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[2017] ZAGPJHC 362
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Investec Bank Limited v Swartz and Another (12174/17) [2017] ZAGPJHC 362 (20 November 2017)
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IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
Case
number: 12174/17
Not
reportable
Not
of interest to other judges
Revised.
In
the matter between:
INVESTEC
BANK
LIMITED
APPLICANT
AND
ENVER
LIONEL
SWARTZ
1
ST
RESPONDENT
PETULA
SWARTZ
2
ND
RESPONDENT
JUDGMENT
IA.
GOODMAN, AJ:
1.
This is an application for the final
sequestration of the joint estate of the respondents, Mr and Mrs
Schwartz, a couple married
in community of property.
2.
The application finds its genesis in a
mortgage and credit facility agreement concluded between the
applicant, Investec Bank, and
the first respondent during May 2008,
and formally re-structured on four subsequent occasions, the most
recent being during June
2011. In terms of those agreements,
Investec loaned the first respondent R11 705 700 against a bond over
the respondents’
residential property situated at 34
George Street, Bryanston. The second respondent, Mrs Swartz,
also executed two
suretyship agreement in favour of the Bank, as
security for the indebtedness owing by her husband.
3.
The loan agreements provided, among others,
that the first respondent was liable to pay the Principal Dent in
monthly instalments
of R107 151.68. If the first
respondent defaulted on payment, he would become liable to pay
penalty interest, and the
total amount owing under the loan agreement
would become immediately due and payable.
4.
The first respondent paid the monthly
instalments until December 2014, when he fell into arrears.
Investec brought an application
against both respondents for payment
of the full amount outstanding under the loan agreement, and for an
order declaring the property
to be specially executable. That
resulted in a settlement agreement being concluded, on 19 February
2015, between the respondents
and Investec, in terms of which the
loan was effectively again re-structured, and the first respondent
became liable to pay instalments
of R120 000 per month commencing on
1 March 2015, until an amount of R11 104 425.60 plus costs and fees
had been repaid.
The Settlement Agreement provided that its
terms would be breached, and the full amount of the indebtedness, as
well as all other
costs, would become immediately due and payable, if
the respondents defaulted on two or more instalments.
5.
The respondents failed to pay the very
first instalment due under the settlement agreement – or,
indeed, on the papers, any
amount thereafter. Investec’s
counsel, Mr Suttner SC, was at pains to point out that it has meant
that the respondents have
continued to live in their luxury home
since 1 March 2015, without making any payments in respect thereof.
6.
Investec then procured a warrant of
execution from this Court, the execution of which elicited a nulla
bona return. The respondents
concede that this constituted an
act of insolvency in terms of section 8(b) of the Insolvency Act.
7.
During April 2017, Investec brought an
application for the sequestration of the respondents’ joint
estate. The respondents
opposed the application but failed to
file deposed opposing affidavits before the matter came before my
sister, the honourable
Justice Nicholls. The service and other
requirements having been met, she granted a provisional sequestration
order and issued
a rule nisi calling on any interested party to show
cause why a final order of sequestration should not be granted.
The rule
has since been extended, but now comes before me for
hearing.
8.
The confirmation of the rule has been
opposed only by the respondents. They accept that the
requirements of sections 12(1)(a)
and (b) of the Insolvency Act have
been met, but dispute that their sequestration would be to the
advantage of to the general body
of creditors. Even if it is, they
seek to persuade the court to exercise its residual discretion to
refuse the sequestration order
sought.
9.
I deal with each of these issues in turn.
Advantage
to creditors
10.
Section 12(1)(c) of the Insolvency Act
provides that a court may sequestrate the estate of a debtor if it is
satisfied that “
there is reason to
believe that it will be to the advantage of creditors of the debtor
if his estate is sequestrated”
.
11.
