Brief Summary

Insolvency — Release of solvent spouse's property — Application in terms of section 21 of the Insolvency Act 24 of 1936 — Applicant, married out of community of property, sought to have her estate released from her husband's insolvent estate — Dispute arose over ownership of the matrimonial home, with the applicant claiming it was purchased with her funds — Respondent, the trustee, alleged collusion between the applicant and her insolvent husband to prejudice creditors — Court held that the applicant proved her ownership of the property and that there was no evidence of collusion, thus ordering the release of the property from the insolvency proceedings.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned an application brought in the Gauteng Local Division, Johannesburg in terms of section 21(1) of the Insolvency Act 24 of 1936 for the release of property from an insolvent estate. The proceedings were motion proceedings and turned on whether the applicant, as the solvent spouse married out of community of property, had established a title to property that was valid against the creditors of her insolvent husband.

The applicant was Lara Wendy Davies, the wife of the sequestrated debtor. The respondent was T.W. van den Heever N.O., cited in his capacity as the trustee of the insolvent estate of Mr Davies.

The procedural background was that Mr Davies’ estate was finally sequestrated on 19 April 2016 (following a provisional sequestration sought by ABSA Bank Limited). The respondent was appointed trustee under the Master’s reference number G284 4/2016. Thereafter, on 27 February 2017, the applicant was served with a notice in terms of section 21(5) indicating that the trustee intended to realise the matrimonial home and its contents in terms of the statutory provisions governing the vesting of a solvent spouse’s property in the trustee upon sequestration. The applicant launched the present application to have the relevant property and its contents released from the insolvency administration.

The general subject-matter of the dispute was whether the Oaklands property (the matrimonial home) and its contents were truly the applicant’s property, acquired by her through a title valid against creditors, or whether—on the trustee’s version—the financial arrangements reflected collusion or an improper scheme designed to prejudice creditors.

Material Facts

It was common cause that the applicant and the insolvent were married out of community of property on 3 April 1998 in terms of the Matrimonial Property Act 88 of 1984, and that the marriage still subsisted at the time of the application. It was also common cause that Mr Davies’ estate was finally sequestrated on 19 April 2016, and that the respondent was appointed as trustee after sequestration.

After his appointment, the trustee notified the applicant of his intention to realise the matrimonial home situated at […] S. Street, Oaklands, Johannesburg and its contents. The applicant asserted that the Oaklands property and its contents belonged to her and not to the insolvent, and should therefore be released from the insolvent estate.

The applicant’s factual basis for ownership was that she previously owned a property at ERF […] Abbotsford, which she sold (stating a sale amount of R4.1 million) and then purchased the Oaklands property for R5 500 000.00. She also relied on the Windeed and the transfer deed to support the contention that the property was always intended to be hers.

It further appeared from the papers that renovations were effected to the Oaklands property during July 2011 by Romicon Construction CC at a cost of R1 957 760.33. The applicant placed a value on the contents which the trustee sought to realise at R2 597 043.43, and stated the total value of the property and contents sought to be realised as R10 034 803.80.

A central area of factual controversy concerned the inference the trustee asked the court to draw from the way the spouses conducted their financial affairs. The trustee alleged that the insolvent and applicant had colluded to prejudice creditors (and potential creditors) and relied on, among other things, allegations that bond payments were made by the insolvent, that funds were channelled through the applicant’s account, that renovation-related invoices were addressed to the insolvent, and that certain payments were not reflected on the applicant’s bank statements. The trustee also relied on the insolvent’s dealings with an entity referred to as Delta Forklifts, and contended that the applicant had failed to disclose certain information, including receipt of specified amounts (including R120 000 and R50 000 reflected as transfers in December 2013, as described in the papers) and an amount of R600 000.00 linked to Delta.

Notwithstanding these allegations, the court recorded that there appeared to be no dispute about the sources of payment for the Oaklands property together with its renovation, which were set out as consisting of the proceeds of the prior Abbotsford property (R3 050 000.00), a first Nedbank mortgage bond (R2 505 700.00), a second Nedbank mortgage bond (R1 500 000.00), and a cash payment (R554 223.57).

