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[2010] ZAECPEHC 27
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Standard Bank of SA Ltd v Memoak No. 6 CC, Memoak NO 7 CC, Wright, Wright (138/10, 139/10, 140/10, 141/10) [2010] ZAECPEHC 27 (14 June 2010)
IN THE HIGH COURT OF SOUTH AFRICA
REPORTABLE
(EASTERN
CAPE, PORT ELIZABETH)
Case No.: 138/10
139/10
140/10
141/10
Date heard:
29 April 2010
Date delivered: 14
June 2010
In
the matter between:
STANDARD
BANK OF SA LIMITED
Applicant
and
MEMOAK
NO 6 CC
(Case
No 138/2010)
Respondent
MEMOAK
NO 7 CC
(Case
No 139/2010)
Respondent
SHERYL
JEANETTE WRIGHT
(Case
No 140/2010)
Respondent
SHERYL
JEANETTE WRIGHT N.O.
(Case
No 141/2010)
Respondent
JUDGMENT
KROON, J:
Introduction
The four applications with which this
judgment is concerned are interrelated. They have, as their common
denominator, Mrs Sheryl
Jeanette Wright. She is, in her personal
capacity, the respondent in case no.140/2010 and, in her capacity as
sole trustee of
the Capricorn Trust, the respondent in case no.
141/2010 (the trust). She is also the sole member of the
respondents in case
nos. 138/2010 and 139/2010, two close
corporations styled, respectively, Memoak No 6 CC and Memoak No 7 CC
(Memoak 6 and Memoak
7, respectively).
The applicant, a commercial bank,
seeks orders for the provisional liquidation of the two close
corporations referred to and for
the provisional sequestration of
the estates of Mrs Wright and the trust. All the applications were
opposed.
Mrs Wright appeared in person and as
representative of the trust. She was also permitted to present the
argument on behalf of
the two close corporations.
The applicant’s locus standi
It is not in dispute that Memoak 6
incurred indebtedness with the applicant in respect of monies lent
and advanced, alternatively
disbursed, by the applicant to it,
including bank charges, ledger fees, commission on cheques and
interest debited. The applicant
alleged that as at 13 September 2009
the indebtedness amounted to R3 666 832,82 plus interest thereon at
the rate of 10.5% per
annum calculated daily and compounded monthly
in arrears as from 25 August 2009 until date of payment.
It is not in dispute that Memoak 7
incurred indebtedness of a similar nature with the applicant. The
applicant alleged that as
at 13 September 2009 the indebtedness
amounted to R89 656,91 plus interest as set out in the preceding
paragraph.
It is not in dispute that the trust
incurred similar indebtedness with the applicant, the amount
allegedly owing on 13 September
2009 being R1 749 103,66, plus
interest calculated as aforesaid. The trust became further indebted
to the applicant, by incurring
liability as surety and co-principal
debtor in favour of the applicant in respect of the indebtednesses
of Memoak 6 and 7, respectively,
to the applicant.
It is not in dispute that Mrs Wright
incurred indebtedness with the applicant she having incurred
liability as surety and co-principal
debtor in favour of the
applicant in respect of the indebtedness of Memoak 6, Memoak 7 and
the trust, respectively, to the
applicant.
The applicant brought the present
applications in its capacity as creditor in respect of the aforesaid
alleged liquidated claims.
The extent to which the alleged
indebtedness referred to above was placed in dispute will be set
out later.
The applicant’s cause of
action
The applications for liquidation of
the two close corporations were based on the averment that each is
factually insolvent and
unable to pay its debts. The applications
for the sequestration of the estates of the trust and Mrs Wright
were similarly based
on the averment that each is factually
insolvent and on the further averment that
prima
facie
the sequestration in
each case would be to the advantage of creditors.
Formal requirements
The formal requirements stipulated in
the relevant legislation were complied with in each application, the
necessary certificates
and reports by the Master and the necessary
returns of service having been filed.
