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[2023] ZAGPJHC 866
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Engelbrecht NO and Another v Naidoo and Another (2023 - 066208) [2023] ZAGPJHC 866 (3 August 2023)

REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
CASE NO: 2023 - 066208
NOT REPORTABLE
NOT OF INTEREST TO OTHER
JUDGES
NOT REVISED
03/08/23
In the matter between:
RYNO ENGELBRECHT
N.O
FIRST APPLICANT
TSIU VINCENT
MATSEPE N.O.
SECOND APPLICANT
And
DAVID NAIDOO
FIRST RESPONDENT
MASTER OF THE HIGH
COURT, JOHANNESBURG
SECOND RESPONDENT
JUDGMENT
DU PLESSIS AJ
Background
[1]
This urgent application requires the court
to exercise its discretionary power in section 127A(1) of the
Insolvency Act 24 of 1936
(“the
Insolvency Act&rdquo
;) to delay
or deny the automatic rehabilitation of the First Respondent, Mr
Naidoo, who is currently an unrehabilitated insolvent.
[2]
The
Applicants are the trustees of Mr Naidoo's insolvent estate. The
First Respondent, Mr Naidoo, is the insolvent. Mr Naidoo's
estate was
provisionally sequestrated on 21 August 2013 and will automatically
be rehabilitated through the effluxion of time on
21 August 2023. It
is this rehabilitation that the trustees argue would prejudice the
creditors of the insolvent estate, and the
public, as the affairs and
transactions of Mr Naidoo have not been investigated thoroughly. They
contend that this is because of
Mr Naidoo's conduct, showing a
complete lack of
bona
fides
and cooperation with his duly appointed trustees. The trustees go so
far as to state that his conduct shows "a clear disdain
for the
rule of law and an intent to evade his creditors".
[1]
Such behaviour should not be tolerated and should convince the court
to exercise its discretion in terms of
s 127A(1)
of the
Insolvency
Act to
delay or deny Mr Naidoo's imminent rehabilitation.
[3]
The Applicants set out the conduct on which
they rely. They show that since Mr Naidoo's provisional
sequestration, he has launched
14 appeals and applications to stay
and/or rescind orders and/or proceedings. They aver that they did
this with the sole purpose
of causing delay, it was done in bad
faith, and did not have a legitimate aim. They conclude that he has
failed to pursue any of
the many appeals and/or applications with
genuine intent.
[4]
On top of that, it seems like Mr Naidoo
continues to live a prosperous life spending money in casinos while
at the same time failing
to comply with any of his obligations
imposed on him as an insolvent in terms of the Act. The Applicants
list the various contraventions
in terms of the Act, highlighting
that:
i.
Mr Naidoo failed to inform his trustees of
his residential and postal address. This is met with a blunt denial,
rather than proof
that this is not true. He also did not disclose his
residential address in this urgent application.
ii.
Mr Naidoo failed to provide the trustees
with a duly completed statement of affairs in contravention of s 16
of the Act, attributing
this omission to his previous attorneys and
accusing them of failing to apprise him with the statement of
affairs. He makes no
promises of submitting it otherwise.
iii.
Mr Naidoo has failed in his obligation to
appear at the first and second meetings of creditors, including an
enquiry into his affairs
at the second meeting. This is contra s 64
of the Act. He states that this is the fault of his previous
attorneys, who did not
inform him of the notices.
iv.
Mr Naidoo knew about the second meeting of
creditors, failed to appear despite his statutory obligation to
appear, and briefed counsel
to appear on his behalf. This second
meeting was set down on various dates to conduct an enquiry into Mr
Naidoo's affairs, where
he was represented by various legal teams,
evidence that he knew about the sittings.
[5]
Added
to this, and on his version, Mr Naidoo has been involved in the
management of a Close Corporation while being an unrehabilitated

insolvent, in violation of s 47(1)(b)(i) of the Close Corporations
Act.
[2]
He further, in his
capacity as sole member of M & M Hiring Marquee CC, and without
the trustees' consent, passed a resolution
to proceed with the
liquidation proceedings against a creditor after he had already been
sequestrated.
[6]
Perhaps crucial for this application –
the Applicant avers that as a direct result of these delays, the
trustees have not
been able to investigate his affairs and
transactions fully, and in turn, could not report to the creditors in
terms of s 81(1)
of the Act. Therefore, the sequestration proceedings
are still ongoing.
