Lemley v Lemley and Another (2038/08) [2009] ZAECPEHC 20 (2 March 2009)

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[2009] ZAECPEHC 20
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Lemley v Lemley and Another (2038/08) [2009] ZAECPEHC 20 (2 March 2009)

15
CASE NO. 2038/08
IN THE HIGH COURT OF SOUTH AFRICA
(SOUTH EASTERN CAPE LOCAL DIVISION)
DATE 2.4.2009
ZELDA YOLANDE LEMLEY Applicant
and
JOSEPH A E LEMLEY Respondent
ABSA BANK LTD
Intervening Creditor
J U D G M E N T
PICKERING, J
This is the return day of a rule
nisi
which was issued by this court on 24 October 2008 in terms whereof
the respondent was called upon to show cause to this court why
a
final order of sequestration should not be granted against his
estate. The respondent does not oppose. Confirmation of the rule
is,
however, opposed by an intervening creditor, Absa Bank Ltd.
The application for the respondent’s
sequestration is a striking example of a so
-called
“friendly sequestration”. (Compare
EPSTEIN
v EPSTEIN
1987(4) SA 606 (C)).
Applicant is respondent’s mother. She avers in
her founding affidavit that respondent endured a number of personal
crises during
2007, in consequence whereof he became divorced and
also lost his employment. She accordingly assisted him, she says,
from time
to time “advancing funds to him to enable him
to survive on a month to month basis”. She does not provide any
details thereof because, so she states in reply, her attorney
was
subject to severe time restraints in preparing the application. Be
that as it may, she alleges that on 27 September 2008
she loaned
respondent the amount of R2 500 “to assist him to pay his
creditors”. In proof thereof, she attaches the relevant
bank
deposit slip. She lists respondent’s creditors at the time that
she loaned respondent the aforesaid amount as follows:
“Absa mortgage bond R650
000,00
WesBank HP Agreement R408 750,40
Absa Credit Card R 46 057,26
FNB Credit Card R 21 376,34
American Express Credit Card R 33 584,15
Blue Bean Credit Card R 44 523,36
Absa HP Agreement R 27 220,94.”
Respondent’s total liabilities amounted to R1
231 512,20 whereas, according to applicant, his assets amounted to
R783 404,46.
Quite how the amount of R2 500 was going to assist
respondent in paying off these creditors is not apparent.
The next step in this saga followed as the night
the day and, sure enough, on 30 September 2008 respondent addressed
a letter
to applicant in which he stated, inter alia, as follows:
“Dear Mother
I refer to our numerous conversations regarding
my financial situation and the money you lent me. I want to thank
you for helping
me where you could and for lending me money in an
attempt to recover from this financial crisis that I find myself in.
As you
know I have really tried my best to pay you back the money
that I owe you, but I now find myself in the position where I just
do not have enough money to pay everything I have to pay. I asked
you to lend me some more money in order to be able to pay everything

at the end of this month, but this is not even enough. I cannot even
come close to paying everything I have to.”
The present application followed very shortly
thereafter on the 2
nd
October 2008. It is not in dispute between the
applicant and
the intervening creditor that applicant’s loan to respondent is
prima
facie
evidence of a liquidated claim entitling
her to apply for the sequestration of respondent’s estate and that
respondent’s
letter to her constitutes an act of insolvency in
terms of
section 8
of the
Insolvency Act 24 of 1936
.
The intervening creditor opposes the confirmation of the rule on
the basis that the sequestration of respondent’s estate would
not
be to the advantage of creditors. It has been held in a number of
cases that the fact that a sequestration may be “friendly”
will
not preclude the grant of a sequestration order when the
requirements of the
Insolvency Act are
generally satisfied but that
the court should scrutinise such an application with particular care
in order to protect the interests
of creditors. (See
EPSTEIN v
EPSTEIN
supra,;
ex
parte STEENKAMP AND RELATED
CASES
1996(3) SA 822 (W)). LEACH J
VAN ECK v KIRKWOOD
1997(1) SA 289 (SECLD) stated as follows at 290C-D:
“But as this is a “friendly sequestration” one must guard
against there being collusion between the applicant and the
respondent- see in this regard the remarks of Conradie J in
Craggs
v Dedekind; Baartman v Baartman & Another; Van Jaarsveld v
Roebuck; Van Aardt v Borrett
1996(1) SA 935(C) at 937.
Particular in a case such as this one must be careful to ensure that
the ‘friendly’ creditor does
not obtain an order which cannot be
said to be in the interests of creditors and, accordingly, the
allegations made in regard
to this issue should be closely
construed”.
(See too
VAN ROOYEN v VAN ROOYEN
[2004]2 All SA, 485 (SE) at
489H-490E and
ESTERHUIZEN v SWANEPOEL AND SIX-TEEN OTHER CASES
2004(4) SA 89 (W). In Esterhuizen SATCHWELL J stated as follows at
paragraph 8 with regard to “collusion” namely:
“The collusion is frequently found in the following pattern of
behaviour or
modus
operandi
:
a debtor owes money, frequently in signi-ficant amount(s), to
creditor(s) who expect and rely upon the anticipated repayment
of
this outstanding debt. The debtor cannot make payment of the debt.
He seeks the assistance of a third party who agrees to initiate
sequestration pro-ceedings to ‘
aid or shield [the] harassed
debtor
” from his genuine and perhaps de-manding creditor(s).
(
EPSTEIN v EPSTEIN
1987(4) SA 606 (C)).
A friend or relative masquerades as a “creditor” and alleges
that a (non-existent) debt is owed him by the “debtor”.
The
“creditor” then avers of a “debtor” has not only failed or
refused to repay this “debt” but has written a letter
advising
of his inability to pay the “debt”.
An act of insolvency in terms of
s 8(g)
of the
Insolvency Act 24 of
1936
has now purportedly been committed and the “creditor”
proceeds with sequestration proceedings against “the debtor”.
This “friendly” application (or sequestration) procures an
order declaring the respondent insolvent. The respondent is
then
relieved of his or her legal, financial and moral obligations to
the original and genuine creditor(s) save to the extent
that the
insolvent estate is able to satisfy such debt(s). The balance of
the genuine indebtedness remains unsatisfied and,
with the
connivance of another, the insolvent has been enabled to escape
payment of his just debts’.
Accepting in the present case that a loan was indeed made, the
following remarks by the learned Judge are never-theless also

