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[2017] ZAGPJHC 402
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Standard Bank of South Africa Limited v McCrae (2015/17903) [2017] ZAGPJHC 402 (30 November 2017)
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REPUBLIC OF SOUTH
AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL
DIVISION, JOHANNESBURG
Case
Number:
2015/17903
30/11/2017
Not
reportable
Not of
interest to other judges
Revised.
In
the matter between:
THE
STANDARD BANK OF SOUTH AFRICA
LIMITED
Applicant
And
ROBERT
ANDREW McCRAE
Respondent
(Identity
Number: […])
JUDGMENT
FISHER
J:
BACKGROUND
[1]
This is an application for the provisional
sequestration of the respondent. It has had a relatively lengthy
journey through this
court. It seems that the delays in obtaining
finality have been caused, for the most part, by the respondent.
[2]
At a previous hearing of the matter which
took place approximately a year ago, i.e. during November 2016, the
respondent sought
a postponement and leave to supplement his
answering affidavit for the purposes of putting forward an expert
evaluation of his
assets which assets allegedly include cash amounts
of approximately R3 500 000, motor vehicles and shareholdings in
private and
public companies in Australia. His contention was, and
remains, that his assets exceed his liabilities by more that R30
million.
The postponement was granted for that purpose.
[3]
The respondent now states that he did not
go ahead with obtaining the intended expert valuation, as settlement
negotiations were
entered into between the parties and he thus
abandoned this exercise on the assumption that there would be a
settlement of the
matter and such exercise would then be wasted.
[4]
It is common cause that a settlement
agreement in relation to the indebtedness in issue was indeed reached
some months later. Pursuant
to this, and on 25 May 2017, Van Oosten J
made an order by consent in this court to the effect,
inter
alia,
that the respondent would pay the
applicant the amount of R 3 500 000 by 31 July 2017.
[5]
The respondent did not pay this agreed debt
by 31 July 2017 or at all. The applicant thus set down the
sequestration application
again, and it now comes before me.
[6]
During the week before the hearing the
respondent filed an interlocutory application in terms of which he
sought leave to file a
supplementary affidavit that he apparently had
deposed to in May 2017 and to place before the court further matter
which was contained
in the affidavit founding this interlocutory
application.
[7]
Notwithstanding the fact that the
interlocutory application came late in these proceedings and that
there was thus no time for it
to be answered, the applicant agreed
that the supplementary affidavit together with the other matter could
be admitted for the
purposes of this stage of the proceedings,
subject to its right to answer at a later stage should this be deemed
necessary.
Such an approach seems sensible and such an order is
thus granted.
LEGAL
PRINCIPLES
[8]
The applicant relies on
section
8 of the Insolvency Act which reads as follows:
“
A
debtor commits an act of insolvency-
(e)
if he makes or offers to make any arrangement with any of his
creditors for releasing him wholly or partially from his debts;”
[9]
In an application for the provisional
sequestration the applicant must establish
prima
facie
that:
(a)
It has established a claim for R200 or more
against the debtor;
(b)
The debtor has committed an act of
insolvency or is insolvent; and
(c)
There is reason to believe that it will be
to the advantage of creditors if the debtor’s estate is
sequestrated.
[10]
An advantage to creditors need not
necessarily sound in money or a guaranteed dividend to each creditor.
In certain circumstances
(often when the financial situation of a
debtor is unknown to his creditor) an advantage to creditors may be
established on other
grounds; for example, the avoidance of an unfair
distribution of a debtor’s assets or an investigation of the
debtor’s
affairs with a reasonable prospect that assets may be
revealed as a result of the investigation.
[11]
Trengove AJ, in
Investec Bank Ltd and Another v Mutemeri and
Another
2010 (1) SA 265 (GSJ) at
274–275 pointed out that while the creditor’s
underlying motive may
be to obtain payment of his debt, an
application for sequestration in fact does not constitute proceedings
for the recovery of
a debt, but rather “
[i]ts purpose and
effect are merely to bring about a convergence of the claims in an
insolvent estate to ensure that it is wound
up in an orderly fashion
and that creditors are treated equally
.” (See also
Naidoo
v ABSA Bank Ltd
,
Naidoo v ABSA Bank Ltd
2010 (4) SA 597 (SCA)
at para 7).
[12]
The making of an offer by the debtor which entails release
from his debts is an act of insolvency provided it involves,
expressly or impliedly, an acknowledgment by the debtor that he is
unable to pay such debts in full.(see:
Laeveldse Koöperasie Bpk v
Joubert
1980 (3) SA 1117 (T)
at 1125–1126 and cases there cited).
