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[2017] ZAGPJHC 467
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Rodel Financial Services Proprietary Limited v O'Callaghan (2016/23121) [2017] ZAGPJHC 467 (31 March 2017)
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REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE NO: 2016/23121
In
the matter between:
RODEL
FINANCIAL SERVICES PROPRIETARY
LIMITED
Applicant
and
URSULA
MADALEEN
O’CALLAGHAN
Respondent
JUDGEMENT
Windell
J:
INTRODUCTION
[1]
This is an opposed application for a provisional order sequestrating
the respondent’s estate.
[2]
In terms of section 10 of the Insolvency Act, 24 of 1936, (“the
Act”) the requirements for a provisional sequestration
are
prima facie
proof that
the applicant has a claim in
terms of section 9(1); the debtor is insolvent or has committed an
act of insolvency (section 8);
and
advantage to creditors (section 10 (c) ).
[3]
The respondent does not dispute that the applicant has a claim in
terms of section 9(1) of the Act. The only issues therefore
to be
determined are whether the debtor is insolvent/ has committed an act
of insolvency, and if the sequestration will be to the
advantage of
creditors.
ACT
OF INSOLVENCY: SECTION 8
[4]
The onus is on the applicant to prove that the respondent has
committed an act of insolvency. The applicant relied on the following
documents as proof that the respondent committed an act of
insolvency:
·
Nulla bona
return –
section 8(b);
·
Settlement agreement – section 8(e) and
section 8(g)
The
nulla bona return
[5]
Section 8(b) of the Act reads as follows:
“
A debtor
commits an act of insolvency – if a court has given judgment
against
him and he fails, upon the demand
of the officer whose duty it is to execute
that
judgment, to satisfy it or to indicate to that officer disposable
property
sufficient to satisfy it, or if
it appears from the return made by that officer that
he
has not found sufficient disposable property to satisfy the
judgment”.
[6]
In terms of section 8(b) of the Act, two separate and independent
acts of insolvency are created. The first, occurs where the
debtor is
served with a writ by the execution officer and the debtor fails to
satisfy the judgment debt or to indicate disposable
property,
sufficient for that purpose. The second is where the execution
officer is unable to serve the writ upon the debtor personally
and
the execution officer is unable to find sufficient disposable
property to satisfy the judgment
[1]
.
[7]
The respondent challenges the returns of service relied upon by the
applicant to prove an act of insolvency
firstly
,
on the basis that the return of service, on the face of it, does not
prove an act of insolvency, and
secondly
that the return of service is stale.
[8]
Both the returns clearly indicate that the respondent was absent and
that no demand was made on her. Under these circumstances
the return
must therefore unambiguous and clearly show that the respondent did
not have sufficient disposable assets from which
the debt could be
satisfied. See
Corner
Shop (Pty) Ltd v Moodley
[2]
and
Logie
v Priest
[3]
.
[10]
In the return dated 21 August 2015, the sheriff stated the following:
“
On this 21
st
day of August 2015 at 09:40 I attempted to execute this
WARRANT OF EXECUTION AGAINST MOVEABLE PROPERTY at […]
BREDELL, KEMPTON PARK. All the assets on the premises belongs to
Marchelle
Country Estate as confirmed by Mr E Stols, Owner. Mrs
O’ Callaghan, 2
nd
Respondent is staying on the premises and I could not locate
sufficient property to satisfy the judgment.
This
is an amended return”.
[11]
In
Kader
v Haliman
[4]
,
the court per Milne J held the following
[5]
:
In my view generally
speaking a messenger’s return to a warrant which is
unsatisfied and in respect of which no attachment has
been possible
(commonly called a nulla
bona return) should state, inter alia:
(a)
that he explained the nature and exigency
of the warrant, and the person to whom he explained it;
(b)
that he demanded payment;
(c)
that the defendant failed to satisfy the
judgment;
(d)
that the defendant failed, upon being
asked to do so, to indicate disposable property sufficient to satisfy
it. (The expression
“disposable property” is preferable
to the words “goods”, for the former include immoveable
property. Per
Broome, J. (as he then was), in Horace Sudar & Co.
(Pty.) Ltd v Cassja & Co and Others,
1950 (1) S.A. 203
(N) at p.
206);
(e)
that the messenger has not found
sufficient disposable property to satisfy the judgment, despite
diligent search and enquiry.