pertinent, namely paragraph 10:
“(j) The borrower frequently finds himself or herself in dire
financial straits within days or weeks. Surprising is
the haste
with which a defaulting borrower seeks to advise of this
unexpected insolvency. No proof is ever provided
of the time
period which was granted to the borrower to make use of and
repay the loan.
The Court should be forgiven for finding it strange that an
inability to repay a loan within 5 days or 12 days or 20 days
or
even 30 days is so shocking to the lender that he or she feels
obliged to pursue the route of initiating sequestration proceedings.
The borrower is so horrified at his own abject financial situation
that he or she immediately writes a letter advising of an
inability
to repay the loan. There is stated a bare inability to pay - no
request for extensions of time, no proposals to pay
in instalments,
no offer to render services or even suggestions that the lender
initiate another course of action.”
With that as background I turn to the requirement in
s 10(c)
of the
Insolvency Act as
to whether there is reason to believe that it will
be to the advantage of creditors if respondent’s estate is
sequestrated.
In
HILLHOUSE VS STOTT; FREBAN INVESTMENTS (Pty) Ltd v ITZKIN;
BOTHA v BOTHA
1990(4) SA 580 (W) LEVESON, J stated as follows at
585C-I:
“To return to the proposition made by ROPER J in the
MESKIN
case
supra
, the Court need not be satisfied that there will
be advantage to creditors, only that there is reason to believe that
this 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 improper 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 secure some useful

purpose. I express it thus because, as 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 inquiry under
the relevant provisions of the Act might unearth assets,
thereby
benefiting creditors. But for cases such as the present where the
only question is to what extent creditors can benefit
from the
moneys known to be available (there being no other assets), I think
it proper to adopt the test of Seligson AJ in Epstein
v Epstein
1987(4) SA 606 (C) at 609:
‘The correct test to be applied is whether the facts placed before
the Court show that there is a reasonable prospect – not

necessarily a likelihood, but a prospect which is not too remote –
that some not negligible pecuniary benefit will result to

