Brief Summary

Insolvency — Provisional sequestration — Application for provisional sequestration based on act of insolvency — Respondent opposing on grounds of res judicata and non-compliance with section 9(3) of the Insolvency Act — Court finding that previous application was based on factual insolvency while current application is based on act of insolvency — Res judicata not applicable — Applicant demonstrating liquidated claim and act of insolvency through nulla bona return — Condonation granted for late filing of answering affidavit — Application for provisional sequestration granted as it is to the advantage of creditors.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application in the Gauteng Local Division, Johannesburg, for the provisional sequestration of the respondent’s estate in terms of sections 9 and 10, read with section 8(b), of the Insolvency Act 24 of 1936.

The applicant was ABSA Bank Limited and the respondent was Casper Appelcryn.

The procedural history included an earlier sequestration application brought by the applicant in 2016, which was dismissed on 31 October 2017 (Van der Linde J) because the applicant had not established the respondent’s factual (actual) insolvency on the papers. Thereafter, the applicant sued the respondent and obtained summary judgment on 28 March 2019 for substantial sums, with certain immovable properties declared specially executable. Following attempted execution, the sheriff issued a nulla bona return on 24 July 2019. On 1 November 2019, the applicant launched the present sequestration application, now premised on an act of insolvency under section 8(b).

The general subject-matter of the dispute was whether the statutory requirements for provisional sequestration were met, including whether the respondent had committed an act of insolvency despite his assertion that he was factually solvent by reason of owning valuable immovable property.

2. Material Facts

It was common cause or undisputed that the applicant held summary judgment against the respondent (granted 28 March 2019) for two amounts, together with interest and costs, and that six immovable properties (commercial farms) were declared specially executable. The papers also reflected that the judgment debt had grown substantially by 1 October 2019 due to interest, and that interest continued to accrue thereafter.

It was also undisputed that on 24 July 2019 the sheriff attempted to execute pursuant to a warrant of execution. The writ was personally served at the respondent’s residence. The sheriff made a nulla bona return recording, in substance, that the respondent said he had no monies or attachable movable assets with which to satisfy the judgment debt and costs (or part thereof), and that no sufficient attachable assets were found after search and enquiries at the address.

It was not meaningfully placed in dispute that the respondent’s principal assets were immovable properties (commercial agricultural farms), and that these were all or mostly bonded to the applicant as first mortgagee. The court recorded unrefuted evidence that the respondent had not sold any of these properties to discharge the admitted indebtedness, notwithstanding the passage of time since the earlier sequestration attempt and since judgment.

The respondent’s defence on the merits was that he was factually solvent, alleging that his immovable properties were worth in excess of R30 million, and therefore that there was sufficient property to satisfy the judgment debt (even if not in cash form). However, the court noted that this valuation was unsupported by expert valuations and was advanced essentially as an ipse dixit. The respondent also did not provide supporting documentation in relation to the broader position of his assets and liabilities, and the extent of other creditors’ claims (including Land Bank and SARS) was not clarified by admissible evidence.

On the preliminary issues, the respondent raised res judicata based on the dismissal of the earlier sequestration application, and non-compliance with section 9(3) of the Insolvency Act due to missing spouse details. It was common cause that spouse details were later included by amendment with leave of court, and that the relevant information appeared on affidavit in reply and in the amended notice of motion.

3. Legal Issues

The central legal questions were whether the applicant had met the statutory requirements for a provisional sequestration order under section 10 of the Insolvency Act, namely whether the applicant had established prima facie that: (i) it held a liquidated claim as contemplated in section 9(1); (ii) the respondent had committed an act of insolvency (here, under section 8(b)); and (iii) there was reason to believe that sequestration would be to the advantage of creditors.

Before reaching those requirements, the court had to determine two preliminary objections: whether the application was barred by res judicata, and whether there had been non-compliance with the formal requirements of section 9(3) (including the consequences of the subsequent amendment and service-related complaints).

The dispute involved a combination of law (the scope of res judicata; the meaning and application of section 8(b), section 9(3), and section 10), application of law to fact (whether the nulla bona return and surrounding circumstances established an act of insolvency; whether the spouse-information requirement was met), and evaluative judgment/discretion (whether the “advantage to creditors” requirement was satisfied on the papers; whether any “special circumstances” justified refusing a provisional order despite satisfaction of the jurisdictional facts).

4. Court’s Reasoning

On condonation, the court accepted the explanation for the late answering affidavit as satisfactory, found the delay relatively short with no discernible prejudice to the applicant, and granted condonation in the interests of justice.

On res judicata, the court applied the principle that res judicata, in its strict form, requires that the matter has already been decided by a competent court between the same parties in respect of the same subject-matter, based on the same cause of action, and for the same relief. The earlier application had been dismissed because the applicant had not established actual insolvency (liabilities exceeding assets). The present application, by contrast, was brought on a different cause of action, namely an act of insolvency in terms of section 8(b). The court emphasised that section 9(1) contemplates two distinct bases upon which sequestration may be sought: actual insolvency and commission of an act of insolvency. Because the facts requiring proof differed materially between those two bases, the court held that the requirements for res judicata were not met, and the point failed.