[12]
The return of service only relates to movable property. The sheriff
made enquiries from Mr Stols, who confirmed that all the
assets on
the premises belong to Marchelle Country Estate. The return does not
indicate what steps the sheriff took or what enquiries
he made to
establish that there is not sufficient property to satisfy the
judgment. The respondent further state that if
the sheriff
conducted a diligent search, he would have ascertained that she owns
a half-share in the immoveable property and that
the property is
unencumbered.
[13]
The returns must show that the requirements of section 8(b) have been
complied with. In view of the important consequences
that may flow
from a debtor’s failure to satisfy writ, It behoves all
execution officers to pay special regard to the provisions
of the
Insolvency statute when making out their returns to writs” and
The return should state the facts of the matter as
found by the
messenger and routine forms should be used with caution”.
Stale
service
[14]
The second aspect impacting on the return of service relates to stale
service. It is common cause that at the time of the launching
of this
application, the return of service was 12 months old, and at the time
of hearing the application it was 19 months old.
[15]
In
Abel
v Strauss
[6]
,
the return of service relied upon was 7 months old. The court,
relying on the matter of Bhyat v Khubishi TPD 896, held that
there must be allegations supported by facts that the debtor’s
position remains unchanged.
[16]
This principle was reaffirmed in the matter of
Nodrew
(Pty) Ltd v Rossouw
[7]
.
In this matter, Steyn J found that he was unable to rely on the
return of service as proof of an act of insolvency where it was
18
months old and in the absence of any allegations that the debtor’s
position remains unchanged.
[17]
It is clear that the return of service the applicant relies upon is
stale. No allegations was made in the applicant’s
papers that
the respondent’s position remained unchanged. I am not
satisfied that the returns comply with section 8 (b).
The
applicant has, therefore, failed to prove that the respondent
committed any act of insolvency in terms of section 8(b) of the
Act.
The
settlement agreement
[18]
The respondent entered into a settlement agreement with the applicant
on 31 March 2014. The applicant submitted that the respondent
has
also committed acts of insolvency in terms of section 8(g), by
concluding the settlement agreement, which is a notice in writing
to
a creditor of an inability to pay her debts and in terms of section
8(e), by concluding the settlement agreement, which is an
offer made
to a creditor for the release in part from her debts.
[19]
In Meskin,
[8]
the author, with
reference to the matter in
Laeveldse
Koöperasie Bpk v Joubert
[9]
,
states as follows:
“
The making of
an offer by the debtor to his creditors which entails their
releasing him wholly or partially from his debts is
an act of insolvency provided it involved, expressly or impliedly, an
acknowledgment
by the debtor
that he is
unable to pay such debts in full. Thus an offer to compromise a
disputed debt by way of payment of portion thereof
and the alleged creditor’s
waiving
the balance, is not this act of insolvency and it is submitted that
the
making of an arrangement, ie,
agreement, in terms of which the debtor is
released
wholly or partially from debt or debts, is not an act of insolvency,
within the meaning of section 8(e), unless one is
able to establish that,
independently of
such arrangement , the debtor was unable to pay such debt
debts. The Legislature cannot have intended there to
be a commission of this
act of insolvency
where, eg, a debtor enters into an agreement with a
particular creditor in terms of which such creditor
accepts part payment in
return only for
anticipation of the due date of payment but the debtor otherwise is
able to pay all his debts in full.”
[20]
The respondent contended that the settlement agreement is not
indicative of the respondent’s inability to pay her debts.
I
agree, it may not comply with the requirements of section 8(e),
but the applicant also relies on section 8(g) that states
that a
debtor commits an act of insolvency if he gives notice in writing to
any one of his creditors that he is unable to pay any
of his debts.
[21]
In the settlement agreement the respondent stated in clause 4 that
she “
acknowledges that she is unable to repay the Judgment
Debt as it has fallen due”.
Meskin
states that whether the notice referred to in section 8 (g) is such
as to constitute an act of insolvency, depends on an
interpretation
of its content. The question is how a reasonable man of business
receiving the notice would understand it.
[25]
The statement made by the respondent in the settlement agreement is
clear. She is unable to pay her debt. I am satisfied that
her
acknowledgment that she is unable to repay the judgment debt as it
has fallen due is an act of insolvency as provided for in
section
8(g) or the Act.
Actual
insolvency
[26]
It is trite that in the exercise of the court’s discretion in
respect of the granting of a sequestration order, the court
may
refuse to sequestrate where, in light of the evidence adduced by the
debtor in opposition to the application, the court is
satisfied that,
notwithstanding the act of insolvency, the debtor is in fact solvent.