[13]
The Legislature cannot have intended there to be a commission of an
act of insolvency under section 8(e) where negotiations
for the
settlement of a dispute take place in a normal commercial context
to “
get a better or more satisfactory deal
” on a
transaction and there is no indication thereby that the party so
entering into such negotiations is doing so because
he is unable to
pay his debts. The essence of each of the acts of insolvency is
that, by the particular conduct, the debtor
has intended to evade or
delay the payment of his debts. (
see: Abell
vStrauss
1973 (2) SA 611 (W);
Berrange
NO v Hassan and Another
2009 (2) SA 339 (N))
-unaffected by this case on appeal in
Hassan and Another v De
Villiers Berrange
(SCA), 2012 6 SA 329 (SCA)).
[14]
The test in relation to the debtor’s intention is a subjective
one, however such intention is established “
by a process of
inferential reasoning and is not dependant
on the mere ipse
dixit of the debtor
”. In determining whether the
requisite intention existed the Court must “
weigh up all the
relevant facts and circumstances in order to determine what, on a
balance of probabilities, was the ‘dominant,
operative or
effectual intention in substance and in truth
’ of the
debtor.”(
See:
Hassan
and Another v De Villiers Berrange NO supra
at para 37).
[15]
An offer is one within the purview of section 8(
e
) of
the Insolvency Act notwithstanding that it purports to have been made
“
without prejudice
”.
[16]
In
ABSA Bank Limited v Hammerle Group
(
Pty
)
Ltd
2015 (5) SA 215 (SCA) at para 13 the
Supreme Court of Appeal stated;
“
it is true that
as a general rule, negotiations between parties which are undertaken
with a view to a settlement of their disputes
are privileged from
disclosure . . . regardless of whether or not the
negotiations have been stipulated to be without
prejudice. However,
there are exceptions to this rule. One of these exceptions is that an
offer made, even on a ‘without
prejudice’ basis, is
admissible in evidence as an act of insolvency. Where a party
therefore concedes insolvency. . . public
policy
dictates that such admissions of insolvency should not be precluded
from sequestration or winding-up proceedings, even if
made on a
privileged occasion. The reason for the exception is that liquidation
or insolvency proceedings is a matter which by
its very nature
involves the public interest. A concursus creditorum is
created and the trading public is protected from
the risk of further
dealing with a person or company trading in insolvent circumstances.
It follows that any admission of such
insolvency, whether made in
confidence or otherwise, cannot be considered privileged”.
THE
FACTS
[17]
The applicant’s claim against the
principal debtor arise out of three agreements concluded between the
applicant and the principal
debtor; namely:
A
written loan agreement concluded between the applicant and the
principal debtor on 12 November 2009; a written overdraft agreement
concluded between the applicant and the principal debtor on 20
November 2009; and a written fleet management facility agreement
concluded between the applicant and the principal debtor on 12
December 2011.
[18]
The principal debtor was liquidated by a
third party on 14 March 2014. Apparently unaware of the winding up
order, the principal
debtor applied again for voluntary liquidation
on 6 May 2014.
[19]
The liquidation of the principal debtor
constitutes a breach of all three agreements. The applicant alleges
that, as at 19 March
2014, the principal debtor was indebted to the
applicant in the following capital sums:
R4
331 375.75 in respect of the loan agreement; R3 303 150.38 in respect
of the overdraft agreement; and R42 524.19 in respect of
the fleet
agreement.
[20]
The respondent is liable in his capacity as
surety and co-principal debtor for these payments. The total amount
that the applicant
may recover from the respondent under his
suretyship is unlimited and includes all unpaid interest. The
respondent puts forward
no compelling defence to this indebtedness –
save to raise issues of miscalculation which would not, in any event,
serve
to reduce his indebtedness significantly .
[21]
On 7 April 2014, the respondent met with Ms
Georgina Brand (of the applicant) and with Ms Janine Matthews
(formerly of the applicant’s
attorneys) for the purposes of
attempting order to resolve the indebtedness. At the meeting, the
respondent indicated that he would
make an offer in full and final
settlement of the total indebtedness.
[22]
On 5 May 2014, the respondent emailed Ms
Matthews and offered (and I quote):
“
SAR1M
immediately and 500k every 6 months for a period of 18 months
thereafter in final settlement
.”
(“
the offer
”).
[23]
The offer amounted to some R2.5 million
over 18 months in respect of a total indebtedness of more than R7 6
million.
[24]
As stated above, on 25 May 2017 a consent
order was issued by this court in terms of which, in essence, in full
and final settlement
of these proceedings, the respondent would
make payment to the applicant of the sum of R3.5 million by no later
than 15 July
2017.
The
supplementary answering affidavit and the other new matter, is aimed,
in the main, at demonstrating that the respondent’s
assets far
exceed his liabilities, so that he is not insolvent. This
notwithstanding, the respondent has failed to make payment
to the
applicant of the settlement figure contained in the consent order or
any portion thereof. This is not disputed. In the face
of this
glaring failure, the protestations of wealth ring somewhat hollow.
It is worth repeating the oft-quoted dictum of
Innes CJ in
De
Waardt v Andrew & Thienhaus Ltd
:
1907 TS 727
at 733:
“
Now, when a man
commits an act of insolvency he must expect his estate to be
sequestrated. The matter is not sprung upon him. .
