicant
and
WILLEM
ADRIAAN
SMIT
Respondent
Date
of hearing: 30 August 2021
Date
of judgment: 3 September 2021
JUDGMENT
SAVAGE
J:
Introduction
[1]
The applicant,
Silkstar 178 (Pty) Limited (“Silkstar”), seeks the
provisional sequestration of the respondent, Mr Willem
Adriaan Smit,
arising from his indebtedness to Silkstar in the amount of
R1 047 214,43 under a written agreement of suretyship.
[2]
The undisputed facts
are that Mr Johannes Viviers, a director of Silkstar, entered into a
loan agreement with the ABP Group (Pty)
Ltd (“ABP”),
represented by Mr Smit, on 19 June 2018. In terms of the agreement an
amount of R700 000,00 was loaned
by Silkstar to ABP. The loan
agreement recorded that ABP was indebted to Silkstar in the total
amount of R1 221 750,00,
made up of the loan amount of R700
000,00 and additional amounts of R205 000,00 and
R316 750,00. The R205 000,00
debt arose from funds advanced
by Silkstar to ABP in relation to the lease of an excavator used by
ABP at Optimum Coal Mine. After
the mine was placed under business
rescue Mr Smit and Mr Brett Pritchard assured Mr Viviers that ABP
would repay Silkstar but proposed
that to do so Silkstar advance a
further loan of R700 000,00 to ABP in order to enable it to
start its specialised crusher
plant machine so as to generate funds
to pay Silkstar. Silkstar agreed to make the further loan to ABP on
the basis that both Mr
Smit and Mr Pritchard sign written suretyships
in favour of Silkstar in respect of ABP’s indebtedness; and
that ABP register
a notarial bond for the amount of R905 000,00
over the crusher plant in Silkstar’s favour. The written
suretyship agreements
were signed on 19 June 2018. Although both Mr
Smit and Mr Pritchard indicated to Mr Viviers that the crusher plant
machine belonged
to ABP, it later transpired that this was not the
case and that no notarial bond had been registered over the machine
in favour
of Silkstar.
[3]
ABP made payment of
the first instalment under the loan agreement in the amount of
R174 535,37, but the second payment due
on 31 August 2018 and
subsequent payments thereafter were not paid. On 17 September 2018
letters of demand were sent by Silkstar
to ABP, Mr Smit and Mr
Pritchard. Mr Viviers was shortly thereafter informed that ABP was to
be placed in business rescue, with
the special resolution to this
effect signed on 7 September 2018 and business rescue practitioners
appointed on 14 September 2018.
[4]
On 1 November 2018 Mr
Viviers was told that no notarial bond had been registered over the
crusher plant in favour of Silkstar. He
stated that he was
“completely flabbergasted” when he found out on 5
November 2018 that Mr Smit and Mr Pritchard had
been dishonest in
claiming that the APB owned the crusher plant when in fact it did
not. Mr Pritchard in a meeting did not dispute
that this was so, with
Mr Viviers stating that had he known this fact he would not have
agreed to loan APB a further R700 000,00.
Basis of
application
[5]
In his founding
affidavit filed in support of the application for provisional
sequestration Mr Viviers stated that as surety Mr
Smit is indebted to
Silkstar in the amount of R1 047 214,43 and that -
“
Notwithstanding
the letter of demand addressed to [Mr Smit] wherein payment of the
aforementioned amount is claimed, [he] has not
affected any payment
to [Silkstar]. The only reasonable inference that can be drawn from
[his] failure to effect payment to [Silkstar]
is that [Mr Smit] is
factually insolvent. If [he] was solvent, he would have paid the
admitted debt.”
[6]
The relevant company
and deeds office searches undertaken on behalf of Silkstar indicated
that Mr Smit is a director of various
companies and the owner of one
immovable property situated in Cape Town, which was purchased in
December 2016 for the amount of
R925 000,00. It was said that his
sequestration would be to the advantage of creditors when Silkstar
had been “blatantly
defrauded” by Mr Smit and Mr
Pritchard, and that the further loan amount would not have been
advanced had it been known that
ABP did not own the crusher plant. Mr
Viviers expressed his view that a trustee should be appointed to
investigate the financial
affairs of Mr Smit as this was the only
hope of recovering Silkstar’s debt.