[27]
Actual insolvency denotes that the debtor’s liabilities
actually exceed the value of his assets. The applicant contended
that
the respondent admitted she was insolvent by producing a statement of
assets and liabilities on 16 March 2016 which represented
her
liabilities to excess the value of her assets by the sum of
R275 000.00.
[29]
The respondent contends that the statement of assets and liabilities
is not a true reflection of her financial position; that
she was
conservative with the valuation of her assets at the time of
completing the statement, and that her circumstances have
changed
since completing the statement. The respondent submitted that she has
put up her clear evidence that her assets far exceed
her liabilities
and that she has sufficient disposable property to satisfy the
judgment.
[30]
The respondent deals with this issue in a lengthy answering affidavit
wherein she explains the circumstances under which the
judgment debt
was incurred. She stated that she was a member of Elmount Court
CC together with Terence John Rossiter (“Rossiter”).
Elmount Court CC is the owner of a block of flats, which it sold to a
third party. Elmount Court CC required bridging finance from
the
applicant in order to make payment of the outstanding municipal
accounts. The applicant provided Elmount Court CC with a loan
of
R974 738.69. As a result, she and Rossiter bound themselves as
sureties for the loan to Elmount Court CC. However, due
to an
eight-month delay in obtaining clearance figures from the City of
Johannesburg, the purchaser cancelled the sale agreement.
Thus, the
proceeds of sale, which were to be used to pay the applicant, did not
materialize. As a result, the applicant instituted
action against
Elmount Court CC, Rossiter and the respondent for the loan amount
together with the discounting fee and interest.
On 7 September 2011,
the applicant obtained an order for payment and commenced to apply
for the liquidation of Elmount Court CC.
Elmount Court CC is
currently in provisional liquidation. She contends that Elmount Court
CC has sufficient assets to discharge
the judgment debt and there is
no need for a sequestration order. The property owned by Elmount
Court CC has nine flats and four
storerooms and is fully let. The
municipal valuation for this property is approximately R3 680 000.00.
The respondent
continues that even if this property sold at half of
its value at auction and less the amount owing to the City of
Johannesburg,
this would be sufficient to satisfy the judgment amount
as well as the trustee’s fees. The monthly rental collection
from
the flats and storerooms amounts to approximately R34 981.92.
She avers that an amount of R698 000.00 has been paid toward
the
judgment debt and the applicant has frozen her personal banking
account and there is currently an amount of about R50 000.00
in
the banking account.
[31]
The respondent also deals with her current financial position in the
answering affidavit. She avers that she is not insolvent
and that her
assets exceed her liabilities. She submitted that the applicant has
not produced or even attempted to produce any
admissible evidence,
which established the fair value of her assets, nor her liabilities
and that the statement of assets and liabilities
relied upon by the
applicant is not a true reflection of her financial position. She
states that she was too conservative at the
time of the completion of
the statement.
[32]
The respondent contends that she is the sole member of Universal Dent
Removal trading as Extreme Dent and that she receives
an income of
R196 000.00 per annum. She is also the half owner of Erf
185, Bredell Agricultural Holdings situated at
185 High Road,
Bredell, Kempton Park. The other half of this immovable property is
currently registered in the deceased estate
of her late husband. The
property is unencumbered. The applicant has attached a Windeed
Property Report and terms of the report,
the extent of the immovable
property is 17 373 square meters. The average selling price in
the area is R274 per square meter
and the average selling price of
the immoveable property would be approximately R4 760 202.00.
Her half share of the
immoveable property would be R2 380 101.00.
She therefore contends that the value of her half share of the
immoveable
property alone is sufficient disposable property to
satisfy the judgment. She is also the owner of a restaurant on the
immoveable
property, the Windpomp Kombuis, which operates from the
immoveable property since March 2016. The restaurant has a monthly
turnover
of R55 000.00 and after expenses, there is a net amount
of R20 000.00 per month (R240 000.00 per annum). The
respondent
states that she also omitted to mention in the statement
of assets and liabilities, that she is the sole member of Universal
Dent
Removal trading as Extreme Dent from which she earned
R192 000.00 per annum. She submits that she is able
to realize
by private sale an amount that far exceeds the judgment
amount on her share of the immoveable property. On the applicant’s
valuation of the immoveable property, there can be no reason to
sequestrate her.
Conclusion
[33]
The applicant relies on a statement of assets and liabilities dated 2
March 2016.
The
applicant must adduce evidence of the debtor’s liabilities and
of the market value of her assets on the date of the application.
