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[2020] ZAGPJHC 225
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C C v D C (2019/27129) [2020] ZAGPJHC 225 (12 August 2020)
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REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Case
No.: 2019/27129
In
the matter between:
C
,
C
Applicant
and
C
,
D
Respondent
JUDGMENT
This
judgment was handed down electronically by circulation to the
parties’ legal representatives by email.
Gilbert
AJ:
1.
The applicant and the respondent were previously
married. Twin girls were born of the marriage. The twins are now
twelve years old.
The applicant and respondent were divorced on
7 December 2011. They entered into a settlement agreement, that
was made an
order of court. The settlement agreement provided for
maintenance in respect of each twin in the sum of R5,000.00 per
month, which
maintenance was to increase annually linked to the
increase in the consumer price index. The respondent would also pay
for the
twins’ typical expenses, such as education, extramural
activities, and medical care.
2.
It is now nearly ten years later. The respondent
has remarried and started a new family. Notwithstanding the terms of
the settlement
agreement, the respondent is still paying R5,000.00
per month per child. In 2017, the respondent approached the
maintenance court
for a reduction of his maintenance obligations. The
applicant opposed those proceedings, including by way of review
proceedings
in the High Court. Although those review
proceedings were dismissed by the High Court, the maintenance court
has yet to determine
whether the respondent’s maintenance
obligations are to be varied and reduced.
3.
Since their divorce, the parties have engaged in
much litigation, both in the maintenance court and in the High Court.
Each of them
have had varying degrees of success, with costs orders
being granted in favour of one or the other over the years.
4.
The present application by the applicant to
provisionally sequestrate the estate of the respondent is a further
episode in the series
of on-going litigation.
5.
One of the previous legal proceedings between the
parties resulted in a costs order being granted against the
respondent in favour
of the applicant, which was taxed on 6 February
2019 in an amount of R94,618.38. The applicant relies upon these
unpaid taxed
costs to establish that she has a liquidated claim in
terms of
section 9(1)
of the
Insolvency Act, 1936
and so as a
creditor can seek the provisional sequestration of the respondent’s
estate.
6.
The applicant also relies on what she contends is
unpaid maintenance for the period January to December 2018 in the sum
of R138,604.00.
There are several disputes relating to that
indebtedness. Much of the respondent’s opposition in these
sequestration proceedings
is directed at the applicant relying on his
unpaid maintenance obligations as a basis for sequestrating his
estate. There is a
dispute whether such indebtedness has not largely
been settled by reason of a common cause payment of R123, 604 made by
the respondent
on 12 August 2019. Another dispute is
whether such indebtedness will be retrospectively extinguished or
reduced in the
event that the maintenance court in due course grants
an order reducing the respondent’s maintenance obligations with
retrospective
effect, rendering the debt not liquidated (as was
the position in
MG v KG
[2016] JOL 37048
(WCC), where the court found unpaid maintenance
pendente lite
in terms
of Uniform
Rule 43
was unliquidated and so could not sustain a
sequestration order where the respondent had already instituted
proceedings in terms
of Uniform
Rule 43(6)
seeking a variation of
that maintenance
pendente lite
).
And related to that is whether it would be appropriate for the court
now to sequestrate the respondent’s estate, as a form
of
execution, where the basis for the indebtedness might by extinguished
retrospectively, applying analogous reasoning to that
in
Strime
v Strime
1983 (4) SA 850
(C).
7.
But much of that opposition is of no or little
consequence once it is appreciated that the respondent’s
indebtedness to the
applicant on the unpaid taxed costs stands
unchallenged.
8.
No defence
is advanced to this indebtedness other than the respondent contending
that he has also succeeded in obtaining costs orders
against the
applicant in preceding litigation, that those costs awards have been
or are in the process of being taxed and that
these are or will
become capable of set off against his indebtedness owing to the
applicant, or otherwise form the basis of a counterclaim
by him
against the applicant. But at least some of the costs orders relied
upon have not been taxed, are therefore not liquidated
and so are
incapable of being set off against the liquidated indebtedness owing
by the respondent to the applicant. And those costs
orders in favour
of the respondent as have been taxed are insufficient to extinguish
by set off the liquidated indebtedness owing
by the respondent to the
applicant. And the existence of a counterclaim in the form of the as
yet untaxed costs orders, at best
for the respondent, is a factor to
be taken into account by the court in the exercise of its discretion
whether to refuse a provisional
sequestration order although the
requirements for such an order have otherwise been established.