[7]
The application for
provisional sequestration was opposed by Mr Smit on the basis that
there is no evidence to prove that he is
factually insolvent in that
the immovable property owned by him is “
valued
conservatively at R1 300 000”
;
that an agreement was entered into between the parties to discharge
the debt of ABP to avoid litigation which constituted a
pactum
de non petendo in anticipado
;
and that while he signed the suretyship agreement, he did so in error
in that he did not intend to agree to the renunciation of
benefits
recorded in such agreement.
[8]
In reply Mr Viviers
produced a deeds office search from which it was apparent that First
Rand Bank holds a mortgage bond registered
over Mr Smit’s
property for the amount of R825 000,00. Mr Smit was invited to
seek to file a further affidavit to explain
what amount remains
outstanding to First Rand Bank but no further affidavit was filed by
Mr Smit.
Submissions
of the parties
[9]
It
was submitted for Silkstar that Mr Smit
is
clearly a major creditor of the respondent who
cannot
realistically dispute its indebtedness to it. From the papers it is
evidence that he is factually insolvent in that his liabilities
exceed his assets and that despite the opportunity afforded to him to
show differently, the contrary has not been proved. There
is reason
to believe that there will be an advantage to creditors if his estate
is sequestrated and in this regard our courts have
emphasised
repeatedly that the wishes of an unpaid creditor is a serious
consideration to be taken into account.
[1]
Consequently
Silkstar seeks that Mr Smit’s estate be placed under
provisional sequestration.
[10]
In opposing the
application Mr Smit states that he is solvent. He disputes that it
has been shown that he is insolvent, with no
factual or legal basis
advanced to show this and that Silkstar is using the application as a
means of debt enforcement. Although
he relies on an agreement
apparently concluded between the parties to discharge the debt of
ABP, this agreement was not produced.
Nevertheless, he states that
the intent of such agreement was to avoid litigation, submitting that
it could be deemed a
pactum
de non petendo in anticipado.
While he admits
having signed the suretyship agreement on behalf of ABP, he denies
that it was ever his intention to renounce the
benefits of and states
that this would be a matter for evidence.
Discussion
[11]
Section 9(1) of the
Insolvency Act, No. 24 of 1936 (“the Act”) permits a
creditor with a liquidated claim “
who
has committed an act of insolvency, or is insolvent,
…
[to]
petition
the court for the sequestration of the estate of the debtor
”
.
In terms of section 10 of the Act, a provisional order of
sequestration may be granted where “the court… is of the
opinion that
prima
facie
–
(a)
the petitioning creditor has established against the debtor a claim
such as is mentioned
in subsection [9(1)]; and
(b)
the debtor has committed an act of insolvency or is insolvent; and
(c)
there is reason to believe that it will be to the advantage of
creditors of the debtor
if is estate is sequestrated…”
.
Claim
established
[12]
The current
indebtedness of ABP under the 2018 loan agreement concluded with
Silkstar is not disputed by Mr Smit, nor is the fact
that he
concluded the written suretyship agreement expressly binding himself
as –
“…
surety
for and co-principal debtor jointly and severally with [ABP]…to
Silkstar…for the due and punctual performance
by the debtor of
all its obligations to the creditor whether presently due, owing and
payable or becoming due, owing and payable
in the future”
.
[13]
Mr
Smit’s contention that although he signed the suretyship
agreement, he did not intend to renounce the benefits be would
ordinarily enjoy and only became aware that he had done so when he
met with his lawyers, is without merit. A surety that signs
a
suretyship as “
surety
and co-principal debtor
”
ipso
facto
renounces
the benefit of excussion and division.
[2]
The
suggestion that a unilateral mistake exists in relation to the
agreement does not create
a
factual dispute which requires determination when it is not contended
that the agreement does not reflect the common intention
of the
parties and there is no attempt to seek a rectification of such
agreement.
[3]
[14]
In such
circumstances the belated attempt to rely on an alleged unilateral
mistake is no more than an opportunistic attempt to avoid
liability.
It does not provide a legal defence, nor does it advance a
bona
fide
or
reasonable basis on which to dispute Silkstar’s claim.