Investec’s counsel prepared a helpful
case note tracing the treatment of that requirement through the
courts, beginning with
Meskin & Co v
Friedman
1948 (2) SA 555
(W) and
culminating in the Supreme Court of Appeal case of
Commissioner,
SARS v Hawker Air Services (Pty)
Ltd
[2006] ZASCA 51
;
2006 (4) SA 292
(SCA) para 29. They correctly pointed out that
in arm’s length sequestrations, a court need not satisfy itself
that
a sequestration
will
be to the advantage of creditors, but merely that there is reason to
believe it will. This lower threshold is imposed, first,
because a creditor will often not have sufficient insight into the
debtor’s estate to conclusively establish a benefit to
creditors in sequestration and, second, because the requirement of
showing an advantage to creditors is not intended as a technical
defence to be invoked by the debtor to avoid or postpone a
sequestration order being made. This has also been accepted by
the Constitutional Court in
Stratford
and Others v Investec Bank Limited and Others
2015
(3) SA 1
(CC) paras 42-45.
12.
Against this background, Investec points to
at least three factors which it says show that is reason to
believe that the sequestration
of the respondents’ estate will
be to the advantage of the body of creditors.
13.
First, it contends that, on the papers, the
respondents are factually insolvent. But, even if they are not
and there are sufficient
assets in the estate to meet their
liabilities, Investec submits that the sequestration would serve to
liquidate those assets and
increase the respondents’ cashflow,
such that creditors can be paid.
14.
Counsel for the respondents, on the other
hand, argued that Investec had undervalued the respondents’
estate because it had
not taken account of fees earned by the first
respondent or the current value of a retirement annuity policy.
Once those
assets were taken into account, it was submitted, the
respondents were factually solvent on Investec’s own reckoning.
15.
It is by no means clear that the
respondents are factually solvent. They have failed to put up
any evidence of the fees apparently
earned by the first respondent.
Nor have they disclosed the terms of the retirement annuity that they
seek to have taken
into account. But in any event, the
respondents gave no answer to Investec’s alternative contention
that a sequestration
order would likely advantage creditors even if
they are factually solvent, by liquidating assets that are currently
unavailable
to them. I am satisfied that this, of itself,
provides reason to believe that the sequestration would be to the
advantage
of creditors.
16.
Second, Investec argued that although the
respondents claim that the first respondent has over a million rand
in fees owing to him,
and anticipates future fees in excess of R80
million, he has apparently proved unable to collect and pay over
these fees.
A trustee, it was argued, would have enhanced
powers under the Insolvency Act, to ascertain whether those fees were
in fact recoverable
and to procure their collection, if that was
warranted.
17.
Third, Investec pointed out that, on the
papers, the respondents appear to have pawned their Land Rover mere
days before the provisional
sequestration order was granted, to
procure a further loan of R102 000 and that they have failed to
account for either the money
borrowed or the car itself in their
papers. Sequestration would enable a trustee to investigate the
disposition, by way of
inquiry, if necessary, and to ascertain
whether any money could be recovered for the benefit of creditors.
18.
These points similarly, to my mind,
disclose reasons to believe that sequestration would be to the
advantage of creditors.
They were not met, by the respondents
either on the papers or in argument.
19.
Instead, counsel for the respondent argued
that there was no evidence that a sequestration would be to the
advantage of the general
body of creditors (rather than just
Investec), and suggested that the respondents could procure better
value in the estate if they
were allowed to dispose of the property
that formed the key asset through an ordinary commercial sale rather
than a forced sale.
20.
I am unpersuaded on these points. On
the first, Investec’s counsel correctly pointed out that
Investec held a bond only
over the property and would take the
proceeds of its sale. But it would become an unsecured creditor
in respect of the remainder
of the estate and would be repaid
together with other unsecured creditors. They appear to include
the City of Johannesburg,
to whom the respondents are substantially
in arrears. There is reason to believe that it will also stand
to benefit from
a sequestration.
21.
As to the second point, it is, as I have
foreshadowed, not for a debtor to seek to defeat a sequestration by
suggesting that creditors
could be better advantaged by an order
refusing sequestration. But in any event, the respondents have
been trying for a considerable
period of time, and without success,
to sell the property in order to repay Investec. There is no
real basis to believe,
at this stage, that they will imminently
manage to procure a sale. I return to this issue below. But no
doubt, if the property
can be sold through an ordinary commercial
transaction, a trustee will do so. It is not in a trustee’s
interests, or
that of the estate, to sell the property for less value
than it could procure. A forced sale can, moreover, only occur
once
a court order has been procured authorising it. Such order
may well be refused if the forced sale is shown to be unnecessary.
