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[2014] ZAGPJHC 257
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Barnard N.O and Others v Firstrand Bank Limited T/A Wesbank (2012/44987) [2014] ZAGPJHC 257 (11 March 2014)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO. 2012/44987
DATE:
11 MARCH 2014
In the
application of :-
BARNARD
N.O., HENDRIK JAKOBUS
RUST
..........................................
First
Plaintiff
MICHAU
N.O., JOHN
DOUGLAS
.........................................................
Second
Plaintiff
MSHENGU
N.O., THAMSANQA
EUGENE
..............................................
Third
Plaintiff
(In
their capacity as the duly appointed liquidators
Of
Blue Chip Snacks (Pty) Ltd (in liquidation)
And
FIRSTRAND
BANK LIMITED t/a
WESBANK
.
...............................................
Defendant
JUDGMENT
NICHOLLS,
J
[1]
This is an action by the joint liquidators of Blue Chip Snacks (Pty)
Ltd (“Blue Chip”) to set aside a sale by Blue
Chip to the
defendant, Firstrand Bank Limited t/a Wesbank (“Wesbank”)
on the basis that it is a disposition without
value in terms of
Section 26(1)(b) of the Insolvency Act No. 24 of 1936 (“the
Act”), alternatively it constituted an
undue preference to
creditors in terms of Section 30(1) of the Act.
[2]
The business of Blue Chip was the operation of a potato chip factory.
Wesbank financed the acquisition of equipment and machinery
utilised
in the factory, including a production line known as the Kiremko
line. It is the disposition of the Kiremko line that
is the subject
matter of this action. The liquidators claim that the
disposition took place by way of a sale by Blue Chip
to Wesbank in
April 2010 for an amount of R661 067.079 when the true value of the
Kiremko line was R4 475 000. They seek payment
for the
difference between the two amounts, namely the sum of R3 838 932.
[3]
The facts are largely common cause:
3.1
Blue Chip, albeit then under a different
name and as a close corporation, entered into a Master Instalment
Sale agreement with Wesbank
on 20 February 2002. In terms of
the agreement Wesbank would retain ownership of the goods and had the
right to repossess
the goods on breach. Ownership would pass to Blue
Chip on payment of the final instalment. The ‘goods’
were those
defined in the first schedule.
3.2
On 5 December 2005 Blue Chip and Wesbank
entered into a first schedule to the master instalment sale agreement
in terms of
which Westbank sold the Kiremko line to Blue Chip
for an amount of R7 200 025.92 repayable in 48 monthly
instalments
of R150 000.54 each. Between December 2005 and
March 2008 Blue Chip and Wesbank entered into numerous other first
schedules,
in respect of other equipment in the factory. All in
all Blue Chip and Wesbank concluded 23 separate first schedules.
3.3
By April 2010 48 month period in respect of
the Kiremko line had expired, the agreement had lapsed and Blue Chip
was in arrears
in the amount of R650 376.66. Apart from
another first schedule which had expired and on which there was an
outstanding
balance of R767.60, the other 21 first schedules still
had remaining periods to run. The balance outstanding in
respect of
these unexpired agreements was R8 276 379.41.
3.4
Blue Chip was placed in provisional
liquidation on 26 January 2011 and under final winding up on 10 March
2011.
[4]
The administrator of the insolvent estate, attorney Mark Poole
testified for the Plaintiff. Melda Pieters (“Pieters”)
(neé Walker) and David Jeffrey, (“Jeffrey”) who
were both employees of Wesbank at the relevant time, testified
for
the defendant. Agreement was reached between the two experts
for the parties that the value of the Kiremko line as at
the date of
disposition was R4 475 000 and that it had a lifespan of 25
years at the time. This obviated the need
for their testimony.
[5]
Pieters testified that Blue Chip was in financial difficulty and had
a weak balance sheet. This was confirmed by Jeffrey
who said
that in order to protect the bank and minimise Wesbank’s loss,
he negotiated a deal whereby the assets in respect
of all 23 first
schedules were moved out of Blue Chip and into a new company,
Carnival Foods CC (“Carnival Foods”)
by way of a sale
agreement to Carnival Foods of all the equipment.
[6]
Pieters was instructed to draw up three settlement letters, one for
R661067.69 in respect of Kiremko line, one for R767.60 for
the other
lapsed sale agreement and another for R8276379.41 for the 21 other
assets in respect of which the instalment sale agreements
had not
lapsed. The sum of these settlement letters is equivalent to the
purchase price of the deal negotiated by Jeffrey, namely
the amount
of R8938214.80 plus VAT.