[1]
In any event it is unlikely that those costs orders when taxed would
exceed the taxed costs owing by the respondent to the applicant.
And
the applicant asserts that she has in any event attached the costs
that have been taxed in favour of the respondent towards
satisfaction
of further unpaid maintenance.
9.
The application must be approached on the basis
that the applicant has established
prima facie
that she is a creditor with a liquidated claim against the respondent
arising from the taxed but unpaid legal costs, within the
meaning of
section 9(1)
as read with
section 10(a)
of the
Insolvency Act.
10.
Although
the applicant relies on three acts of
insolvency, only one need be considered.
Section 8(g)
of the
Insolvency Act provides
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. On 25 February 2019 the
respondent’s then attorneys of record addressed a letter to the
applicant’s
attorneys of record in which reference was made to
the respondent’s then recently taxed bill of costs and the
following was
recorded:
“
Please note
that our client is not able to settle the full amount within 7 days
as set out in your letter.
Would your client be
amenable to entering into a payment plan?
”
11.
This constitutes notice in writing by the
respondent to the applicant as one of his creditors that he is unable
to pay his debts,
and more particularly the taxed costs of
R94,618.38. The applicant has accordingly established
prima
facie
an act of insolvency, as provided for
in
section 10(b)
of the
Insolvency Act.
12.
The
only remaining requirement that needs to be
established by the applicant
prima facie
in terms of
section 10
of the
Insolvency Act is
that there is reason
to believe that it will be to the advantage of creditors of the
respondent if his estate is sequestrated.
13.
As
summarised in
Meskin’s
Insolvency Law
,
[2]
“
That there is
reason to believe that sequestration will be to creditors’
advantage is established if there are facts proved
which indicate
that ‘there is a reasonable prospect – not necessarily a
likelihood, but a prospect which is not too
remote – that
some pecuniary benefit will result to creditors.’
”
14.
Meskin and Co v Friedman
1948
(2) SA 555
(W) at 559
explains that the
advantage of a full investigation of the insolvent’s affairs
under the very extensive powers of enquiry
given by the
Insolvency
Act would
not
in
itself constitute an advantage to creditors:
“
In Awerbuch,
Brown & Co v Le Grange
(1939 OPD 20)
, it is suggested that his
right of inquisition is in itself an advantage such as is referred to
in the sections, so that it is
sufficient to make out a reasonable
case for enquiry without showing that any material benefit to the
creditors is likely to result
from the investigation. With
great deference I venture to think that this states the position more
favourably to the petitioning
creditor that is justified by the
language of the sections. As the ‘advantage’ of
investigation follows automatically
upon sequestration, the
Legislature must, in my opinion, have had some other kind of
advantage in view when it required that the
Court should have
‘reason’ to ‘believe’ that there would be
advantage to the creditors. The right
of investigation is
given, as it seems to me, not as an advantage in itself, but as a
possible means of securing ultimate material
benefit for the
creditors in the form, for example, of the recovery of property
disposed of by the insolvent or the disallowance
of doubtful or
collective claims.
In my opinion,
the facts put before the Court must satisfy it that there is a
reasonable prospect – not necessarily a likelihood,
but a
prospect which is not too remote – that some pecuniary benefit
will result to creditors
. It is
not necessary to prove that the insolvent has any assets. Even
if there are none at all, but there are reasons
for thinking that as
a result of enquiry under the Act some may be revealed or recovered
for the benefit of creditors, that is
sufficient.”
(my
emphasis).
15.
In
Hillhouse
v Stott
;
Freban
Investments
(
Pty
)
Ltd
v Itzkin
;
Botha
v Botha
1990 (4) SA 580 (W),
Leveson J stated:
". . .
a Court need not be satisfied that there will be advantage to
creditors, only that there is reason to believe
that that will be so.
That in turn, in my opinion, leads to the conclusion that the
expression 'reason to believe' means 'good
reason to believe'. The
belief itself must be rational or reasonable and, in my opinion, to
come to such a belief the Court must
be furnished with sufficient
facts to support it. In a broad sense it seems proper to say, on the
basis of the cases, that 'advantage
to creditors' ought to have some
bearing on the question as to whether the granting of the application
would accrue some useful
purpose. I express it thus because Roper J
has shown in the Meskin case, there need not always be
immediate financial
benefit. It is sufficient if it be shown that
investigation and enquiry under the relevant provisions of the Act
might unearth
assets thereby benefiting creditors."
16.