22.
In the all the circumstances, I am
satisfied that there is reason to believe that the sequestration of
the respondents’ estate
will be to the advantage of creditors.
The requirements of section 12(1)(c) of the Insolvency Act are
accordingly met.
Discretion
23.
The respondents counsel urged me
nevertheless to exercise my discretion to refuse a sequestration
order, and instead to extend the
rule in order to afford the
respondents more time to right their affairs and to repay Investec.
He suggested that such a
remedy was appropriate given:
23.1.
First, that offers have been coming in on
the property and there are reasons to believe that it will be sold
for considerably more
than it would procure on a forced sale;
23.2.
Second, the claim by the first respondent
that had recently returned to a successful practice as an attorney
and estimated that
his firm would imminently earn substantial fees;
and
23.3.
Third, the provisional order already
granted which, he suggested, reduced the potential prejudice to
creditors in delaying in the
sequestration. (In support of this
claim, he relied on Smith
Law of
Insolvency
at p 69, where the author
records that a dispute may be referred to oral evidence where a
provisional sequestration order has been
granted because the
interests of creditors are somewhat safeguarded by the interposition
of a trustee.)
24.
To my mind, each of these considerations is
open to doubt.
24.1.
In relation to the property, the
respondents have, so far, proved unable to find a buyer for
it. In their answering
affidavit, they recorded that they had
received an offer, on 28 April 2017, to purchase the property for R11
500 000. Despite
the buyer having been being granted two
extensions for the furnishing of guarantees, the sale failed.
No further offers appear
to have been made until 10 November 2017 –
a mere 3 days before the hearing of the matter. At the hearing
of the matter,
the respondents handed up a supplementary affidavit
recording that they had received a further offer to purchase the
property,
this time for R12 000 000.00. The offer to
purchase provides for no deposit to be paid, and is conditional on
the
buyer receiving an inheritance (in an unspecified amount) by 31
January 2018. There is no evidence whether and when such
inheritance is likely to materialise. In the circumstances, it
is speculative, to assume that the sale will materialise.
24.2.
In relation to the fees, I accept that the
first respondent’s return to practice will garner him fees that
will no doubt improve
his financial position. However, his
affidavits merely provide estimates of such anticipated fees without
furnishing evidence
thereof. Moreover, I am persuaded by Mr
Suttner’s argument that the first respondent’s
sequestration would neither
prevent him from continuing his work in
the law, nor from collecting the fees that have already fallen due.
They would merely
affect his ability to practice for his own
account. As against this, he has proved unable to pay over any
fees collected
since he first tendered to do so, in May 2017.
24.3.
As to the protection offered by the
provisional order, I have been unable to find any cases where a rule
nisi was extended only
in order to afford debtors further time to
repay their debts and to get their affairs in order. I accept
Mr Suttner’s
contention that there is a distinction between
extending the rule in order to establish locus standi (which is an
essential prerequisite
for the grant sequestration order), and the
mere postponement of a sequestration where the requirements have all
been made out.
25.
In the circumstances, I do not find the
factors put up in favour of extending the rule compelling. They
must, moreover, be
weighed against the considerations that:
25.1.
the respondents have, on the papers, failed
to make any payments to Investec for more than two years. In
the meantime, their
debt presumably continues to mount;
25.2.
they accept that they cannot afford to
remain in their current property and that it must be sold;
25.3.
they have proved unable to find a buyer for
the property but have not moved out; and
25.4.
Investec is entitled to effective relief as
against the respondents.
26.
In the circumstances, I find that a proper
case has been made out for the sequestration of the respondents’
joint estate.
27.
I accordingly make the following order:
(a)
The joint estate of Enver Lionel Swartz (ID
[...]) and Petula Swartz (ID number [...]) is placed under final
sequestration;
(b)
The costs of the application, including the
costs of two counsel, shall be costs in the sequestration of the
estate.
-------------------------------
I
A GOODMAN, AJ
ACTING
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION
JOHANNESBURG
Counsel
for the Applicant: Adv J Sutther SC; Adv A Laher
Counsel
for the Respondents: Adv R Du Plessis Sc
Date
of hearing: 13 November 2017
Date
of Judgment: 20 November 2017