On the objection of non-compliance with section 9(3), the court considered the statutory requirements that a petition contain specified particulars (including the debtor’s marital status and spouse’s identifying details), that the facts be verified by affidavit, and that the spouse particulars appear in the heading to the petition (or that reasons be given if they cannot be provided). The court reasoned that the respondent’s marital status was disclosed in the founding affidavit; the spouse’s details were furnished in the replying affidavit under oath; and, importantly, the applicant had obtained leave to amend the notice of motion and had effected the amendment so that the spouse particulars appeared in the heading. The court accepted that section 9(3)(b)’s affidavit requirement had been met because the information was verified on oath, and concluded that there had been material and substantial compliance.

The respondent’s additional contention focused on alleged lack of service of the amended notice of motion (and the order granting leave to amend) on SARS, the Master, and the spouse. The court noted that the application for leave to amend had been served on SARS and the Master and that neither participated. The court further noted that section 9(4)(A) does not require service of the application on the debtor’s spouse, and it saw no reason why the application to amend required service on the spouse. The court therefore rejected the section 9(3) point in limine.

Turning to the requirements for provisional sequestration, the court applied section 10 of the Insolvency Act, which requires only prima facie establishment of the three requirements.

On the liquidated claim, the court held that the judgment debt was plainly liquidated. The respondent’s liability was not disputed. The court also accepted that the applicant’s certificates of balance showed indebtedness exceeding R15 million and that this was not disputed on the papers. The court considered it significant that the debt had remained unpaid despite the lapse of years since the first sequestration application and since judgment, and that the respondent had not sold properties to reduce the indebtedness despite them being his meaningful assets.

On the act of insolvency under section 8(b), the court relied on the sheriff’s nulla bona return and the statutory language that an act of insolvency is committed where, after judgment, the debtor fails on demand to satisfy it or to indicate disposable property sufficient to satisfy it, or where the sheriff’s return reflects that insufficient disposable property was found. The court accepted that section 8(b) can be triggered in two ways (as discussed in Absa Bank v Collier), and found that the return established, at least prima facie, the requisite act of insolvency.

The respondent attempted to counter this by asserting that he owned immovable properties worth more than his debts. The court treated this as an attempt to rebut the inference arising from the nulla bona return by pointing to immovable property as “disposable property.” The court engaged with authority concerning whether immovable property (including mortgaged property) may constitute “disposable property” for purposes of section 8(b), including Absa Bank v Collier and De Waard v Andrew & Thienhaus Ltd. It accepted that, in some circumstances, immovable property can be taken into account, including where a creditor as first mortgagee can execute, but it distinguished Collier on the facts.

The court’s distinction centred on the respondent’s failure, at the time of execution, to inform the sheriff of the existence, whereabouts, and sufficiency of immovable property to satisfy the judgment, and his failure to indicate property to the executing officer as contemplated in section 8(b). The court also considered the respondent’s stance and conduct regarding realisation: unrefuted evidence indicated that he refused to sign a power of attorney intended to enable marketing and sale by private treaty or controlled auction, and that he refused access for valuations. The court further noted that the properties were commercial farms, described as not easily realisable on the open market, and that the respondent produced no admissible, reliable valuations to establish present value or realisable value. Because the respondent relied mainly on an unsupported assertion that the farms exceeded R30 million, and did not place admissible valuation evidence before the court, the court held it could not determine whether the properties would be sufficient to satisfy all debts in the current economic climate or at forced-sale prices.

Against this factual and evidentiary backdrop, the court concluded that the applicant had prima facie established an act of insolvency under section 8(b), and that the respondent had not rebutted the prima facie inference arising from the nulla bona return. The court reasoned that, on the respondent’s own version, he had failed to point out or inform the sheriff of immovable property sufficient to satisfy the judgment, and that it was incumbent on him to do so with adequate identification and description.

On the advantage to creditors requirement, the court applied the approach summarised in Meier v Meier, drawing on Meskin & Co v Friedman, namely that the creditor need not prove that sequestration will in fact be to creditors’ advantage, but must show a reasonable prospect, not too remote, of a pecuniary benefit to creditors, including through realisation methods under trusteeship or potential asset discovery via insolvency enquiries. The court accepted the applicant’s contention that a forced sale in execution may not maximise value, whereas sale by a trustee (by private treaty or special auction) might yield a meaningful dividend. The court noted that the respondent did not meaningfully engage with these allegations and that the extent of claims by other creditors (SARS and Land Bank) was uncertain due to the respondent’s failure to provide adequate proof. On the papers, the court was satisfied that there was reason to believe sequestration would be to the advantage of creditors.