It is necessary that the applicant, at this stage
in seeking an order of provisional sequestration and as required in
terms of
section 10
, persuade the court to come to the opinion that
prima facie
there is a
reasonable prospect that some pecuniary benefit will result to
creditors by reason of an enquiry or such other insolvency
processes
that arise upon sequestration. This requires an assessment whether on
the affidavits the balance of probabilities favours
the applicant.
17.
The applicant asserts that it would be to the
advantage of creditors including herself if the respondent’s
estate was sequestrated
as a trustee will
inter
alia
have the power to ascertain whether the
respondent has made any dispositions that fall to be set aside; to
investigate all claims
against the respondent, to evaluate those
claims and to see to it that only valid claims are paid; to ensure
that no creditor is
preferred above another; and to generally realise
the assets of the respondent’s estate so as to yield a
substantial dividend
or benefit to the respondent’s creditors.
18.
Although these are stated generically, the
applicant does set out facts in describing the respondent’s
financial position
to which the generalised advantages are applied.
For example, the applicant asserts that the respondent has at all
times held himself
out to be a man of means and drives a luxurious
motor vehicle (a BMW), that he recently sold his residence and that
he is a member
of various close corporations and/or companies
including Once Active CC. The applicant avers that Once Active
has recently
built a state of the art gymnasium in Parkmore at a cost
of approximately R6.5 million and therefore the respondent’s
members’ interest in the CC, of which he is the sole member,
must be of considerable value.
19.
The respondent does not substantively respond to
these factual averments, contenting himself with a bare denial. A
bare denial cannot
suffice, where a reading of the papers
demonstrates that the bare denial is factually wrong in at least
certain respects –
that he drives a BMW and that he has an
interest in Once Active, and where the respondent does not take the
court into his confidence
in dealing with, for example, his interest
in Once Active.
20.
The applicant also averred that a duly appointed
trustee as a properly qualified person would take control of and
properly manage
the respondent’s financial affairs, and so
provide for his minor children. There is substance to this averment
when regard
is had that the basic maintenance amount for the twins
has not increased since 2011, although the respondent’s income
has
increased.
21.
The applicant also points out that the
disclosures made by the respondent in schedule “AA9” to
the answering affidavit
as to his monthly income and expenditure
differed from that which he had disclosed in the maintenance court
proceedings. For example,
the disclosure in schedule “AA9”
reflects a total nett income of R103,650.61, of which salary and an
amount listed
as “
PT
”
totals R68,650.61. The difference of R35,000 in income in the
schedule is attributed by the respondent to “drawdowns”
on loan accounts with ITA and Once Active. These drawdown amounts do
not appear in any previous disclosures. This, the applicant
contends,
not only demonstrates a lack of forthrightness by the respondent, but
that this is also something to be investigated
by a duly appointed
trustee.
22.
Again, there is substance to these averments and
submissions. The respondent does not explain what he means in
schedule “AA9”
by a drawdown on ITA (loan account) and on
Once Active. Does this mean that the respondent has a substantial
amount owing to him
on loan account by ITA and Once Active, which is
being repaid each month by those entities to him? If so, the
respondent does not
disclose these loan accounts as assets and it is
something to be investigated by a trustee. On the other hand if it is
rather the
respondent who is borrowing money from the two entities on
loan account, this too is something that needs to be considered by a
duly appointed trustee as then the respondent is incurring further
debt in circumstances where he is presently unable to pay his
maintenance obligations.
23.
The respondent also does not disclose his assets
and liabilities, other than asserting that he has no creditors other
than those
that are incurred in the usual course on a monthly basis
and in respect of the balance outstanding on his BMW, which is not in
arrears.
24.
In my view, the applicant has, at least on a
prima facie
basis with
reference to the affidavits, established that there is reason to
believe that it will be to the advantage of creditors
of the
respondent if the respondent’s estate is sequestrated, and more
particularly that there is a reasonable prospect –
not
necessarily a likelihood, but a prospect which is not too remote –
that some pecuniary benefit will result to creditors.
25.
The remaining issue is whether I should in the
exercise of my discretion refuse to grant a provisional sequestration
order notwithstanding
that the applicant has persuaded the court to
come to the opinion that
prima facie
the requirements for such an order in terms of
section 10
of the
Insolvency Act have
been satisfied.
26.