The defences raised
Two main defences were raised. The
first related to the application for the liquidation of the two
close corporations. It was
alleged that they were no longer
indebted to the applicant. The allegation was based on the
contention that an arrangement was
made with the applicant in terms
of which the trust would take over the debts of the close
corporations and there would be one
consolidated debit owing by the
trust. In short, there had been a novation of the debts owing by
the close corporations to the
applicant. (To the limited extent
that the application against Mrs Wright was founded on her
suretyships for the debts of the
close corporations this defence
would also be relevant).
The second defence related to the
applications for the sequestration of the personal estate of Mrs
Wright and that of the trust.
In essence it was averred that both
she and the trust had, prior to the institution by the applicant of
the present proceedings,
applied in terms of the National Credit Act
34 of 2005 (the NCA) to be placed under debt review and that in each
case the magistrate’s
court thereafter, on 26 April 2010,
issued a debt re-arrangement order. The contention was that the
issue of those orders precluded
the applicant from proceeding with
its application for an order placing the estates of Mrs Wright and
the trust under sequestration.
The papers filed on behalf of the
respondents reflect that certain other defences were raised by Mrs
Wright and on behalf of the
trust in the applications against them.
To the extent that it is necessary these defences will be considered
later.
The alleged novation
Mrs Wright alleged that pursuant to
discussions with certain of the applicant’s officials
agreement was reached on 7 November
2007 that the trust would assume
responsibility for all the accounts held by various entities with
the applicant, including Memoak
6 and 7. In support of the
allegation she adverted to a letter of 7 November 2007 penned by a
Mr Spence and addressed by the
applicant to the ‘trustees’
of the trust. The first page of the letter read as follows:
‘
OVERDRAFT AND
OTHER BANKING FACILITIES
We refer to our recent
discussions and are pleased to confirm our agreement to the following
facilities, which would be subject
to the terms and conditions on the
reverse of this page, and those indicated elsewhere in this letter.
1 Type of facility
Limit
Capricorn Trust
Overdraft
R1,100,000
Standard Bank Vehicle
and Asset Finance –
Liquidating Credit
Facility
R437,000
Medium Term Loan(s)
* see below
R360 000
R1,900,000
Blueline Truck
Repairs Close Corporation
Overdraft
R25 000
Memoak No 7 Close
Corporation
Overdraft
R350 000
Standard Bank Vehicle
and Asset Finance –
Liquidating Credit
Facility
R61 000
Memoak No 6 Close
Corporation
Overdraft
R1,000,000
Business Revolving
Credit Loan
(s)
**see below
R65 000
Mrs Wright signed a copy of the letter
on behalf of the trust and the close corporations and returned same
to the applicant.
The replying affidavits filed on
behalf of the applicant, deposed to by Spence, firmly denied the
assertion that the novation
contended for ever occurred. In short,
it was averred that there was no more than an arrangement reached in
respect of new facilities
granted to the various entities concerned.
I have little difficulty in holding
that the test applicable, whether the applicant has
prima
facie
established the
indebtedness in question, has been satisfied. In the first place,
conspicuous by its absence was any reference
in the letter to, or
even an indication of, a novation of any indebtedness of the close
corporations to the applicant and a consolidation
thereof with the
indebtedness of the trust to the applicant. One would have thought
that, had the parties intended something
as important as a novation,
that would have been spelt out explicitly or at least that the
language of the letter would have
clearly implied same. As will be
shown below, the language of the letter in fact reflects the
contrary, that no novation was
intended.
In making the above comments I have
not lost sight of the following comments in
Proflour
(Pty) Ltd and Another v Grindrod Trading (Pty) Ltd t/a Atlas Trading
and Shipping and Another
1
(quoted in Mrs Wright’s papers):
‘
Consequently, it
appears on the basis of this dictum that in order to establish
whether a novation has occurred, the Court is entitled
to have regard
to the conduct of the parties, including any evidence as to their
intention. This enquiry is not limited in the
same way as the
limitation imposed upon the interpretation of the terms of a
contract. I comprehend that the reason for this is
that whether one
agreement has been novated by another, cannot be found solely within
the parameters of the agreements themselves,
where the enquiry is
whether the terms of the new agreement are inconsistent with the
continued existence of the original right.