There is clearly a dispute as far as the basis for actual insolvency
is concerned. The respondent has shown that her position has
drastically changed since she entered into the settlement agreement.
I am not satisfied that the applicant has proven, on a balance
of
probabilities, that the respondent is actually insolvent.
[34]
Where an applicant for the sequestration of a debtor’s estate
relies on an act of insolvency committed by the debtor,
as well as
actual insolvency, proof of the alleged acts of insolvency will
suffice even where there is a dispute as the grounds
alleged as the
basis for actual insolvency. In
Metje
& Ziegler Ltd v Carstens
[10]
,
Hall JP stated that the commission of an act of insolvency by a
debtor is the most important factor in a decision as to whether
his
estate should be sequestrated or not, and that it places the
applicant for a debtor’s sequestration in a much stronger
position than a mere general allegation of insolvency does. The
learned judge further held that if the respondent in sequestration
proceedings can show on the balance of probabilities that it is not
for the benefit of creditors to sequestrate him because he
is
actually solvent, and he can give some reasonable explanation as to
how it came about that he committed the act of insolvency
and is thus
able to exonerate himself for committing it, then the Court may well
exercise its discretion in his favour.
[25]
The respondent explained the circumstances under which she entered
into the settlement agreement. I am of the view that the
only
question left for determination is whether the applicant had provided
sufficient evidence to show that there is reason to
believe that it
will be to the advantage of creditors of the debtor if her estate is
sequestrated.
ADVANTAGE
TO CREDITORS
[26]
Section 12 (1)(c) of the Act provides that when a final sequestration
order is sought, a court must be satisfied that there
is:
“…
reason
to believe that it will be to the advantage of creditors of the
debtor if
his estate is sequestrated.”
[27]
The applicant submitted that the respondent did not dispute that the
sequestration of her estate will be to the advantage of
her
creditors. The applicant relies on paragraph 74.2 in the
answering affidavit wherein the respondents contends that: “
The
consideration of advantage to my creditors should not feature as the
applicant has not made out argument that I am factually
insolvent or
that I committed an act of insolvency.”
[28]
It is, however, the applicant that bears the onus of establishing
prima facie
that there
is reason to believe that sequestration will be to the advantage of
creditors. The applicant submits that it discharged
the onus of
proving that the sequestration of the respondent’s estate would
be to the benefit of her creditors. The applicant
submitted that the
disposal of the respondent’s half share in the immoveable
property and her members interest in the Universal
Dent Removal CC
will yield a not negligible dividend to creditors. A proper
investigation into her affairs and her interests in
various other
entities may yield further dividends.
[29]
From the information made available to this court, the applicant is
the only creditor of the respondent. The court must be
furnished with
sufficient facts to come to the “rational or reasonable belief”
that sequestration will be to the advantage
of creditors.
[11]
A court need not be satisfied that there will be advantage to
creditors in the sense of immediate financial benefit. This
requirement
will be met if there is reason to believe, not
necessarily a likelihood, but a prospect not too remote, that as a
result of investigation
and inquiry, assets might be unearthed that
will benefit creditors.
[30]
Counsel for respondent contended that the founding papers did not set
out sufficient facts to show that the sequestration of
the
respondent’s estate will be to the advantage of her creditors.
[31]
An advantage to creditors need not be a specific dividend in the Rand
calculated on the assets and liabilities of the debtor.
In
Stratford
and Others v Investec Bank Ltd and Others
[12]
,
the court held
[13]
:
“
The meaning of
the term advantage is broad and should not re rigidified. This
Includes the nebulous ‘not-negligible’
pecuniary benefit on which the
appellants
rely. To my mind, specifying the cents in the rand or
‘not-negligible’
benefit in
the context of a hostile sequestration where there could be many
creditors is unhelpful. Meskin et al state –
“
the
relevant reason to believe exists where, after making allowance for
the anticipated cost of sequestration, there is a
reasonable prospect of
actual payment
being made to each creditor who proves a claim,
however,
small such payment may be, unless some other means of
dealing with the debtor’s predicament is likely
to yield a larger such
payment.
Postulating a test which is predicated only on the quantum on
of the pecuniary benefit that may be demonstrated may
lead to an
anomalous situation that a
debtor in possession of a substantial estate
with
extensive liabilities may be rendered immune from sequestration
due to an inability to demonstrate that a
not-negligible dividend may
result from
the grant of an order”.
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 the
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 creditors
cannot get payment, except through sequestration, or that
some pecuniary benefit will redound to the
creditors.”