In
Julie Whyte Dresses
(Pty) Limited v Whitehead
1970 (3) SA 218
(D)
at 219A-D, the court held that although a court is vested with a
discretion to be exercised judicially upon a consideration
of all the
facts and circumstances of the case and that this is justifiable in
view of the serious consequences that flow from
the making of a
provisional sequestration order, “
[o]n
the other hand, a man who commits an act of insolvency … must
expect his estate to be sequestrated … It is perfectly
legitimate for a creditor to petition a court for the sequestration
of his debtor’s estate for the purposes of obtaining
payment of
his debt, or as much of it as can be recovered.
”
27.
Much later, in the same Division, Wallis J,
as he then was, in
FirstRand Bank Limited v
Evans
2011 (4) SA 597
(KZD) at paragraph
27 said as follows in relation to the exercise of the discretion
against refusing to grant a provisional
sequestration order:
“
Once the
applicant for a provisional order of sequestration has established on
a prima facie basis the requisites for such an order,
the court has
the discretion whether to grant the order. There is little authority
on how this discretion should be exercised,
which perhaps indicates
that it is unusual for the court to exercise it in favour of the
debtor. Broadly speaking, it seems to
me that the discretion falls
within that class of cases generally described as involving a power
combined with a duty. In other
words where the conditions prescribed
for the grant of a provisional order of sequestration are satisfied,
then, in the absence
of some special circumstances, the court shall
ordinarily grant the order. It is for the respondent to establish the
special and
unusual circumstances that warrant the exercise of a
court’s discretion in his or her favour.
”
28.
Rogers J in the Western Cape Division would
subsequently in
Investec Bank Ltd v Lambrechts
NO and others
2019 (5) SA 179
(WCC) in
paragraphs 60 and 61 refer to this dictum of Wallis J and distinguish
it on the facts. Rogers J held,
obiter
,
that he would exercise his discretion in favour of refusing a
provisional order on the facts before him where the degree of
insolvency
and the benefit to creditors was marginal, and
acknowledging that “
[
o]ne
knows from experience that provisional orders for sequestration and
liquidation tend to become self-fulfilling prophecies.
In
borderline cases decided purely on the affidavits, justice might
better be done by leaving a creditor to his usual remedies.
”
29.
Without making a finding that a respondent must
establish special or unusual circumstances that warrant the exercise
of the court’s
discretion in his or her favour in not granting
a provisional sequestration order, in my view the respondent has not
made out a
case why the discretion should be exercised in his favour.
30.
I initially had reservations as to whether there
was any utility in the applicant obtaining an order provisionally
sequestrating
the estate of the respondent insofar as it would assist
her in recovering arrear, and future, maintenance. It is self-evident
that
sequestrating the estate of a respondent would not make it
easier for him or her to earn a living. The respondent alleged that
the sequestration of his estate will adversely affect him in that he
would no longer be entitled to be a director and therefore
would no
longer earn the salary that he did. But the difficulty with this
submission is that he does not take the court into his
confidence in
explaining why this is so. It does not follow that the salary that he
earns is necessarily linked to him being a
director and he may still
be entitled to continue to earn that income albeit not as a director
but as a manager and/or other employee
of the entities. This is
especially so if these are entities which he controls.
31.
It is also not for the court to ordinarily
second-guess the applicant in her chosen form of execution if she is
able to establish
the requirements for a sequestration order, as she
has.
32.
Of course, should it be that the sequestration
proceedings are launched by an applicant, not for purposes of
bringing about a
concursus creditorum
but rather for some ulterior motive, and it amounts to an abuse, it
is to be refused. For example, should sequestration proceedings
be
launched by an applicant with the sole or predominant purpose of
bringing an end to proceedings by the respondent against the
applicant, that may constitute an abuse and justify the dismissal of
the application. In the present matter, I gave consideration
to
whether the sequestration proceedings were designed to bring to an
end or otherwise stall the proceedings by the respondent
against the
applicant in the maintenance court seeking a reduction of his
maintenance obligations. But upon reflection, I am unable
to make a
finding that that is indeed the predominate purpose of the
sequestration application.
33.
In any event, it is doubtful whether the
proceedings in the maintenance court are the kind of proceedings that
would necessarily
be brought to an end or stayed by the sequestration
of the respondent’s estate in terms of
section 20(1)(b)
of the
Insolvency Act. Notwithstanding the
sequestration of the respondent’s
estate, he remains obligated to make payment of maintenance, at least
prospectively (
Weinberg v Weinberg
1958 (2) SA 618
(C) at 620 E). A person whose estate is
sequestrated does not so avoid his or her maintenance obligations.