[7]
The
trustees can't know the full extent of Mr Naidoo's debts, the
Applicant continues, as this can only be established by Mr Naidoo

himself at the enquiry into his affairs. The Master has, in the
meantime, transferred the enquiry to the Palm Ridge Magistrates
Court
due to the non-cooperation of the insolvent in not attending to the
enquiry proceedings. This is because only a Judge or
a Magistrate may
issue a warrant committing an examinee to prison for failure to
participate in an enquiry.
[3]
[8]
This enquiry is central to the
sequestration process. It allows the trustees to investigate the
affairs and transactions of the
insolvent. The trustees hope to
establish various facts when Mr Naidoo attends the enquiry now set
down in the Magistrate's Court,
such as his pre-sequestration assets
and liabilities, whether there are impeachable transactions, the
entities in which the insolvent
had an interest before sequestration,
and the insolvent's pre- and post-sequestration income and expenses
and liabilities.
[9]
For this reason, they seek an order in
terms of
s 127A(1)
of the
Insolvency Act, as
the expiry of the period
would preclude interrogation of the insolvent, which in turn would
prejudice the creditors.
[10]
Mr Naidoo disagrees. He mainly argues that
the trustees had many years to conduct the necessary meetings and
enquiries and failed
to do so. They discovered and frozen bank
accounts fourteen and two months ago, respectively. They waited too
long before launching
these proceedings, creating their own urgency
and place Mr Naidoo under pressure to oppose, and the court under
unnecessary pressure
to adjudicate, the application.
[11]
Moreover, Mr Naidoo contends that the
Applicants focus so excessively on his alleged delaying tactics and
obstructive behaviour
that they fail to set out the exact stage of
administration of the estate, the dividend available to the
creditors, or the prejudice
the creditors may suffer. None of the
creditors brought an application for relief similar to those of the
Applicants.
[12]
During
argument, counsel for Mr Naidoo argued that case law sets out what a
court must take into account when considering rehabilitation,
namely
how the insolvent conducted his trade before he became insolvent and
not during insolvency.
[4]
They
refer the court to a directive by the Master in terms of
s 71(1)
of
the
Close Corporations Act 69 of 1984
that deals with the evidence
led at sittings of the Insolvency Inquiry of his close corporation, M
& M Hiring SA CC. The directive
states that during a certain
period, he received a direct or indirect salary or other remuneration
in the amount of R 2 250 000,
which payment was, in the
Master's opinion, "not
bona
fide
or reasonable in the circumstances of commercial insolvency" the
CC was trading under at the time. Yet, counsel for Mr Naidoo
says
that Mr Naidoo's insolvency did not flow from negligent or reckless
conducting of his personal business affairs but rather
from his
inability to repay his salary received whilst being a member of his
commercially insolvent close corporation. That despite
the Master
stating that it was not
bona
fide
or
reasonable.
[13]
They list other factors that the court must
take into account, such as that the primary purpose of
s 127A(1)
is
to provide for automatic rehabilitation. As for his alleged
obstructive behaviour, they say he was exercising his constitutional

right of access to courts by bringing applications and engaging in
the appeal processes. Furthermore, the argument that he failed
to
present the trustees with a statement of affairs should be
disregarded, as it had to be presented to the Master (which did not

happen). The failure to submit monthly Income and Expense Statements
is also not something the court can consider, as the Applicants
never
required it from him. They make a similar argument regarding his
earnings, and the recovering or liquidating of assets. As
for the
address, the Applicants never took any steps to compel compliance
with the Act. The same goes for the second meeting of
creditors. As
for the various contraventions, he has not been charged or convicted,
they argue, and as for various other allegations,
they have not made
out a case for it. They should thus not be able to rely on it. In
short, an allegation was either answered with
he was not requested,
compelled, not charged or convicted, or a case was not made out.
Still, the court is not informed about what
Mr Naidoo did to comply
with the obligations placed on him as an insolvent in terms of the
Act.
[14]
They also question the usefulness of the
enquiry process, as, after 10 years, any claim not already proven
against the estate would
have been prescribed years ago. Lastly, they
argue that a less invasive measure is available, namely conditional
rehabilitation
as per
ss 127(2)
and (3) of the
Insolvency Act.
>
Ad urgency
[15]
The
Applicant argues that the matter is sufficiently urgent because the
automatic rehabilitation of Mr Naidoo would result in him
being
discharged from his debts due or arising before his sequestration. In
their replying affidavit, they set out the lodged and
proven claims
amount to about R7 million. There is currently a shortfall of
approximately R5,7 million. I accept that in urgent
matters, the
courts have allowed papers to be amplified in reply, subject to the
right of a respondent to file further answering
papers.