[32]
In determining the reasonableness of the prospects of there being a
benefit to creditors in sequestration, it is proper to
have regard to
the significance itself of the very fact of the administration of
insolvency. See
Chenille
Industries v Vorster
[14]
,
where Horwitz J observed the following:
“
[
There
are]…the superior legal machinery which creditors aquire by
sequestration, the right to control the collection,
custody and disposal of
all the assets
through their nominee, the trustee, the right to control similarly
the sale of the assets, the certainty that the
insolvent cannot contract further
debts
and diminish the estate, and the assurance that all creditors will be
accorded the treatment prescribed by law
in the division of the proceeds.”
[33]
In
Amod
v Khan
[15]
,
the applicant was the first respondent’s sole creditor. The
court observed that the proceedings therefore lacked resemblance
to
the typical sort, in which the debtor has a variety of creditors, but
insufficient assets to meet all their competing claims,
and
sequestration seems likely to benefit them as a group by ending the
danger that some may be preferred to others and ensuring
instead that
the proceeds are shared fairly. The court held that there was no
reason principle why a debtor with only one creditor
should not have
its estate sequestrated, but the potential advantages of
sequestration in that situation are inherently fewer,
and the case
for it is correspondingly weaker. Then it is really no more than an
elaborate means of execution and because of it
costs an expensive
one.
[33]
In deciding whether there is reason to believe that sequestration
will be to creditors’ advantage the court must have
regard to
any other suggested method of regulating the debtor’s affairs,
eg, through an administration order in terms of
the Magistrates’
Court Act 32 of 1944, and should undertake the relevant comparison.
Didcott J stated in
Gardee v Dhanmanta Holdings and Others
:
“
The notion of
advantage to creditors is a relative and not absolute one.
Sequestration cannot be said to be to the creditors’
advantage
unless it suits them better than any other feasible and reasonably
available alternative course.”
[34]
In a case where the applicant is a judgment creditor who had not
proceeded to execution in the ordinary course, it is necessary
for
him to demonstrate a reasonable expectation that the anticipated
payment to him will exceed the likely proceeds of such execution.
Where execution is cheaper and more expeditious than sequestration
and the sole creditor already has a judgment, generally there
is no
reason to believe that the sequestration will be of advantage to
creditors. However, where the applicant has no judgment,
the
circumstances may show that the machinery of the
Insolvency Act is
quicker and cheaper than to issue summons and proceed to judgment and
execution; where the debtor is hopelessly insolvent and will
not be
able to meet the judgment, sequestration may be more advantageous to
creditors than the trial procedure.
CONCLUSION
[25]
In an opposed application for a provisional order of sequestration
the necessary
prima facie
case is established only when the applicant can show that on a
consideration of all the affidavits filed, a case for sequestration
has been established on a balance of probability. Even if all the
requirements of
section 10
had been complied with, a court still
retains a discretion whether to grant a provisional order of
sequestration or not.
[26]
Despite the fact that the applicant has a claim as mentioned in
sectioned 9(1), and despite the fact that the respondent has
committed an act of insolvency, I have no reason to believe that
sequestration will be to the creditor’s advantage.
[27]
In the exercise of my discretion, the application to sequestrate the
estate of the respondent is refused.
[28]
In the result the following order is made:
1.
The application is dismissed with costs.
_________________________
L
WINDELL
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
Attorney
for applicant:
Edward Nathan Sonnenbergs Inc
Counsel
for applicant: Adv.
R.M. van Rooyen
Attorney
for respondent: Mohammed
Randera & Associates
Counsel
for respondent: Adv.
L. Hollander
Date
of hearing: 15
March 2017
Date
of judgement: 31
March 2017
[1]
See Meskin, page 2-6(7)
[2]
1950 (4) SA 55 (T)
[3]
[4]
1958 (4) SA 31
(N)
[5]
At page 32 E-H
[6]
1973 (2) SA 611 (W)
[7]
1975 (3) SA 137
(0)
[8]
“Insolvency Law” at page 2-14(2)
[9]
1980 (3) SA 1117
(T) at 1126A
[10]
1959 (4) SA 434
(SWA) at 435A
[11]
See
Hillhouse v Stott;
Feban Investmants (Pty) ltd v Itzkin; Botha v Botha 1990 (4) SA 580
(W)
[12]
2015 (3) SA 1 (CC)
[13]
At paragraph 44 to 45
[14]
1953 (2) SA 691 (0) at 699F-H
[15]
1947 (2) SA 432
(N)