Furthermore, without more, the purported reliance on an agreement
which is alleged to constitute a
pactum
de non petendo in anticipado
, but which
is not placed before this Court, takes the matter no further. This is
so since the terms of such agreement are simply
not disclosed. It
follows that such averment similarly does not provide
a
bona fide
or reasonable dispute
to Silkstar’s claim.
Factual
solvency
[15]
Mr
Smit suggestion that his failure to respond to Silkstar’s
letter of demand is not a sufficient basis upon which to infer
that
he is factually insolvent and that no evidence has been put up to
allow the Court to find that his liabilities exceed his
assets, is
equally lacking in merit.
As
is made clear in Bertelsmann
et
al
,
Mars:
The Law of Insolvency in South Africa
[4]
a
debtor’s factual solvency is to be established on a balance of
probabilities in the sense that clear proof, but not necessarily
the
clearest proof, must be advanced that the debtor’s liabilities
as a fact exceed his assets.
The
affidavits before this Court show clearly that Mr Smit’s
liabilities exceed his assets and that he is unable to pay his
debts
due to his factually insolvency. The opportunity provided to Mr Smit
to show differently was not grasped by him, with him
electing instead
to advance as little information on the issue as possible to
enlighten the Court.
[16]
It
remains so that, in the words of
Innes
CJ in
De
Waard v Andrew and Thienhaus Ltd
:
[5]
“
Speaking
for myself, I always look with great suspicion upon, and examine very
narrowly, the position of a debtor who says: “I
am sorry that I
cannot pay my creditor, but my assets far exceed my liabilities”.
To my mind the best proof of solvency is
that a man should pay his
debts; and therefore I always examine in a critical spirit the case
of a man who does not pay what he
owes.”
[17]
The
submission advanced for Mr Smit that new material pertinent to his
financial position could not be put up in reply by Silkstar
is, on
the facts of this matter, without foundation. In reply Mr Viviers
responded to the information raised by Mr Smit in his
answering
affidavit. As much is the purpose of a replying affidavit. This new
information put up by Mr Viviers related to the mortgage
bond
registered over Mr Smit’s property. While it is so that t
he
general rule in motion proceedings is that the applicant must make
out its case in the founding affidavit and that new matter
is not be
introduced in the replying affidavit, this is neither an inflexible
nor absolute rule. In
Shepherd
v Mitchell Cotts Seafreight (SA) (Pty) Ltd
[6]
recognising
the general rule, the Court made clear that there will exist
circumstances in which it is apposite to allow new matter
to be
introduced in a replying affidavit. Since it was impossible for
Silkstar to have a full knowledge of all facts relevant
to Mr Smit’s
financial affairs before it launched the application, it was apposite
and appropriate for it to put up the information
it had obtained
relating to the mortgage bond registered over Mr Smit’s
property for the first time in reply. This was so
given that Mr Smit
in detailing the value of his immovable property had failed to
provide such information himself. Given his recognition
that this
constituted new material, Mr Viviers appropriately invited Mr Smit to
seek to place a further affidavit before this Court
to answer to this
material. He failed to do so.
[18]
It follows that having regard to the information placed before this
court, it has been shown prima
facie by Silkstar that Mr Smit’s
liabilities exceed his assets and that he is factually insolvent.
Advantage
to creditors
[19]
While
it has been recognised that the best judges of their own interest are
creditors themselves,
[7]
it
is the court which must ultimately be satisfied that sequestration is
to the benefit of creditors and the
ipse
dixit
even
of a sole creditor not being decisive
.
[8]
In
Meskin
& Co v Friedman
[9]
it
was stated that:
“
(T)he
facts put before the Court must satisfy it that there is a reasonable
prospect – not necessarily a likelihood, but a
prospect which
is not too remote – that some pecuniary benefit will result to
creditors. It is not necessary to prove
that the insolvent has
any assets. Even if there are none at all, but there are
reasons for thinking that as a result of
enquiry under the
[Insolvency Act] some may be revealed or recovered for the benefit of
creditors, that is sufficient”.
[20]
In
Stratford
and Others v Investec Bank Ltd and Others
[10]
the
Constitutional Court held that:
“
The
correct approach in evaluating advantage to creditors is for a Court
to exercise its discretion guided by the dicta outlined
in Friedman.
