Brief Summary

Insolvency — Sequestration — Locus standi — Applicant sought final sequestration of respondents based on indebtedness arising from a suretyship agreement — Respondents contended that applicant lacked locus standi due to cession of book debts to Investec Bank — Court found that applicant retained locus standi as it was contractually obligated to recover debts in its own name — Respondents' application for postponement to gather evidence on locus standi dismissed as they failed to substantiate their claims — Final sequestration granted as respondents unable to pay debts amounting to R3,972,381.34, with compliance to procedural requirements established.

Comprehensive Summary

Summary of Judgment

Introduction

This matter was heard in the Gauteng Local Division, Johannesburg, on the return day of a provisional sequestration order. The provisional order had been granted on 22 March 2016 and extended on 13 June 2016, and the court was required to decide whether the provisional order should be confirmed as a final order of sequestration.

The applicant was Blue Strata Trading (Pty) Ltd. The respondents were Eric Arthur Darrier (first respondent) and Jean Elizabeth Darrier (second respondent), sued in relation to their joint estate.

Procedurally, the case came before the court after the applicant had already obtained a monetary judgment against the respondents (dated 19 February 2015, under case number 2014/20497). The sequestration proceedings followed on the basis that the respondents remained unable to satisfy the judgment debt. On the return day, the respondents sought an extension/postponement of the provisional order in order to pursue a rescission strategy premised on the contention that the applicant lacked locus standi to have brought the sequestration application at all.

The dispute concerned insolvency relief, but the decisive controversy was narrow and preliminary in nature: whether the applicant was entitled to litigate as creditor despite having entered into a cession in securitatem debiti of its book debts to Investec Bank Limited, and whether the respondents should be granted a postponement to gather additional material directed at that issue.

Material Facts

The respondents’ indebtedness to the applicant arose from a suretyship signed in favour of Cimco, a company indebted to the applicant and which was, by the time of this judgment, in liquidation. The applicant’s claim against the respondents had already been reduced to judgment on 19 February 2015, and for approximately one and a half years thereafter the respondents had not paid the debt.

It was undisputed that the respondents were indebted to the applicant in the amount of R3 972 381.34, together with interest and costs. It was also accepted by the court (and treated as common cause on the papers) that the statutory and procedural requirements for sequestration had been complied with, including service on relevant parties (employees, the Master, and SARS), the filing of an affidavit dealing with compliance under section 9(4)(a) of the Insolvency Act, and the provision of security.

The principal factual basis for the respondents’ opposition (and for their request for an extension/postponement) was the existence of a written cession agreement concluded on 3 August 2012 between the applicant and Investec Bank Limited. The respondents contended that, because of that cession, the applicant had no locus standi to sue the respondents and therefore lacked standing to seek sequestration. They relied on the proposition that the cession was effectively an outright cession.

The court relied particularly on a clause in the cession agreement providing that, prior to an event of default and the exercise of rights by the cessionary, the cedent (the applicant) was entitled to collect and claim in its own name and for its own account all amounts payable on account of the ceded claims. It was further accepted that no event of default (as contemplated in the cession arrangement) had occurred.

In addition, it emerged in argument that the respondents sought a postponement so as to obtain time to sell/realise immovable property in order to settle their indebtedness. The court treated this as relevant to the postponement discretion, particularly against the background that a substantial period had already elapsed since the judgment debt became enforceable.

Legal Issues

The central legal questions were whether the applicant had the necessary locus standi to bring and prosecute the sequestration proceedings in light of the cession in securitatem debiti to Investec Bank, and whether the respondents had shown sufficient grounds for a postponement/extension of the provisional order to gather evidence and pursue relief premised on the alleged lack of standing.

The locus standi dispute was primarily an issue of law (the legal consequences of the cession’s wording), applied to facts that were treated as materially established for purposes of the return day (the existence of the cession and the relevant clause permitting collection in the applicant’s own name, and the absence of default). The postponement question required the court to exercise a discretionary/value judgment, informed by prejudice, justice between the parties, and the overall conduct and timing of the litigation.

A further issue arose in relation to costs, namely whether the costs of the respondents’ opposition should be included as part of the “costs of sequestration” payable out of the sequestrated estate, in light of section 97(3) of the Insolvency Act.

Court’s Reasoning

On postponement, the court approached the application as one requiring an assessment of prejudice and the interests of justice, with reference to the principles in the authorities relied upon by the respondents. The court concluded that, on the facts, the postponement factors did not favour the respondents. It held that the respondents had had ample time to obtain the material they claimed to require and that their conduct bore the hallmarks of delay rather than a genuine inability to present necessary evidence.

The court considered that the respondents’ postponement request was tied to their contention that the applicant lacked standing due to the cession. The court treated this as decisive: once locus standi was resolved against the respondents, the principal foundation for postponement fell away. The additional reasons advanced for postponement (including that the respondents had approached the Human Rights Commission for documentation and had engaged a forensic investigator) did not alter the court’s conclusion, because the core dispute could be determined from the cession terms that had been placed before the court.

On locus standi, the court accepted the general proposition (as advanced by the respondents) that a litigant must allege and prove standing and that standing concerns a sufficient and direct interest in the relief sought. The court then focused on the construction of the cession agreement. It emphasised the clause providing that prior to default, the applicant as cedent was entitled to collect and claim in its own name and for its own account amounts payable under the ceded claims.