[5]
From the facts above, it also seems challenging to set out the
dividend and the prejudice since, due to the lack of cooperation
from
Mr Naidoo, there is not enough information.
[16]
Apart from that, there seems to be a
reasonable chance that Mr Naidoo did commit various statutory
offences and has not complied
with his obligations in terms of the
Act. This will be reported to the creditors and the Master in terms
of s 81(1) of the Act
once the sequestration process has been
completed. The matter has recently been moved to a Magistrate with
more powers to compel
compliance with the Act to set that process in
motion. It is also in the general public's interest that Mr Naidoo's
automatic rehabilitation
should be prevented to ensure accountability
in that regard.
[17]
The urgency hinges on the fact that Mr
Naidoo will automatically be rehabilitated on 21 August 2023. The
facts above show that the
numerous steps taken by the trustees since
their application to finalise the sequestration were met by
obstructive conduct from
Naidoo, making it impossible to complete the
sequestration before the expiry of the 10 years.
[18]
As
for the proceedings only instituted now, I am guided by the judgment
of
East
Rock Trading 7 (Pty) Ltd v Eagle Valley Granite (Pty) Ltd
[6]
where the court stated that
"the delay in
instituting proceedings is not, on its own a ground, for refusing to
regard the matter as urgent. A court is
obliged to consider the
circumstances of the case and the explanation given. The important
issue is whether, despite the delay,
the applicant can or cannot be
afforded substantial redress at a hearing in due course."
[19]
I am satisfied that there is no other
remedy to prevent the prejudice to the creditors of the insolvent
estate should Mr Naidoo
be automatically rehabilitated on 21 August
2023. There is thus no other substantial redress at a hearing in due
course. Mr Naidoo
should not be allowed to delay accountability for
10 years and then plead delay in bringing the action on the part of
the trustees
to escape accountability.
The law
[20]
The
Insolvency Act regulates
the sequestration process. The purpose of
sequestration is to ensure that the debtor's assets are equally
distributed where they
are insufficient to meet the claims of all his
creditors. Upon the order of sequestration, the
concursus
creditorum
is established, replacing a creditor's claim to recover their claim
in full of a claim against the insolvent estate to share the
proceeds
of the assets of the estate based on the order of preference. It is
perhaps for this reason that courts interpret the
law of insolvency
to exist primarily for creditors' benefit.
[7]
However, sequestration also has the inevitable effect of relieving a
debtor from legal proceedings by creditors through rehabilitation

since he is freed from all unpaid pre-sequestration debts upon
rehabilitation.
[8]
[21]
Mr Naidoo raised the issue that if the
court gives an order to prevent his rehabilitation, it would be a
limitation of his rights
to freely choose their trade, occupation and
profession as guaranteed in terms of s 22 of the Constitution. This
point was not
laboured during argument by either party, nor was there
an argument put forth about the constitutionality of the
Insolvency
Act. I
thus only remark that the Constitution allows for the
limitation of rights, as long as it is in line with s 36 of the
Constitution.
[22]
Such
a limitation does not endure forever but ends through rehabilitation.
The rehabilitation of an insolvent person may happen
by order of the
court pursuant to an application for rehabilitation in line with ss
123 – 126, or automatically by effluxion
of time in terms of s
127A. Both methods end the sequestration and relieve the insolvent of
all the limitation that sequestration
place on an insolvent.
[9]
[23]
An insolvent is deemed to be rehabilitated
after ten years from the date of sequestration of his estate. In
terms of s 127A(1),
a court can order otherwise upon the application
of an interested person. S127A(1) provides:
127A.
Rehabilitation by effluxion of time.—
(1)  Any insolvent
not rehabilitated by the court within a period of ten years from the
date of sequestration of his estate,
shall be deemed to be
rehabilitated after the expiry of that period unless a court upon
application by an interested person after
notice to the insolvent
orders otherwise prior to the expiration of the said period of ten
years.
(2)  If a court
issues an order contemplated in subsection (1), the registrar shall
transmit a copy of the order to every officer
charged with the
registration of title to any immovable property in the Republic.
(3)  Upon receipt of
the order by such officer he shall enter a caveat against the
transfer of all immovable property or the
cancellation or cession of
any bond registered in the name of or belonging to the insolvent.
(4)  The caveat
shall remain in force until the date upon which the insolvent is
rehabilitated.