This is because the
essence of the enquiry is to determine the intention which
accompanies the conclusion of the new agreement.
“It is more likely
that a creditor who has an enforceable right,
will
intend
,
when he enters into a new arrangement in regard thereto, to reinforce
rather than destroy that right and accept something else
in its
place” (emphasis mine).
Trust
Bank of Africa Ltd v Dhooma
1970
(3) SA 304
(N) at 307D-G.
It is therefore necessary that the
circumstances of the case be examined, including the conduct of the
parties and evidence of their
subjective intention. This would be
admissible evidence in this context.’
Mrs Wright sought to make capital out
of the fact:
(a) that the letter referred to was
addressed to the trust (as well as the covering letter dated 23
November 2009, to which the
earlier letter was attached and which
read as follows:
‘
Enclosed please
find a copy of your facilities letter in duplicate. We shall be
pleased if you would indicate your acceptance by
initialling each
page as well as the reverse of the first page, and signing the last
page of the letter. Please bear in mind that
the signature(s) should
conform to specimens/mandates as held by the Bank. Kindly return the
signed copy to ourselves as soon
as possible and retain the duplicate
with your records.
We draw your attention to
the conditions and/or covenants mentioned on page 3 and look forward
to receiving these from you.)’
that paragraph 7 of the letter read
as follows:
‘
7 Arrangement
fee
A facility arrangement
fee is charged to cover the costs incurred in arranging or reviewing
your overdraft facility, the credit
evaluation process, the
preparation of the documentation and the administrative functions.
The facility arrangement fee is an
annual fee, charged at the time of
the establishment or review of your overdraft facility.
The initial fee for
arranging your overdraft facility is R5,643 (inclusive of VAT).
We may vary this fee from
time to time. If we do so, we will advise you.
By signing this letter
you are granting us permission to debit your current account
(080168272) with the facility arrangement fee.’
(The arrangement fee was in fact
debited to the trust’s bank account with the applicant on 3
January 2008).
However, Spence stated, acceptably in
my view, that the reason why the letter was addressed to Mrs Wright
(as trustee) and why
all the facilities in question were included in
one letter, was that Mrs Wright was the sole trustee of the trust
and the sole
member of the close corporations referred to in the
letter. It is to be inferred that it was for the sake of
convenience that
a single composite arrangement fee was debited to
the trust’s bank account. The fact that the letter refers to
‘your
overdraft facility’ and the covering letter to
‘your facilities letter’ is in my view neither here nor
there,
in the light of what is stated in the paragraphs that follow.
The letter, on page 1, clearly
differentiates between the various (and separate) facilities for the
different entities in the
group controlled by Mrs Wright. This is
made the more clear in paragraph 2 of the letter which recorded that
the facilities
referred to earlier were ‘secured by the
following collateral’. There then followed
inter
alia
a separate
tabulation of the collateral operative in respect of each account
referred to on page 1 (ie the account of Capricorn
Trust, the
account of Blueline Truck Repairs Close Corporation, the account of
Memoak 7 and the account of Memoak 6). Included
in the collateral
listed were the following: on the account of the trust, unlimited
suretyship and cession of claims by Memoak
7 and Memoak 6; on the
account of Memoak 7, unlimited suretyship and cession of claims by
the trust; on the account of Memoak
6, unlimited suretyship and
cession of claims by both the trust and Memoak 7. Amongst the
collateral still to be obtained was
the following: on the account
of Memoak 7, unlimited suretyship and cession of claims by Memoak 6.
Clearly, separate overdraft
facilities for the respective entities
were intended and recorded. The contents of the letter cannot be
reconciled with the
consolidation and novation contended for.
In case no. 141/2010 Mrs Wright
annexed to her answering affidavit an E-mail addressed to her by
Spence on 12 April 2007. In
essence, the communication canvassed
the unsatisfactory conduct by Mrs Wright of the various facilities
granted by the applicant
to the entities controlled by her, the
discontent of the applicant’s credit section thereanent and
suggested steps to be
taken and information to be furnished to
address the situation. One sentence in the letter read as follows:
‘
I think we have
also agreed that you will have to consolidate now and while it is a
feather in your cap that you are often given
more business because of
your excellent reputation, it does not necessarily mean that the Bank
will increase facilities to accommodate
this.’