Those maintenance
obligations continue and an insolvent cannot when
called upon to pay maintenance direct his or her spouse or child to
his trustee,
and wash his or her hands of the obligation. The
respondent’s pending maintenance proceedings are not
proceedings that affect
his distributable estate, and his obligation
to pay maintenance are enforceable against him personally in terms of
section 23(6)
of the
Insolvency Act
(
Weinberg
at 620H).
34.
Further, it is debatable to what extent a trustee
in reality would become involved in the practicalities of the payment
of the maintenance.
Section 23(5)
of the
Insolvency Act provides
that
the trustee shall be entitled to any monies received or be received
by the insolvent in the course of his profession, occupation
or other
employment which in the opinion of the Master are not or will not be
necessary for the support of the insolvent and those
dependent upon
him. The respondent would be entitled to receive his income arising
from his occupation or other employment and
would not be obliged to
pay that over to the trustee unless in the opinion of the Master
those monies are not or will not be necessary
for the respondent to
support those dependent upon him. There would be no surplus for the
respondent to pay over to his trustee
if there is insufficient income
in the first instance to meet his maintenance obligations. It may
well be that a trustee does not,
in light of this regime, become
involved in payment of maintenance obligations, at least
prospectively, as that is something that
is left to the respondent.
35.
Respondent’s counsel submitted that if the
respondent’s estate was provisionally sequestrated, the
difficulty still
remained that the respondent contended that his
maintenance obligations needed to be reduced and that sequestration
of his estate
will not address that issue. Respondent’s counsel
further submitted that the trustee would in any event be obliged to
persist
with the maintenance proceedings. Whilst it may be so that
sequestration of the respondent’s estate might not bring an end
to the maintenance proceedings or address the issue of whether the
maintenance is to be reduced, that is not the predominate purpose
of
sequestrating the respondent’s estate. In any event the
respondent himself would be entitled to persist with those
proceedings
in the maintenance court, without reference to his
trustee. Further, as submitted by the applicant, it may be that the
respondent’s
financial affairs properly managed at the instance
of trustee may result in there being sufficient monies to meet his
maintenance
obligations without necessarily seeking a variation
thereof. It is common cause that there has been no increase in the
basic maintenance
amount payable by the respondent for maintenance
for his twins since 2011, although the settlement agreement provides
for an annual
increase linked to the consumer price index. Whilst it
is not for this court is to make any findings in this regard as that
determination
is for the maintenance court, that the respondent’s
financial affairs properly managed may obviate the need for any
further
litigation in the maintenance court is a factor to be
considered.
36.
Also, any challenges as to the efficacy of
relying on the maintenance obligations has no bearing on the
respondent’s failure
to pay the taxed costs, and the
applicant’s corresponding reliance thereupon as the basis for
seeking the provisional sequestration
of the respondent’s
estate.
37.
What also weighs heavily, in my view, against the
respondent in any exercise of a discretion in his favour is that he
has not been
forthright and transparent in his disclosures,
particularly in relation to his assets and liabilities and his income
and expenditure.
Instances have already been set out earlier in this
judgment.
38.
The respondent takes issues with the applicant
not setting out his assets and liabilities, but it does not lie in
the mouth of the
respondent to so contend as that information is
peculiarly within his knowledge.
39.
In
Amod
v Khan
1947 (2) SA 432 (N)
at 438 the following was stated:
"A
debtor knows all about his own affairs and can easily prove the
advantage of the creditors. On the other hand, the creditor
has
normally little knowledge of the exact position of the debtor; he
probably does not know what creditors he has, nor the amounts
he
owes, nor the assets he possesses.”
40.
Where a
respondent in sequestration proceedings has been obfuscatory or
evasive, he cannot expect the court to come to his assistance.
[3]
41.
What is also to be taken into account in the
exercise of my discretion is that the respondent’s financial
difficulties are
not limited to his maintenance obligations (which
may or may not be varied in due course by the maintenance court) and
to the unpaid
taxed costs. The respondent was unable to pay his
previous attorneys, borrowing money to settle some of what he owed
those attorneys
and the balance being written off. The respondent
also appears to have had difficulties in paying the twins’
school fees.
The respondent also borrowed money to make payment
towards his arrear maintenance obligations in an amount of
R123,604.00. And,
as described above, it may be that the respondent
is borrowing money from the two entities, describing that as
drawing-down on
loan account. Whilst the latter may be conjecture,
the difficulty is that the respondent has not taken the court into
his confidence
as to the actual position.