[24]
The
effect of automatic rehabilitation is the same as rehabilitation by
application to the court. When the court considers an application
for
rehabilitation, the court must determine whether the insolvent ought
to be rehabilitated and ought to be allowed to trade with
the public
on the same basis as any other honest person. In essence, the court
must determine whether the insolvent is a fit and
proper person to
participate in commercial life without any constraints and
disabilities.
[10]
[25]
There
is no caselaw on s 127A(1), but commentators on the Act state that
this section may be appropriate if "the expiry of
such period
would preclude interrogation of the insolvent which in the interest
of creditors ought to occur (eg, as a result of
newly discovered
information)".
[11]
[26]
Since
there is no case law on s 127A(1), it is helpful to look at factors
that can be considered when the court must exercise its
discretion
when faced with the reverse: an application for rehabilitation in
terms of s 127(2). Case law on the section emphasises
that the court
must exercise this discretion judicially and not arbitrarily.
[12]
The lapse of time cannot outweigh other factors that justify the
court's refusal of rehabilitation.
[13]
The opinions of the Master and trustee must be properly
considered.
[14]
The court does
not only focus on the interest of the insolvent but on the interests
of his creditors (whether claims are proven
or not), the State in
relation to any prosecution of him, and the public, specifically the
commercial public. The central question
is whether the insolvent is a
fit person to participate in the commercial life of the community,
free of the constraints and disabilities
affecting an insolvent.
[15]
[27]
Examples of factors that persuaded to court
to refuse an order for rehabilitation are the following, namely that
the insolvent:
i.
conducted
his business improperly and negligently;
[16]
ii.
failed
to keep proper books of account;
[17]
iii.
ran
up excessive debts prior to sequestration;
[18]
iv.
he
was difficult and refused to cooperate with the trustees in the
administration of his estate;
[19]
v.
he
was highly obstructive in the administration of his estate, making
unfounded allegations against his trustees and members of
the
Master's staff;
[20]
vi.
he
"sidestepped the inhibitions of insolvency" by living
luxury without making contributions to the creditors;
[21]
vii.
he
failed to set out in his application for rehabilitation the
circumstances that led to his insolvency;
[22]
viii.
his
application discloses nothing to suggest that he had learned the
lessons of insolvency, or that he appreciates the possible
hardship
his sequestration might have caused his creditors.
[23]
[28]
Importantly,
when the court refuses an application for rehabilitation, the court
will usually indicate the period after which the
application may be
renewed, in the absence of which the insolvent may apply again when
he considers it appropriate.
[24]
[29]
The following are factors have favour
unconditional rehabilitation under s 127(1), namely that the
insolvent:
i.
Incurred
only very small debts;
[25]
ii.
Is
not to blame for his sequestration, which came about through
misfortune;
[26]
iii.
Neither
creditors nor trustees took steps under s 23(5) to obtain part of the
insolvent's earnings during his insolvency;
[27]
iv.
Has
no opposition to his application from creditors, the trustee, or the
Master.
[28]
[30]
In
terms of s 127(2), it is possible to grant rehabilitation subject to
a condition and where the circumstances make it just and
equitable to
impose the condition.
[29]
There were no such special conditions motivated in the urgent court.
[31]
I thus have to exercise my discretion in
deciding whether I will intervene in terms of s 127A(1) and prevent
Mr Naidoo from automatically
rehabilitating in a few weeks.
Considering the indications of fraudulent conduct during his
sequestration process by concealing
his assets, his failure to
disclose material information during the sequestration process, his
non-compliance with the legal obligations
that the Act imposes on him
during sequestration, his failure to cooperate with the trustees, to
provide the necessary information
and documents, his failure to
attend the enquiry proceedings and to keep his trustees appraised of
his residential and postal address,
and in his general failure to be
accountable to his creditors, the trustees and the Master, leads me
to the conclusion that Mr
Naidoo should not be rehabilitated yet.
Should he be rehabilitated on 21 August 2023, he would escape
accountability to his creditors,
the trustees and the Master, evading
all the consequences of his insolvency.
[32]
Mr Naidoo's contention that the trustees
should have compelled his compliance with the provisions of the Act
through the years,
and that his non-compliance should therefore be
excused does not hold water. The Act places obligations on the
insolvent, requiring
the compliance of the insolvent, with
non-compliance with certain provisions even constituting an offence
which the Director of
Public Prosecution may prosecute. The
compliance is not optional, and the fact that there is no compulsion
from the trustees does
not excuse non-compliance from the insolvent.