The remaining factual dispute relevant to the outcome was whether the balance/cash component was paid by the insolvent (or otherwise represented his contribution), or whether it was funded by a loan from the insolvent’s mother to the applicant. The applicant’s version was that the insolvent’s mother loaned money to her. Evidence was referenced from the enquiry process indicating that the insolvent’s mother stated that she had loaned money to the applicant without enquiring what it was for, that it was not reduced to writing, and that the applicant had said repayment would occur upon sale of the Oaklands property.

In addition, the trustee contended that an adverse inference should be drawn from the applicant’s failure to attend a section 152 enquiry, despite being subpoenaed, although it was common cause she furnished a doctor’s sick note.

Legal Issues

The primary legal question was whether, in the context of section 21 of the Insolvency Act 24 of 1936, the applicant (as the solvent spouse) had discharged the onus of proving that the Oaklands property and its contents were acquired by her through a title valid against the creditors of the insolvent spouse, such that the trustee was obliged to release that property from the insolvent estate.

This entailed an issue of the application of law to fact, informed by factual evaluation. The court had to consider whether the applicant’s asserted acquisition and funding of the property reflected a genuine transaction conferring valid title, or whether the arrangements were simulated or otherwise structured in a manner intended to defeat creditors’ rights, as contended by the trustee.

A secondary issue concerned whether the applicant’s non-attendance at the section 152 enquiry justified the drawing of a negative inference against her in the present application, and the legal character of a section 152 enquiry as an investigative mechanism rather than a determinative adjudication of rights.

Court’s Reasoning

The court began by setting out the statutory framework. In terms of section 21(1) of the Insolvency Act, upon the sequestration of the separate estate of one spouse married out of community of property, the separate estate of the solvent spouse also vests in the trustee upon appointment, in the same way as the insolvent spouse’s estate vests. The practical consequence is that property of the solvent spouse may initially fall under the trustee’s control, subject to later release upon proof that it is truly the solvent spouse’s property within the meaning of the Act.

The court then referred to section 21(2), which requires the trustee to release the property of the solvent spouse upon proof, among other things, that the solvent spouse acquired the property during the marriage by a title valid against the creditors of the insolvent spouse, or that it was acquired with property belonging to the solvent spouse (or the income or proceeds thereof), or falls within other statutory protections referred to in the section.

On the question of onus, the court applied the principle stated in Beddy N.O. v Van der Westhuizen 1999 (3) SA 913 (SCA) that in proceedings of this kind the solvent spouse bears the burden of showing that the true transaction resulting in the acquisition of the property was valid and conferred a valid title against the creditors of the insolvent spouse. The court expressed this as requiring the solvent spouse to demonstrate the true validity of title and its validity against creditors, including showing that the transaction was not simulated or designed to defeat creditors’ rights.

Turning to the factual matrix, the court evaluated the trustee’s opposition, which was largely based on inviting the court to infer collusion from the spouses’ financial arrangements, including the use of the same bank account and the insolvent’s role in making payments associated with the applicant’s properties. The court considered, however, that there was no real dispute on the accepted sources of payment for the Oaklands property, which included proceeds from the applicant’s prior property and the mortgage bonds.

The decisive factual question for the court became whether the remaining payment component should be treated as a concealed contribution by the insolvent (supporting the collusion theory) or as a loan to the applicant by the insolvent’s mother. The court noted the account given by the insolvent’s mother during the enquiry and held that, on the papers, there was no basis to reject the applicant’s version that the loan was made to her by the insolvent’s mother. The court rejected the inference sought by the trustee—that the loan was effectively made to the insolvent—as far-fetched on the material before it.

The court also rejected the proposition that collusion should be inferred merely because the insolvent paid the bond. It reasoned that there was no principle that spouses married out of community of property cannot support each other in running family affairs and each other’s affairs during the marriage. In assessing whether the conduct suggested a scheme aimed at creditors, the court also took into account the chronology: the antenuptial arrangement was concluded long before the sequestration, and the sequestration occurred only in 2016. The court considered that the evidence showed the insolvent had been involved in assisting the applicant with her affairs since the marriage, and found no evidence that his involvement from the beginning was done in anticipation of insolvency.