42.
The picture that emerges from the papers is that
the respondent is not merely a salaried employee with a fixed income.
The respondent
clearly has business interests and in all likelihood
is ultimately self-employed with a substantial interest in a
multi-million-rand
gymnasium. On his disclosure, his monthly income,
whatever the source thereof, exceeds R100,000. The respondent, upon a
consideration
of the papers, is a candidate for provisional
sequestration.
43.
Bearing in mind that I am at this stage asked to
grant an order of provisional sequestration, and that the respondent
has the opportunity
to deliver supplementary papers challenging the
confirmation of a provisional order in due course and that the
provisional trustee
once appointed may deliver a report which may
prove to be relevant, the exercise of my discretion is not in favour
of refusing
the provisional order.
44.
Two issues remain. The first is whether there was
effective furnishing of the application to employees as required in
terms of
section 9(4A)(a)(ii)
of the
Insolvency Act. The
second
is the applicant’s failure to comply with
section 9(3)(a)(ii)
and (c) of the
Insolvency Act in
setting out the prescribed
information relating to the respondent and his wife.
45.
Section 9(4A)(a)
provides, in relevant part:
“
(4A)(a) When a
petition is presented to the court, the petitioner must furnish a
copy of the petition –
(ii) to the employees
themselves - :
(
aa)
by affixing a copy of the petition to any notice board to which the
petitioner and the employees have access inside the debtor’s
premises; or
(bb) if there is no
access to the premises by the petitioner and the employees, by the
affixing a copy of the petition to the front
gate of the premises,
where applicable, failing which to the front door of the premises
from which the debtor conducted any business
at the time of the
presentation of the petition.
”
46.
Section 9(4)(b)
provides that:
“
(b) The
petitioner must, before or during the hearing, file an affidavit by
the person who furnished a copy of the petition which
sets out the
manner in which (a) was complied with”.
47.
Wallis JA in
EB Steam
Company (Pty) Limited v Eskom Holdings SOC Limited
2015 (2) SA 526
(SCA) at para 16, 17 and 23 held that although it was
peremptory that the employees be furnished a copy of the petition,
that the
modes of doing so as set out in sub-sections (aa) and (bb)
are directory and that effective furnishing of the application can be
achieved by other means. The court must be satisfied that that method
adopted was reasonably likely to make the application papers
accessible to the employees (
EB Steam
para 17).
48.
The applicant relies upon a return of service
that reflects that at the place of employment of the employees a copy
of the application
“
was served by
affixing it to the principal door for the display of the employees
”
and that “
after a diligent search and
inquiry, no other manner of service was possible at the given
address.
” The deputy sheriff refers in
his return to Uniform
Rule 4(1)(a)(v).
The return of service
further states that a Mr Bryden Cabral, a manager, confirmed
that “
there is only employees, there is
no Trade Unions at the given address.”
49.
The applicant did not file an affidavit by the
person who furnished the affidavit to employees (which in this
instance would be
the deputy sheriff), as required in terms of
section 9(4A)(b)
and instead relied upon the deputy sheriff’s
return of service.
50.
Often both attorneys and sheriffs fail to see the
distinction between service of process, which is regulated by Uniform
Rule 4
, and the effective furnishing of the application to the
specified persons as required by
section 9(4A)(a)
of the
Insolvency
Act (and
the corresponding section 346(4A) of the Companies Act, 1973
in relation to winding-up applications). Section 9(4A)(a) does not
require service of the application, but that the application be
“furnished” to the particular person. Service ordinarily
and in the context of court process, refers to delivery of the
document by the sheriff or deputy sheriff, in terms of the rules
of
court. In contrast, “furnish” does not require formal
service by sheriff but, in the context of section 9(4A)(a),
that a
copy of the application be furnished to the particular person in a
manner that is reasonably likely to bring that application
to the
attention of the particular person, or, in the context of employees,
reasonably likely to make the application accessible
to those
employees.
51.
Section 9(4A)(a)
of the
Insolvency Act, relating
to the furnishing of the sequestration application (and the
corresponding section 346(4A) of the Companies Act, 1973, relating
to
the furnishing of a winding-up application) can be contrasted to
section 11(2A)
of the
Insolvency Act, relating
to the
service
of the provisional sequestration order (rule nisi) (and the
corresponding section 346A of the Companies Act, 1973 relating to the
service
of an
winding-up order). The latter sections expressly refer to “service”
of the order, and so require service of the
order by sheriff. And in
effecting such service, the Sheriff is required to have regard not
only to the relevant rules of court,
such as Uniform Rule 4, but also
the specific requirements of
section 11(2A)
of the
Insolvency Act
(and
of section 346(4A) of the Companies Act, 1973 in the context of
a winding-up order).