[7]
Pieters confirmed that no valuation was done of the individual assets
and the settlement figure was calculated on the basis
of the
outstanding arrear amounts on all 23 assets. This is why in her email
of 4 May 2010 it is recorded on the top “Email
waiving special
condition for pricing in line”. This was a reference to the
normal procedure whereby a new purchase would
go through the credit
vetting department of Wesbank to determine that the finance required
was in line with the value of the asset.
In this instance the
requirement was waived. A valuation was not done because the price
was fixed at the settlement value.
[8]
In accordance with procedure, Wesbank procured an invoice from Blue
Chip in an amount equivalent to the settlement values, namely
R8938214.80 plus VAT, a total amount of R10189564.84. All the assets
were listed and a value placed on each, being the amount outstanding
on the instalment sale agreement in respect of each one. The Kiremko
line was invoiced in the amount of the arrears, that is R661067.79.
[9] According to
Pieters Blue Chip would act as supplier and would sell the items to
Wesbank. On receipt of an invoice from Blue
Chip, Wesbank was in a
position to deal with its new customer/buyer, Carnival Foods. Once
confirmation of delivery was received
from Carnival Foods, Wesbank
would make payment of the invoice price to Blue Chip. The price on
the invoice from Blue Chip and
the amount charged to Carnival Foods
was identical. It is common cause that delivery of the Kiremko line
took place by way of
constitutum possessorium
and it remained
in situ.
[10]
Another master sale agreement was then concluded between Wesbank and
Carnival Foods on 30 April 2010. The signatory on behalf
of Carnival
Foods was Manuel De Agrela, (“De Agrela”) its sole
member. The first schedule was concluded on 3 May 2010
for all the
equipment as per Blue Chip’s invoice, including the Kiremko
line. The purchase price reconciled with the settlement
amount of
R10189564.85 (R8938214.80 plus VAT) to which a further R5914774.21 in
respect of finance charges was added, a total of
R16104339.06.
[11]
It is clear that what occurred was that when Blue Chip experienced
financial difficulties, De Agrela created another entity,
Carnival
Foods, to run the business. The Kiremko line was moved from Blue Chip
to Carnival Foods without being disassembled and
the entire factory,
including the Kiremko line, remained in situ. It cannot be ignored
that Manuel De Agrela, as the managing director
of Blue Chip,
concluded the sale agreement with Wesbank in terms of which all the
equipment was sold at its settlement value, and
also concluded the
instalment sale agreement on behalf of Carnival in terms of which the
equipment was sold to carnival at exactly
the same price. The goods
did not move nor did the factory. It appears that when Blue Chip was
in financial difficulty, de Agrela
merely continued to operate in the
same premises, with same production line but under a different name.
[12] The liquidators
allege that the transfer of the Kiremko line was a disposition
without value to the prejudice of other creditors
in that Wesbank had
effectively transferred the Kiremko line and the debt from Blue Chip
to Carnival Foods. This had the effect
of depriving its other
creditors of recovering any portion of their claims from the equity
of R3838932.31 that should have been
paid to Blue Chip in respect of
the Kiremko line, once the arrears in the amount of R661 067.079 had
been settled.
[13]
The defendant submits that the sale of all 23 assets was an
indivisible package and it is impermissible to assail individual
components of an indivisible transaction as being without value. This
type of sale was normal procedure which is accepted industry
wide
whereby suppliers sell assets to finance houses for the purpose of
delivering the asset to the customer, in this instance
Carnival
Foods.
[14]
Further it is contended that the transaction was clearly for value in
that a purchase price of R8938214.80 was paid and that
the alleged
loss of R3838932 is offset by the gain. Wesbank accuses the
liquidators of calculating the loss without considering
the gain.
This, it is submitted, is impermissible as it calculates the loss
without reference to the package as a whole.
[15]
What this argument fails to take into account is that if Wesbank
wanted to raise this defence that value was given for the
disposition, it should have pleaded this and provided sufficient
detail of the alleged value
[1]
.
This was not done and nor was it put to Poole that that Blue Chip
received value from the transaction. The only defence raised
in the
plea is that the delivery of the Kiremko line formed “
part
of an indivisible package”.
It
pleads no factual or legal conclusion flowing from this allegation
[16] Section 26 (1)
(b) provides for the setting aside of “
dispositions without
value”
:
“
Every
disposition of property not made for value may be set aside by the
court if such disposition was made by an insolvent –
(a) …
(b) Within two
years of the sequestration of his estate, and the person claiming
under or benefitted by the disposition is unable
to prove that,
immediately after the disposition is made, the assets of the
insolvent exceeded his liabilities: Provided
that if it is
proved that the liabilities of the insolvent at any time after the
making of the disposition exceeded his assets
by less than the value
of the property disposed of, it may be set aside only to the extent
of such excess.”