creditors’”.
This dicta was approved by the Supreme Court of Appeal
in
COMMISSIONER, SOUTH AFRICAN REVENUE SERVICE v HAWKER AIR
SERVICES (PTY) LTD; COMMISSIONER, SOUTH AFRICAN REVENUE SERVICE v
HAWKER
AVIATION PARTNERSHIP & OTHERS
2006(4) SA 292 (SCA) at
306D where CAMERON, J A stated as follows at paragraph 29, namely:
“The question is whether the Commissioner has established that
sequestration would render any benefit to creditors, given that
the
partnership is now defunct. The answer seems to lie in those
decisions that have held that a court need not be satisfied
that
there will be advantage to creditors in the sense of immediate
financial benefit. The court need be satisfied only that
there is a
reason to believe - not necessarily a likelihood, but a prospect not
too remote - that as a result of investigation
and inquiry assets
might be unearthed that will benefit creditors.”
It is clear in my view in the present matter that there are no
prospects of any other assets being unearthed. Although reference
is
made in this regard by the applicant to respondent having obtained
temporary employment, applicant coyly refrains from furnishing
any
details whatsoever of the nature of this employment and the amount
of salary being received by respondent. Although Miss
Beneke
,
who appears for the applicant, raised the possibility of a
postponement in order to supplement the papers of the applicant,
she
wisely abandoned this course of action, having regard to the costs
implication should such an application for postponement
be granted.
She submitted, however, that it was possible that a trustee might
unearth some assets in respondent’s estate.
As was stated in
MAMACOS v DAVIDS
1976(1) SA 19 (C) an
applicant should go further than merely alleging, as in the present
case, that a trustee will be in a position
to investigate whether
respondent has any further assets. If an applicant wishes to rely
upon this, then facts should be alleged
which indicate that such an
examination of the respondent has some prospect of revealing
additional assets, so that a creditor
knows whether such an
examination could result in some financial advantage to him or it,
and therefore file a claim.
In the circumstances of this case, however, the only question that
remains is whether some not negligible pecuniary benefit
will result
to creditors in the event of the rule being confirmed. The onus in
this regard rests on the applicant. I have set
out above the nature
of respondent’s assets and liabilities as listed by the applicant.
It is further common cause that the
intervening creditor is a
secured creditor in terms of certain immovable property, being the
holder of a mortgage bond registered
in its favour by respondent and
his ex-wife. It is also common cause that on 3 September 2008 the
inter-vening creditor obtained
judgment against respondent and his
ex-wife jointly and severally in the amount of R1 268 784,65
together with interest thereon
from 12 June 2008 to date of payment
and that the balance outstanding as at 11 November 2008 was the sum
of R1 339 448, 21. Assuming,
as alleged by applicant, the value of
the property to be R1 000 000, the shortfall of the intervening
creditor’s security would
be R289 448,21. The intervening creditor
would accordingly be the major concurrent creditor in respect of
such shortfall. It
is also a concurrent creditor in respect of the
instalment sale agree-ment listed in paragraph 15.2 of applicant’s
founding
affidavit. The balance of that account was R28 911,33 as at
12 November 2008.The subject matter of that agreement has been
repossessed
and sold leaving the aforesaid outstanding balance.
At my request counsel prepared a schedule detailing the amount of
the dividend which would in all likelihood be derived from
the
sequestration and be available for distribution to creditors. I am
indebted to counsel for the time and trouble taken by
them in this
regard. It is not necessary to set out the various permutations upon
which calculations have been based. Suffice
to say that, at best for
applicant, a dividend of 5 cents in the rand would be produced on
the basis that applicant, as stated
by her, waives her right to
claim any costs as also the applicant’s attorney. That has not
taken into account, however, applicant’s
counsel’s fees of
today. It also does not take into account the costs of the
intervening creditor.
In
MEAKER N.O. v HAINES & OTHERS
1965(3) SA 496 (SR) the
following is stated at 502C concerning the costs of an intervening
creditor in the event of a sequestration
order being granted:
“The respondents’ opposition to the confirma-tion of the rule
has been supported by a great many creditors. These creditors

represent the majority in value and in numbers and include well
known financial institutions whose views deserve special
consideration.
The respond-ents have displayed a desire to adopt a
pro-cedure which would in their view, as supported by his creditors,
result
in creditors obtaining a larger dividend and even hold out
the hope that they could be paid in full. The respondents had
reasonable
grounds for thinking that their opposition would succeed.
It is neither necessary nor desirable to define “special
cir-cumstances”
or what is “reasonable” - each case must turn
on its own facts. I am satisfied that this is a proper case for
directing that
the costs of opposition be part of the costs of
sequestration.”
In the present case I am satisfied that were a sequestra-tion order
to be granted, the intervening creditor would be entitled
to an
order that the costs of opposition be included in the taxed costs of
the sequestration. If a sequestration order were to
be granted, and
those costs were to be included, then it is abundantly clear that
there would be no dividend available whatsoever
for distribution to
creditors.
I am in any event of the view that a dividend of 5 cents in the
rand is negligible in the circumstances of this case. The matter
of
ABSA BANK LTD v DE KLERK AND RELATED CASES
1999(4) SA 835 (E)
relied upon by Miss
Beneke
, in which it was held that a
dividend as low as 5 cents in the rand was not negligible in the
circumstances there pertaining,
is in my view distinguishable.
In my view this is the type of case where, as was stated by JONES,
J in
NOSWORTHY v HOLMAN
1993(2) SA 774 (E) at 775B:
“The balance available remains so small that few, if any, sensible
creditors will think it worth their while to recover it.”
I would refer further to what was stressed by JENNETT, J in
VAN
ROOYEN v VAN ROOYEN
supra
at 493D-E, namely:
“The major creditors are the intervening creditor and ABSA Bank
and due regard must be had for what they say is in their best

interests. If I am to issue an order for the provisional
sequestration of respondent’s estate, I must be satisfied,
prima
facie
, that they are wrong when they say that sequestration
is not in their interests.”
(See too
FESI AND ANOTHER v ABSA BANK LTD
2000(1) SA 499 (C)
at 504G-505).
In all the circumstances the applicant has failed to discharge the
onus upon her of showing that there is reason to believe
that the
sequestration of the respondent will be to the advantage of
creditors within the meaning of
section 10(c)
of the Act.
The rule
nisi
IS ACCORDINGLY DISCHARGED WITH COSTS, SUCH
COSTS TO INCLUDE THE COSTS OF OPPOSITION BY THE INTERVENING
CREDITOR
.
J D PICKERING
JUDGE OF THE HIGH COURT