The argument, if I understood it
correctly, was that the use of the word ‘consolidate’ in
the sentence lent support
to the contention of Mrs Wright that in
November 2007 the facilities of the trust and the close corporations
referred to were consolidated
into one facility in the name of the
trust.
I am satisfied, however, that Mrs
Wright’s seizing upon the word ‘consolidate’ was
opportunistic and disingenuous.
In the context of the whole letter,
what was conveyed was an exhortation that Mrs Wright take steps to
consolidate the financial
position of her various business
enterprises and address the unsatisfactory manner in which the
various facilities granted by
the applicant were being conducted.
Mrs Wright further attached to her
answering affidavit (in case no 138/2010) an E-mail addressed to her
by Spence on 16 March
2009 on the subject: ‘Overdrafts Memoak
Numbers 6 and 7’, which read as follows:
‘
Thanks for the
various conversations around the accounts of Memoak numbers 6 and 7.
The reason for our
various conversations was to inform you that these accounts are some
R3 772 000 over their limits, (number 6
by R2 364k and number 7 by R1
408k) basically due to debit runs on Ashleys Transport being
dishonoured because you did not know
that he had closed his bank
account. You have however recovered the fuel delivered to him which
income together with debtors will
be used to reduce the accounts
within their limits. Have discussed this with our local credit
people and in order to rectify this
by the end of march 2009 at the
latest, you will continue depositing all your income as in the past
to the accounts in our books.
From our side we are dishonouring all
debits that come through the accounts until the accounts are back
within their limits.
If either numbers 6 or 7 reduce to within the
limits, any available amount will be transferred to the other account
until such
time as both are within their limits. The same applies to
the Cheque account of Capricorn Trust. If there is money available
on Capricorn, it will be transferred to the accounts of Memoak
numbers 6 and 7 until they are within their limits.
This excess position must
still be reported up the line to our Senior Credit people in Cape
Town, so it is possible that this email
will be followed by another.
Please also keep us
updated regarding your negotiations with Caltex regarding them
reducing your credit limit by R3m.’
However, contrary to what Mrs Wright
contended (that the letter is further evidence that the applicant
viewed ‘all the Capricorn
Trust facilities to be a single
facility’) this letter underscores the fact that the facilities
granted to the trust, Memoak
6 and Memoak 7, respectively, were
separate and discrete facilities, and the applicant was merely
signifying its intention to put
in place steps to be taken to ensure
that each account was kept as far as possible to its limits. There
is no suggestion that
Mrs Wrights responded to this letter and took
issue with its contents.
On 9 December 2009 the applicant’s
attorneys addressed the following letter to Memoak 6:
‘
Re: NOTICE IN
TERMS OF SECTION 69(1)(a) READ WITH
SECTION 68(c)
OF THE
CLOSE
CORPORATIONS ACT NO 69 OF 1984
: STANDARD BANK OF SOUTH AFRICA
LIMITED / MEMOAK NO 6 CC
We act on the
instructions of Standard Bank of South Africa Limited.
Our client has informed
us that you are indebted to it in the sum of R3 666 832.82 being in
respect of an overdraft facility on
your current account held with
our client. Notwithstanding various requests by our client you have
failed, refused and/or neglected
to settle the amount due to date.
We have accordingly been
instructed to serve this demand in terms of
Section 69(1)(a)
of the
Close Corporations Act No 69 of 1984
on your offices in terms of
which we have been instructed to demand from you payment of the sum
of R3 666 832.82 with further
interest to be added thereto within a
period of three weeks from date of delivery of this letter failing
which we hold instruction
to proceed with an application for your
liquidation on the basis that Memoak No 6 CC is clearly deemed to be
unable to pay its
debts.