Finally, on the court’s discretion, it relied on FirstRand Bank Limited v Evans for the proposition that, where the prescribed conditions for a provisional sequestration order are satisfied, the court should ordinarily grant the order absent “special circumstances,” and the onus rests on the respondent to establish such circumstances. The respondent’s argument was that the applicant could have executed earlier and should only resort to sequestration after any shortfall. The court rejected this as a special circumstance, reasoning that the respondent had done nothing to reduce the debt or cooperate to sell properties for the best attainable price, and that the applicant had explained why sequestration was considered the most advantageous remedy given difficulties associated with selling agricultural land. The court was not persuaded that special circumstances justified refusing the provisional order.

5. Outcome and Relief

The court granted an order placing the respondent’s estate under provisional sequestration.

The respondent was called upon to show cause on 7 July 2022 (or as soon thereafter as the matter might be heard) why a final sequestration order should not be granted.

The court ordered that the costs of the application would be costs in the sequestration. Condonation for the late filing of the answering affidavit was granted (unopposed at the hearing).

Cases Cited

Ascendis Animal Health (Pty) Ltd v Merck Sharp Dohme Corporation and Others 2020 (1) SA 327 (CC); Evins v Shield Insurance Co Ltd 1980 (2) SA 814 (A); McKenzie v Farmers’ Co-operative Meat Industries 1922 AD 16; Van Vuuren v Jansen 1977 (3) SA 1062 (T); Absa Bank v Collier 2015 (4) SA 364 (WCC); Van der Poel v Langerman 3 Menz 307; De Waard v Andrew & Thienhaus Ltd 1907 TS 727; Nedbank Ltd v Mzizi and Related Cases 2021 (4) SA 297 (GJ); Meier v Meier (15781/2015) [2021] ZAGPPHC 456 (6 July 2021); Meskin & Co v Friedman 1948 (2) SA 555 (W); Nedbank Ltd v Groenewald 2013 JDR 0748 (GNP); Stratford and Others v Investec Bank Ltd and Others 2015 (3) SA 1 (CC); FirstRand Bank Limited v Evans 2011 (4) SA 597 (KZD).

Legislation Cited

Insolvency Act 24 of 1936, sections 8(b), 9(1), 9(3), 9(4)(A), 10, and (as referenced in quoted authority) 12.

Rules of Court Cited

Uniform Rules of Court, Rule 46(1).

Held

The court held that the respondent’s preliminary defences failed. The application was not barred by res judicata because the earlier dismissed sequestration application had been based on actual insolvency, whereas the present application was based on an act of insolvency under section 8(b), constituting a different cause of action under section 9(1) of the Insolvency Act. The court further held that there was material compliance with section 9(3) because the spouse details were ultimately placed under oath and included in the amended notice of motion with leave of court, and the service-related objections did not establish a basis for dismissal.

On the merits, the court held that the applicant had shown prima facie a liquidated claim (the judgment debt), a section 8(b) act of insolvency established by the sheriff’s nulla bona return and not rebutted on the respondent’s version, and reason to believe that sequestration would be to the advantage of creditors. The court further held that no “special circumstances” were shown that warranted refusal of a provisional order once the statutory requirements were met. The respondent’s estate was accordingly placed under provisional sequestration, with costs to be costs in the sequestration.

LEGAL PRINCIPLES

Res judicata, in its strict sense, precludes subsequent litigation only where a competent court has finally determined the same dispute between the same parties in respect of the same subject-matter based on the same cause of action and for the same relief. A “cause of action” consists of every fact that must be proved to sustain the right to judgment (as distinct from the evidence by which those facts are proved).

Section 9(1) of the Insolvency Act recognises distinct bases upon which sequestration may be sought, namely that the debtor is insolvent (actual insolvency) or that the debtor has committed an act of insolvency. Applications founded on these different bases involve different facts requiring proof and are not necessarily barred by a prior failed application premised on the other basis.

A sheriff’s nulla bona return following execution on a judgment constitutes prima facie proof of an act of insolvency under section 8(b). Where the statutory elements are prima facie present, it falls to the debtor to rebut the inference, including by showing that there exists disposable property sufficient to satisfy the judgment and, where relevant, that such property was properly indicated to the executing officer as contemplated by the section.

For purposes of the “advantage to creditors” requirement under sections 10 and 12 of the Insolvency Act, the creditor need not prove a positive outcome, but must establish that there is reason to believe that sequestration will be to creditors’ advantage. This entails a reasonable prospect, not too remote, of a pecuniary benefit to creditors, which may arise not only from immediate assets but also from the mechanisms of investigation and recovery under the insolvency regime.

Where the requirements for a provisional sequestration order are satisfied, a court will ordinarily grant the order in the absence of special circumstances, with the respondent bearing the burden of establishing such circumstances to justify the exercise of discretion against granting provisional sequestration.

ABSA Bank Limited v Appelcryn (2019/38568) [2022] ZAGPJHC 429 (28 June 2022)