[17]
Section 30 (1) provides for the setting aside of “
undue
preferences to creditors”
:
“
(1)
If a debtor made a disposition of his property at a time when his
liabilities exceeded his assets, with the intention of preferring
one
of his creditors above another, and his estate is thereafter
sequestrated, the court may set aside the disposition.’
[18]
Wesbank has conceded that the nature of the agreement between Blue
Chip and Wesbank was a disposition; that it was a disposition
made at
a time when Blue Chip’s liabilities exceeded its assets and
that it was made within 2 years of the liquidation. It
is also
conceded that if it is found that the Krimeko line was sold to
Wesbank for the sum of R661 067.079 as contended for by
the
liquidators, then this amounts to a disposition without value.
However, it is argued that if regard is had to all the circumstances
under which the transaction was made, it was an indivisible
transaction made in the normal course of business, following a
procedure
that is widely accepted in the industry and cannot be
viewed in isolation.
[19]
It is argued by the liquidators that Jeffrey‘s testimony that
his job was to ensure that Wesbank was not prejudiced and
did not
suffer a loss, is confirmation of an intention to prefer Wesbank.
Whilst that may have been the self-proclaimed intention
of Wesbank,
when considering whether there was the intention to prefer, the
intention to be considered is not that of the recipient
but that of
the insolvent.
[2]
There is no
evidence that it was the intention of Blue Chip to prefer Wesbank
over other creditors. It has been held that if an
innocent motive can
be inferred, it is the innocent conduct which must be attributed to
the insolvent.
[3]
The claim to
set aside the disposition in terms of section 30 of the Act cannot
succeed.
[20]
However, in my view the liquidators have made out a case for the
disposition to be set aside in terms of section 26. The evidence
establishes that whatever the parties may have labelled it, the
delivery of the Kiremko line did not take place in terms of a sale
in
the true sense of the word. On Wesbank’s version the agreement
relating to the Kiremko line had lapsed. The amount still
owing by
Blue Chip was R661 067.079. On payment thereof ownership of the asset
which was worth several million rand would pass
to Blue Chip. This
meant that Blue Chip was entitled to be paid the agreed market value
of R4 475 000 less the arrears of R661
067.079, a sum of R3 813
932.31.
[21]
Instead, without procuring any valuation therefor, the Kiremko line
was simply delivered to Wesbank in settlement of the arrear
amount of
R661 067.079 as per the settlement letter. By this transaction the
company in liquidation was deprived of the true value
of the Kiremko
line to the detriment of the other creditors. To argue that this was
a component of an indivisible package does
not assist Wesbank.
[22]
In these circumstances the disposition of the Kiremko line amounted
to a disposition without value that preferred Wesbank over
Blue
Chip’s other creditors. It accordingly falls to be set aside.
The parties have agreed that should this court set aside
the
disposition the judgment should sound in money rather than for the
return of the Kiremko line. Further, it is agreed that the
qualifying
fees of experts be included in any costs order that may be made.
In the result the
defendant is ordered to pay to the plaintiffs:
[1]
An amount of R3 813 932.21;
[2] Interest on the
said amount at 15.5% per annum from the date of judgment until the
date of payment;
[3]
Costs of suit including the qualifying fees of the expert witnesses.
C.
E. NICHOLLS
JUDGE
OF THE HIGH COURT
OF
SOUTH AFRICA
GAUTENG
LOCAL DIVISION,
JOHANNESBURG
Appearances
Counsel
of the applicant : Adv. G. Wickins
Attorneys
for the Applicant: Brooks and Brand Inc.
Counsel
for the respondent: Adv. C. Van Der Spuy
Attorneys
for the respondent: Lanham-Love Attorneys
Date
of hearing : 3 March 2014
Date
of judgement : 11 March 2014
[1]
Estate
Wicks v Wicks
1929
CPD 491
;
Paruk
and Others v Cousins NO
1948
(2) 830 (N)
[2]
Brands
Trustees v Osman
1926
NLR 253
;
Du
Plooy NO v National Industrial Credit Corporation Ltd
1961
(3) SA 741 (W)
[3]
Pretorius
NO v Stock Owners Co_operative Co Ltd
1959 (4) SA 462
(A); cooper NO
v Merchant Trade Finance Ltd
2000 (3) SA 1009
(SCA)