52.
In the present instance, where a provisional
order is sought, I am not concerned with the service of the order,
but rather where
there has been effective furnishing of the
application to employees by the deputy sheriff as evidenced by his
return of service.
53.
I do not have a difficulty that a sheriff or
deputy sheriff is the person that attends to furnish the application
in terms of section
9(4A)(a)(ii). I also have no difficulty that the
sheriff or deputy sheriff does not provide a formal affidavit in
terms of section
9(4A)(b), as the contents of the return of service
are
prima facie
evidence of the matters therein stated
(section 43(2)
of the
Superior
Courts Act, 2013
). In many instances though, it may be practically
easier to achieve effective furnishing of the application in terms of
section 9(4A)(a)
if a properly informed candidate attorney or
messenger furnishes the application, who can then depose to the
necessary affidavit
in terms of
section 9(4A)(b)
, than seek to
persuade a sheriff or deputy sheriff to depart from what he or she
may have become accustomed to during years of
effecting service of
process in terms of the rules of court, and to depose to affidavits
explaining the manner in which the application
was furnished.
54.
The difficulty that I have is whether in the
present instance there has been effective furnishing of the
application to employees
by the deputy sheriff as evidenced by his
return of service. Absent any further explanation from the deputy
sheriff who attended
to furnish the application, I can only consider
what is contained in his return of service as read with the papers
filed in the
application. It is not at all clear that the
deputy sheriff was aware of what was expected of him, namely to
furnish the
application in such a way that it was reasonably likely
to make the application papers accessible to the employees. It is
also
not clear that the applicant’s attorneys knew what was
expected of them, namely to attend to furnish the application in such
a way that it was reasonably likely to make the application papers
accessible to the employees. Both the deputy sheriff and the
applicant’s attorneys appear to have lapsed into a mind-set of
service of process under the Uniform Rules, rather than seeking
to
comply with
section 9(4A)
of the
Insolvency Act.
55.
The
return of service expressly refers to service
having been effected in accordance with Uniform
Rule 4(1)(a)(v)
,
which applies in respect of service of process in the case of a
corporation or company, by delivering a copy to the responsible
employee thereof at its registered office or its principal place of
business with the court’s jurisdiction, or if there be
no such
employee willing to accept service, by affixing a copy to the main
door of such office or place of business, or in any
manner provided
by law.
56.
What is immediately notable is that service in
terms of Uniform
Rule 4(1)(a)(v)
has nothing to do with service of a
document on an employee – it is a form of service in
the case of a corporation
or company, albeit that a responsible
employee may be the natural person who receives the document on
behalf of the corporation
or company.
57.
The seed of doubt having been sown, the concern
that reasonable steps have not been taken to make the application
accessible to
the employees grows. The deputy sheriff states
that he affixed the application to the principal door for the display
of employees,
and that after a diligent search and enquiry, no other
manner of service was possible at the given address. But the deputy
sheriff
does not describe the search and enquiry that he undertook
and why no other manner of service was possible. There is no
description
of what was to be found at the address that he states to
be “the place of employment of the EMPLOYEES”, other than
an employee – a manager – was present. Clearly the deputy
sheriff had access to the premises and did not find it locked
and
unattended, as the manager was present. And it follows that if this
is so, then why is there no manner of service possible
other than
affixing to the principal door? As best as can be gleaned from the
papers, the respondent is a director and has an interest
in a
gymnasium. The respondent states under oath that he has thirty staff,
employees and contractors that rely upon him and his
companies, and
he attached a list of those staff and employees. Should some of those
staff and employees be employed at the gymnasium,
which is likely on
the papers, it seems improbable that there was a no more effective
manner of service than affixing to the principal
door, exposed as
that would be to the vagaries that arise from such a form of service.
Was there no notice board in a staff room
in the gymnasium? There is
also no distinction between those staff and employees that may be
based at the gymnasium and those that
the respondent employs as
domestic staff at his home, which is at a different address. The
respondent’s list of expenses
reflects wages to domestic staff.
Clearly the staff and employees are at two different addresses but
there is only purported service
at one address.
58.