Take note further that
payment should be made directly in our Nedbank Trust Account the
details of which are the following:
………………’
A similar letter was addressed on the
same date to Memoak 7.
There was no response to these
letters. The letters underline the consistency of the stance of the
applicant that the close corporations
themselves were indebted to it
(the sums in the letters being those relied upon in the respective
applications for orders of
provisional liquidation) and the
unacceptability of Mrs Wright’s conflicting averment that the
indebtedness was no longer
that of the close corporations, but had
been transferred to, and taken over by, the trust.
In its replying papers in case no’
s
138/2020
and
139
/2010 the applicant annexed the annual financial
statements of Memoak 6 and Memoak 7 for the year ending 29 February
2008. These
were prepared by the auditors of the close corporations
and were approved by Mrs Wright, she having appended her signature
(as
the sole member) to the statements at the appropriate places on
31 July 2008.
The balance sheet of Memoak 6
reflected as one of the current liabilities an overdraft in the sum
of R989 187,00 and that of Memoak
7 an overdraft in the sum of R249
752,00.
During argument Mrs Wright confirmed
that these overdrafts were with the applicant bank. When she was
requested to explain why,
in the light of her claim that the close
corporations were not indebted to the applicant (but only the trust
was, pursuant to
the novation contended for), the overdrafts were
reflected in the balance sheets as current liabilities of the close
corporations,
she stated as follows: the overdrafts were those
that had been granted to the trust, but had been ‘utilised in
the close
corporations’, the trust having been allowed by the
applicant to do so; when the financial statements were prepared
the
applicant, which had been ‘very lax’ on this score,
had not yet furnished her with the documentation the auditors
required, ie the ‘new agreements of November 2007’; the
auditors told her that the overdrafts would have to ‘stay
there’ (ie in the balance sheets of the close corporations)
until she received a signed letter from the applicant. There
was,
however, no evidence placed before me that she had pursued this
issue with the applicant and she did not suggest in argument
that
she had. The proffered explanation has only to be stated to carry
its own refutation.
In the Grahamstown High Court (case
no. 2935/2009) Mrs Wright (as applicant) sought an order for the
compulsory liquidation of
Memoak 6. She made a similar application
in case no. 2933/2009 in respect of Memoak 7. Both applications
were launched on 22
July 2009. Mrs Wright was the deponent to the
founding affidavit in each case. The cause of action invoked in
both cases included
the allegations that the close corporation had
ceased trading (Memoak 6 in June 2009 and Memoak 7 in July 2009) and
was insolvent
and unable to pay its debts. The applicant was listed
as a creditor of Memoak 6 in the sum of approximately R3 600 000, 00
and
of Memoak 7 in the sum of approximately R100 000, 00. The
applications were, however, subsequently withdrawn.
In her replying affidavit in case no
138/2010 Mrs Wright stated as follows:
‘
The liquidation
application as referred to, in The High Court of Grahamstown, for the
Respondent Close Corporation, to be placed
under provisional
liquidation, was withdrawn before the final order was granted, as
prior to the application the Respondent was
placed under undue
pressure by the credit providers that being The Applicant and Chevron
SA (Pty) Ltd, leading it to believe that
they were dealing with the
Respondent.
After the fact, and
consulting with a debt councillor, it was discovered that the credit
providers were indeed transacting with
The Capricorn Trust and not
the Respondent as was being alleged.’
Similar allegations were made by Mrs
Wright in case no 139/2010, save that there was no reference to
Chevron SA (Pty) Ltd. No elucidation
of these allegations was
proffered, nor did the response deal specifically with the fact that
in the founding papers in the two
earlier applications she had made
the allegations that the two close corporations were indebted to the
applicant (clearly in respect
of moneys loaned and advanced),
allegations inconsistent with her allegations in the present
proceedings.
On a similar tack the applicant
recorded in case no. 141/2010 that on 22 July 2009 Mrs Wright’s
husband launched proceedings
(under case no. 2935/2009) in the
Grahamstown High Court for an order for the sequestration of the
trust. He recorded that he
was employed as the trust’s
general manager and that it was indebted to him in the sum of R840
000,00 in respect of remuneration.