. . Of course, the
Court has a large discretion in regard to making the rule absolute;
and in exercising that discretion the condition
of a man's assets
and his general financial position will be important elements to be
considered. Speaking for myself, I always
look with great suspicion
upon, and examine very narrowly, the position of a debtor who says, I
am sorry that I cannot pay my creditor,
but my assets far exceed my
liabilities. To my mind the best proof of solvency is that a man
should pay his debts; and therefore
I always examine in a critical
spirit the case of a man who does not pay what he owes
.”
[25]
The respondent contends furthermore that he
has not committed an act of insolvency under section 8(e) because, at
all material times,
he was negotiating to pay the debt
on
behalf of
the principal debtor (in
liquidation).
[26]
The respondent has no right or authority to
negotiate on behalf of the principal debtor as it is in liquidation
the debt is his
debt as well as the debt of the principal debtor in
liquidation. It is, in the circumstances, contrived to suggest an
offer from
him was not made in respect of his own indebtedness.
Furthermore, it seems clear that the respondent was closely
associated with
the principle debtor. Not only was the
principle debtor was in liquidation at the time of the offer, but an
attempt was purportedly
made to liquidate it voluntarily on 6 May
2014 – i.e. the day after the offer was made. If the
principle debtor was
to be voluntarily wound up it would obviously
not be in any position to make good on such an offer and thus one
must assume that
the offer was not on its behalf. That the
offer was made by the respondent personally is fortified by the fact
that the further
and on-going settlement negotiations admittedly
ensued with the respondent and a settlement was ultimately concluded
with him personally.
[27]
The respondent attached to his
supplementary affidavit a spreadsheet prepared by him of his assets
and he attached to the affidavit
in support of the interlocutory
affidavit what he contends is an updated spreadsheet. These spread
sheets show that,
on his version, he has disposed of
certain assets. There is no explanation given as to what he did with
the proceeds of these disposals.
Furthermore, he attaches no proof of
his holding of these assets – stating merely that he has at all
times intended to provide
proof in the form of an expert valuation.
That this expert report is still not forthcoming notwithstanding that
the alleged estate
seems straightforward and easily capable of
valuation, is of concern. The respondent has failed even to give any
proof of the alleged
cash component of his assets which he puts at R
3 500 000. One would expect that, at very least, this would be a
simple matter
to verify by way of bank statement. It is also
difficult to understand why- if there is cash available- the
settlement amount could
not be paid
[28]
The respondent did not pay the debt notwithstanding that there does
not appear to be any defence that the amount claimed is
owing by him.
He then made an offer which was substantially less than the amount
owing. There was no indication of any attempt
to engage in a
negotiation process in the context of the offer. In fact, when there
was eventually a negotiation process which
occurred in the course of
the application for sequestration which did result in settlement the
amount was still not paid. The respondent
furthermore, admits that he
could not pay this agreed lesser amount. This inability to pay
even the compromised debt is compelling
evidence that the offer was
made in the first place on the basis of inability to pay.
[29]
In my view it has been established at least
prima facie
at this stage that the email of 05 May 2017 constitutes an offer by
the respondent to make an arrangement with the applicant to
release
him partially from his debt and that he has thus committed an act of
insolvency; that there is a substantial sum owing
to the applicant
and, that it will be to the benefit of the respondents creditors that
the respondent be sequestrated, at very
least so that the true state
of his affairs can be investigated and his estate protected by a
trustee.
[30]
In all the circumstances, this appears to
me to be a proper case for a provisional order to be granted.
ORDER
I
thus make the following order:
1. The estate of the
respondent is provisionally sequestrated.
2. All persons who have a
legitimate interest in the outcome of this application are called
upon to put forward their reasons why
this court should not order the
final sequestration of the respondent on 19 March
2018 at 10h00 or so soon
thereafter as the matter may be heard.
3. A copy of this order
must forthwith be served on:
3.1.
The respondent personally;
3.2.
The employees of the respondent;
3.3.
The Master and
3.4.
The South African Revenue Services.
4. The costs of this
application are costs in the sequestration of the respondent’s
estate.
5. The respondent is
granted leave to supplement his answer in the proceedings with:
5.1.
The affidavit deposed to by him on the 22 May 2017 and the annexures
therein; and
5.2.
Paragraph 31 to 38, and the annexures referred to therein, of the
affidavit in support of the respondent’s interlocutory
application for leave to supplement.
5.3.
The applicant is granted leave to file a further reply to the
respondent’s further affidavit and evidence within ten
(10)
days of the grant of this order.
________________________________
FISHER
J
HIGH
COURT JUDGE
GAUTENG
LOCAL DIVISION
Date
of Hearing:
09 November 2017
Judgment
Delivered:
30 November 2017
APPEARANCES:
For
the Applicant:
Adv A Bester Instructed by Jason Michael
Smith Inc.
For
the Respondent:
Adv G Karinos SC with Adv M De Oliveira
Instructed by Schindlers Attorneys.