He also offered no reasons for non-compliance other than that he was
not compelled
to do so.
[33]
Initially the Applicant asked that the
First Respondent shall not be rehabilitated and nothing else. This
seems to be too open-ended.
I, however, do not deem it appropriate to
extend his insolvency with a specific number of years, as this will
possibly merely provide
a new target date for Mr Naidoo to evade his
obligations. I did, however, find it sensible to provide Mr Naidoo
with the option
to, at any time, apply for his rehabilitation in
terms of the Act. In such an application, Mr Naidoo would have to
prove to the
court that he has complied with his obligations under
the Act and should be rehabilitated.
Order
[34]
I, therefore, make the following order:
1.
The forms and service provided for in the
Uniform Rules of Court are dispensed with and it is directed that the
application be enrolled
and heard as one of urgency in terms of
Uniform Court Rule 6(12).
2.
The First Respondent is not to be deemed to
be rehabilitated in terms of the provisions of
section 127A(1)
of the
Insolvency Act 24 of 1936
as from 21 August 2023.
3.
The order in 2, does not prevent the First
Respondent from applying for his rehabilitation in terms of
section
124
of the
Insolvency Act 24 of 1936
.
4.
The First Respondent is to pay the costs of
this application.
WJ
DU PLESSIS
Acting
Judge of the High Court
Delivered:  This
judgement is handed down electronically by uploading it to the
electronic file of this matter on CaseLines.
It will be sent to the
parties/their legal representatives by email.
Counsel for the
applicant:
JF van der Merwe
Instructed by:
Brits & Matthee
Counsel the for
respondent:
R Grundlingh and ASL van
Wyk
Instructed by:
Lacante Attorneys Inc
Date of the hearing:
01 August 2023
Date of judgment:
03 August 2023
[1]
Applicant’s heads of argument paragraph 4.
[2]
69 of 1984.
[3]
De
Lange v Smuts NO
1998 (3) SA 785 (CC).
[4]
Based on
Ex
Parte Heydenreich
1917 TPD 657
at 658.
[5]
Lagoon
Beach Hotel (Pty) Ltd v Lehane NO
2016 (3) SA 143
(SCA) at 152G–H.
[6]
2011
JDR 1832 (GSJ) para 8.
[7]
Ex
parte Pillay; Mayet v Pillay
1955 (2) SA 309 (N) 311.
[8]
Section
129(1)(b).
[9]
S 129(1)(a)
of the
Insolvency Act.
[10
]
Ex
parte Harris (Fairhaven Country Estate (Pty) Ltd as intervening
party)
[2016] 1 All SA 764
(WCC) para 84.
[11]
Meskin
Insolvency
Law
para 14.2
[12]
Ex
Part Phillips
1928 CPD 381 384.
[13]
Ex
parte Fourie
[2008] 4 All SA 340
(D) 343.
[14]
Smith,
A, van der Linde, K, Calitz, J
Hockly's
Law of Insolvency
(2022) 216.
[15]
Ex
parte Heydenreich
1917 TPD 657
at 658659;
Ex
parte Helps
1938 NPD 143
at 149;
Ex
parte Martens
1951 (4) SA 530
(N) at 531532;
Kruger
v The Master and Another: Ex parte Kruger
1982 (1) SA 754
(W) at 758;
Ex
parte Le Roux
1996 (2) SA 419
(C) at 423424;
Ex
parte Harris (Fairhaven Country Estate (Pty) Ltd as intervening
party)
[2016] 1 All SA 764
(WCC) at para 84.
[16]
Ex
parte Blumberg
1941 EDL 1.
[17]
Ex
parte Hajee
1939 NPD 197.
[18]
Ex
parte Ezer
1934 CPD 65.
[19]
Ex
parte Martens
1951 (4) SA 530 (N).
[20]
Greub
v The Master
1999 (1) SA 746 (C) 749.
[21]
Ex
parte Porritt
1991 (3) SA 866 (N).
[22]
Ex
parte Davis
1938 CPD 335.
[23]
Ex
parte Le Roux
1996 (2) SA 419
(O).
[24]
Ex
parte Porritt
1991 (3) SA 866 (N).
[25]
Ex
parte Mark 1932 WLD 53 56.
[26]
Ex
parte Meine
1937 CPD 154.
[27]
Ex
parte Jacobs
1977 (4) SA 155 (NC).
[28]
Ex
parte Van Staden
1967 (4) SA 375 (R).
[29]
Ex
part
Cutting
1943
CPD 51.