Applying that clause, the court concluded that the applicant retained standing to litigate in its own name, at least until an event of default triggered any different allocation of enforcement rights under the cession. The court accepted the applicant’s submission that no default event had occurred and thus held that the cession did not deprive the applicant of standing. In reaching this conclusion, the court distinguished the position from the factual and contractual setting in Picardi Hotels Ltd v Thekweni Properties (Pty) Ltd, where the wording under consideration was held to amount to an outright cession. The court regarded the respondents’ reliance on Picardi Hotels as misplaced because the clause in this case expressly preserved the applicant’s right to collect and sue in its own name and for its own account.

Once standing was resolved in favour of the applicant, the court considered the sequestration requirements and held that the applicant had established the necessary statutory elements under section 10 read with section 9(1) of the Insolvency Act. The court recorded that the indebtedness was undisputed, that the respondents were unable to pay, that sequestration would be to the advantage of creditors, and that the requisite formalities had been met.

In relation to the respondents’ suggestion that they were asset-rich but illiquid, and their request for further time to sell property, the court referred to the caution expressed in De Waardt v Andrew & Thienhaus Ltd about scrutinising claims of solvency where a debtor does not pay. The court treated the respondents’ prolonged inability to satisfy the judgment debt as significant in assessing both the postponement request and the broader sequestration context.

On costs, the court considered section 97(3) of the Insolvency Act, which provides that “taxed costs of sequestration” do not include the costs of opposition unless the court directs otherwise. The court accepted the applicant’s submission that the opposition was not justified in the circumstances, particularly given the respondents’ access to (and inspection of) the relevant cession provisions that preserved the applicant’s capacity to sue. The court accordingly directed that, while the applicant’s sequestration costs would be costs in the sequestration, the costs of opposition would be excluded from the sequestration costs.

Outcome and Relief

The court confirmed the provisional sequestration and ordered that the joint estate of the first and second respondents be placed under final sequestration.

The court ordered that the applicant’s costs in respect of the sequestration application would be costs in the sequestration. It further ordered that the costs of opposition would be excluded from the sequestration costs.

Cases Cited

The National Bank of SA Ltd v Assigned Estate Lentin and Tobias 1924 SWA 84; Shapiro v Shapiro 1904 TS 673; Centirugo AG v Firestone (SA) 1969 (3) 318; Mars Incorporated v Candy World (Pty) Ltd 1991 (4) SA 567 (A); Kommissaris van Binnelandse Inkomste v Van der Heever 1990 (3) SA 1051 (SCA); Sandton Civic Precinct (Pty) Ltd v City of Johannesburg & Another [2008] ZASCA 104; 2009 (1) SA 317 (SCA); Picardi Hotels Ltd v Thekweni Properties (Pty) Ltd [2008] ZASCA 128; 2009 (1) SA 493 (SCA); De Waardt v Andrew & Thienhaus Ltd 1907 TS 727.

Legislation Cited

Insolvency Act 24 of 1936, sections 9(1), 9(4)(a), 10, and 97(3).

Rules of Court Cited

No specific rules of court were cited in the judgment.

Held

The court held that the applicant had locus standi to seek sequestration notwithstanding the cession in securitatem debiti to Investec Bank Limited, because the cession agreement expressly entitled the applicant, prior to an event of default, to collect and claim in its own name and for its own account the amounts due under the ceded claims. The respondents’ reliance on authority dealing with outright cessions was rejected as inapplicable given the wording of the present cession.

The court further held that the respondents had not established grounds warranting a postponement or extension of the provisional sequestration on the basis advanced. With locus standi resolved against them, the primary rationale for postponement fell away, and the court was not persuaded that the additional reasons advanced justified delaying finalisation.

Finally, the court held that the sequestration requirements were satisfied on the papers and that a final sequestration order was warranted, while directing that the costs of opposition were excluded from sequestration costs under section 97(3) of the Insolvency Act.

LEGAL PRINCIPLES

A party instituting proceedings must allege and prove locus standi, which concerns whether the litigant has a sufficiently direct and substantial interest to prosecute the claim asserted. Standing must be apparent from the initiating papers, and where standing is challenged, the court must determine standing by reference to the applicable legal instruments and their proper construction.

The effect of a cession in securitatem debiti on standing depends on the terms of the cession agreement. Where the cession expressly permits the cedent, prior to an event of default, to collect and litigate in its own name and for its own account, the cedent may retain standing to enforce the ceded claims notwithstanding the existence of the cession. A comparison with cases involving outright cessions turns on the particular contractual wording at issue.

Applications for postponement are discretionary and must be assessed in the light of the overall circumstances, including the asserted basis for the postponement, the timing and conduct of the parties, and prejudice. Where the substantive foundation for postponement fails on determination of a central preliminary issue, postponement may be refused.

In sequestration proceedings, where statutory requirements (including those under sections 9 and 10 of the Insolvency Act) are established and the debt and inability to pay are shown, the court may grant a final order. In relation to costs, section 97(3) excludes the costs of opposition from “costs of sequestration” unless the court directs otherwise, and the court may make a direction excluding those costs where opposition is found to be unjustified on the circumstances presented.

Blue Strata Trading (Pty) Ltd v Darrier and Another (21119/2015) [2017] ZAGPJHC 372 (5 July 2017)