On the issue of the applicant’s failure to attend the section 152 enquiry, the court quoted the relevant part of section 152 and endorsed the view in the authorities that such an enquiry is an investigative procedure that does not contemplate a finding determinative of a person’s rights. On that basis, the court held there was no foundation to draw a negative inference from non-attendance. The court further reasoned that even if it were incorrect on the first point, it would still not draw the inference because there was insufficient information to determine whether the absence was wilful. The court noted that a medical certificate was produced, that there were no details about its contents before the court, and that there was no information showing that the applicant was warned of consequences despite her health condition.

Having applied the statutory test and the onus principle, and having rejected the adverse inferences sought by the trustee, the court concluded that the applicant had made out a case for the relief sought and that the application should succeed.

Outcome and Relief

The court granted an order directing the respondent trustee to release the property situated at […] S. Street, Oaklands, Johannesburg, together with its contents, from the insolvency proceedings instituted against the insolvent in terms of section 21(4) of the Insolvency Act 24 of 1936.

The respondent was ordered to pay the costs of the proceedings.

Cases Cited

Beddy N.O. v Van der Westhuizen 1999 (3) SA 913 (SCA) (also reported as 1999 3 All SA 227 (A)).

Rends v Gutman N.O. and Others 2003 (1) SA 93 (C).

Snyman v Rheeder 1989 (4) SA 496 (T).

Coetzer v Coetzer 1975 (3) SA 931 (E).

Kilburn v Estate Kilburn 1931 AD 501.

Nedbank Ltd v The Master of the High Court, Witwatersrand Local Division, and Others 2009 (3) SA 403 (WLD).

Roux v Die Meester en 'n Ander 1997 (1) SA 815 (T).

Podlas v Cohen and Bryden NNO and Others 1994 (4) SA 662 (T).

Legislation Cited

Insolvency Act 24 of 1936 (sections 21(1), 21(2), 21(3), 21(4), 21(5), 23(1) as referred to in the judgment, and 152).

Matrimonial Property Act 88 of 1984.

Insurance Act of 1923 (referred to in the description of section 21(2) protections).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the applicant, as the solvent spouse, discharged the onus of establishing that the Oaklands property and its contents were acquired by her through a title valid against the creditors of the insolvent spouse, and that the trustee was accordingly obliged to release the property from the insolvent estate under the statutory scheme of section 21.

The court further held that the inference of collusion sought by the trustee was not supported on the papers, including in relation to the alleged re-characterisation of a loan by the insolvent’s mother, and that the mere fact of spousal financial support (including bond payments by the insolvent) did not, on the facts, justify an inference of an improper scheme to prejudice creditors.

The court also held that no adverse inference should be drawn from the applicant’s failure to attend the section 152 enquiry, given the investigative nature of such enquiries and the absence of sufficient material to infer wilful non-attendance.

LEGAL PRINCIPLES

Section 21 of the Insolvency Act 24 of 1936 operates so that upon sequestration of the estate of one spouse married out of community of property, the property of the solvent spouse vests in the trustee upon appointment, subject to release when the statutory requirements are met and proved.

In an application by a solvent spouse for release of property under section 21, the solvent spouse bears the onus to show that the true transaction by which the property was acquired was valid and conferred a title valid against the creditors of the insolvent spouse, which includes demonstrating that the acquisition was not simulated or designed to defeat creditors’ rights, as articulated with reference to Beddy N.O. v Van der Westhuizen 1999 (3) SA 913 (SCA).

A section 152 enquiry under the Insolvency Act is characterised as an investigative procedure aimed at obtaining information for administration of an insolvent estate; it is not a forum designed to make determinations of substantive rights, and non-attendance does not, without more, justify an adverse inference in subsequent proceedings concerning property release, particularly where wilfulness is not established on the available material.

Davies v Van den Heever NO (16865/17) [2019] ZAGPJHC 59 (1 March 2019)