And the statement recorded in the return of
service that there is no trade union at that address does not amount
to there being
no registered trade union at all that may represent
the employees. This then calls into doubt whether there has been
compliance
with
section 9(4A)(a)(i).
59.
In the circumstances I am not satisfied that the
application was furnished in such a way that it was reasonably likely
to make the
application papers accessible to the employees. The
question that arises is what is the consequence of non-compliance
with
section 9(4A)(a)(ii)?
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60.
Wallis JA in
EB Steam
furnished the answer in relation to liquidation proceedings - in
those circumstances the court should grant a provisional order.
In
EB Steam
a final
liquidation order was sought and granted by the court
a
quo
. On appeal, Wallis JA found in paragraph
26, that the court
a quo
should instead have granted a provisional winding up order,
giving directions if necessary on how the employees are to be
furnished with the papers.
61.
In the present instance, what is sought by the
applicant is a provisional order of sequestration. And if the
provisional order is
granted,
section 11(2A)
regulates the service of
that order, including on employees and trade unions, if any. No doubt
the applicant’s attorneys
will take heed of what is stated in
this judgment and take care in ensuring effective and compliant
service of the provisional
order, including upon employees and any
registered trade unions.
62.
The respondent raised the failure of the
applicant to set out in her founding affidavit the details relating
to his wife, as required
in terms of
section 9(3)(a)(ii).
The
applicant stated in her founding affidavit that the respondent was
married, with the name (and maiden name) of the respondent’s
wife. What was not stated was the date of birth and identity number
of the respondent’s wife, and the full marital status
of the
respondent and his wife. The applicant in her replying affidavit
addresses this deficiency by furnishing such details of
the
respondent’s wife that she can ascertain and explains why those
details were not furnished in the founding affidavit.
Notably the
respondent does not in his answering affidavit furnish any of the
missing details, although obviously they are in his
personal
knowledge.
63.
In my view, there has been sufficient compliance
with
section 9(3)(a)(ii).
It is apparent from
section 9(3)(c)
that an
inability to furnish any of the information does not prevent the
applicant from proceeding, provided the reason for such
inability has
been stated. In any event, to borrow the language of Wallis J in
EB
Steam
in paragraph 8, and apply it in the
context of
section 9(3)(a)(ii)
and (c), the legislative purpose of
those sections “
is not directed at
providing a technical defence to the [respondent], invoked to avoid
or postpone the evil hour when a winding-up
order or sequestration
order is made”
.
64.
In the circumstances, the following order is
granted:
64.1.
The estate of the respondent is placed under
provisional sequestration in the hands of the Master of the High
Court, Johannesburg.
64.2.
The respondent and all other interested parties
are called upon to show cause, if they so wish, on a date to be
obtained from the
Registrar (“the return date”) why the
respondent’s estate should not be finally sequestrated and why
the costs
of the application, including the costs relating to the
grant of the provisional order of sequestration, are not to be costs
in
the sequestration of the respondent’s estate.
64.3.
Copies of the order are to be served by sheriff
or deputy sheriff at least two weeks before the return date on the
respondent and
on the persons as provided for in
section 11(2A)
of
the
Insolvency Act, 1936
, including on the respondent’s
employees after the applicant has made diligent enquiries as to the
places of employment of
those persons as listed in annexure “AA10”
to the answering affidavit and whether any of the employees are
represented
by a registered trade union.
64.4.
Copies of the order are to be published at least
two weeks before the return date, once in each of the Government
Gazette and a
newspaper circulating in the Gauteng area.
64.5.
This order, in the form as served and published,
must reflect the return date and contain in its heading the
particulars as provided
for in
section 9(3)(a)(ii)
and (c) of the
Insolvency Act insofar
as they are known to the applicant.
______________________
Gilbert AJ
Date of hearing: 5 August
2020
Date of judgment: 12
August 2020
For
the Applicant: N Riley
Instructed
by: Bolus Attorneys
For
the Respondent: B Manning (Ms)
Instructed
by: Fullard Mayer Morrison Inc.
[1]
See
Gap
Merchant Recycling CC v Goal Reach Trading 55 CC
2016 (1) SA 261
(WCC) para 30 to 33 and
Afgri
Operations Ltd v Hamba Fleet
[2017]
ZASCA 24
(24 March 2017), para 7 to 13 in the context of the
relevance of a counterclaim in deciding whether to grant a
winding-up order.
[2]
LexisNexis,
Service Issue 53, para 2.1.4.
[3]
Nedbank
v Thorpe
[2009] JOL 24292
(KZP) at paras 53.