For example, it is up to a Court to assess whether the sequestration
will result in some payment to the creditors
as a body; that
there is a substantial estate from which the creditors cannot get
payment except through sequestration;
or that some pecuniary
benefit will be renowned to the creditors
.”
[21]
It
was made clear in
Commissioner,
South African Revenue Services v Hawker Air Services (Pty)
Ltd
[11]
that
w
hether
sequestration
would render any benefit to creditors does not require that
a
Court “be satisfied that there will be advantage to creditors
in the sense of immediate financial benefit. The Court need
be
satisfied only that there is reason to believe - not necessarily a
likelihood, but a prospect not too remote - that as a result
of the
investigation and enquiry assets might be unearthed that will benefit
creditors.”
[22]
I am satisfied on the
facts placed before this Court that there is reason to believe, in
the sense that it seems to me that a reasonable
prospect exists, that
it will be to the advantage or that a pecuniary benefit will be
obtained by creditors if the estate of Mr
Smit is to be sequestrated.
Conclusion
[23]
The
applicant has shown
prima
facie
that
the balance of probability on the affidavits is in its favour
[12]
in
respect of each of the issues required by section 10. Silkstar’s
claim has not been shown by Mr Smit
to
be
bona
fide
disputed
on reasonable grounds. I am satisfied therefore that sequestration
proceedings are not inappropriate.
[13]
It
follows that Mr Smit’s
estate
should be placed under provisional sequestration in the hands of the
Master of this Court.
Order
[24]
In the result the
following order is made:
1.
The respondent’s estate is placed under
provisional sequestration in the hands of the Master.
2.
A rule nisi is issued calling upon all
interested parties to show cause on 11 November 2021:
(i)
why the respondent’s estate should not be placed under final
sequestration;
(ii)
the costs of the application, on the attorney and client scale,
should not be costs
of administration in the sequestration.
3.
Service of this order shall be effected in the following manner:
(i)
on the respondent; and
(ii)
on the South African Revenue Service, Cape Town by the applicant’s
attorney
of record per hand.
SAVAGE J
Appearances
:
Applicant:
APJ Els
Instructed by
Barnard Patel Attorneys
Respondent:
L Zazeraj
Instructed
by Alcock & Associates Inc.
[1]
With
reference to
Port
Shepstone Fresh Meat and Fish Co. Ltd v Schultz
1940
TPD 163
at 165;
Meaker
v Heyns and Others
1965
(3) SA 496
(SR) at 500–501; and
Buzyna
v Buzyna
1962
(1) SA 165 (C).
[2]
Gerber
v Wolson
1955
(1) SA 158
(A);
Neon
and Cathode Illuminations (Pty) Ltd v Ephron
1978
(1) SA 463
(A) at 472B–E.
[3]
Christie
The
Law of Contract
(7
th
ed)
at 366 para 2.1.
[4]
9th
edition
at
para 5.34.
[5]
1907
T 727 at 733.
[6]
1984
(3) SA 202
(T)
at 205E relying on
Kleynhans
v Van der Westhuizen NO
1970
(1) SA 565
(O).
[7]
Realizations
Ltd v Ager
1961
(4) SA 10
(D
& C.L.D.) at 14H.
[8]
Investec
Bank Ltd v
Lambrechts
N.O and Others
[2014]
ZAWCHC 175
;
2019 (5) SA 179
(WCC)
at
para 58.
[9]
1948
(2) SA 555
(W)
at 559.
[10]
[2014]
ZACC 38
;
2015
(3) BCLR 358
(CC),
2015
(3) SA 1
(CC);
(2015) 36 ILJ 583 (CC) at para 45 (footnotes omitted).
[11]
Commissioner,
South African Revenue Services v Hawker Air Services (Pty)
Ltd
[2006]
ZASCA 51
;
2006
(4) SA 292
(SCA)
at para 29.
[12]
Investec
Bank Ltd v
Lambrechts
N.O and Others
[2014]
ZAWCHC 175; 2019 (5) SA 179 (WCC) at para 15.
[13]
See
Hülse-Reutter
& Another v HEG Consulting Enterprises Pty Ltd (Lane & Fey
NNO Intervening)
1998
(2) SA 220
(C)
at 218D-219H