He referred to the fact that Mrs
Wright was at the same time in the process of launching the
applications for the liquidation
of Memoak 6 and Memoak 7. The
cause of action invoked by him was the alleged
de
facto
insolvency of the
trust. Amongst the liabilities of the trust listed by him were the
two short term loans advanced to the trust
by the applicant in the
sums of R360 000,00 and R1 900 000,00 reflected in the schedule set
out in the letter of 7 November 2007
quoted in paragraph 15 above.
The only other liability to the applicant listed was that of
surety
for the indebtedness of Memoak 6 and Memoak 7. Suffice it to point
out that these allegations do not square with the novation
and
consolidation contended for by Mrs Wright. The application for the
sequestration of the trust was also subsequently withdrawn.
The response of Mrs Wright to these
allegations was simply that the application for the sequestration of
the trust was withdrawn
before the final order was granted, as prior
to the application the trust ‘and others’ were placed
under undue pressure.
This unsatisfactory unelucidated answer did
not seek to proffer any explanation for the allegations in that
application relating
to the nature of the trust’s indebtedness
to the present applicant, which were inconsistent with her claim of
a novation
and consolidation.
There is no reason suggested on the
papers why the applicant would have been prepared to agree to the
novation contended for;
on the contrary, the probabilities are
overwhelmingly against the proposition, regard being had to the
parlous financial position
of the trust.
I am persuaded, at least
prima
facie
, that the denials
that the close corporations are indebted to the applicant do not
raise a real, genuine or
bona
fide
dispute of fact, that
there is inherent credibility in the applicant’s factual
averments and that the denials are far-fetched
and clearly
untenable. At the very least therefore the applicant has
prima
facie
established that it
has the requisite liquidated claims against the close corporations.
The effect of the debt reviews in
respect of Mrs Wright and the trust on the applications for orders
for their sequestration
There was some debate at the Bar
concerning the question whether the NCA applied to the agreements in
terms of which Mrs Wright
and the trust became indebted to the
applicant, with reference to such issues as the juristic personality
of the trust, its annual
turnover, the categorization of the
agreements (eg whether they were large agreements) and whether a
suretyship agreement fell
within the contemplation of the Act; in
short, whether they were ‘credit agreements’ within the
meaning of the Act.
Fortunately, it is not necessary for me to
canvass these issues, and I will proceed on the basis that the NCA
does apply to
the agreements. The question is whether, in terms of
the NCA, the applicant is precluded by the debt reviews from seeking
the
sequestration of Mrs Wright and the trust in the relevant
applications.
The decision of
Trengove
AJ in
Investec
Bank Ltd and Another v Mutemeri and Another
2
is instructive on this score. The respondents in that case (like
Mrs Wright and the trust in the present matter) applied to
a debt
counsellor for the review of their debts in terms of s 86 of the
NCA. In due course application was made to a magistrate’s
court for an order restructuring their debts in terms of ss 86 and
87 of the NCA. That application was pending when the applicants
in
the case launched proceedings for the sequestration of the estate of
the respondents (who were said to be married in community
of
property). (In the present matter, as already recorded, the
magistrate, on 26 April 2010, granted a debt re-arrangement order
in
respect of each of Mrs Wright and the trust).
It was common cause in that matter
that the applicants had substantial liquidated claims against the
respondents and that the
latter were in fact hopelessly insolvent.
It was also common cause that the indebtedness invoked by the
applicants arose out
of agreements as contemplated in the NCA. At
issue was the contention of the respondents that the applicants were
precluded
by the NCA from seeking their sequestration in the
application.
Reliance was placed on the provisions
of s 130(1) of the NCA which bar a credit provider from approaching
the court ‘for
an order to enforce a credit agreement’
unless certain pre-requisites were satisfied. The court assumed in
favour of the
respondents that the applicants did not meet the
requirements. It was held, however, that the question to be
answered was whether
an application for sequestration of a
consumer’s estate that is based on the applicant’s claim
against the consumer
in terms of a credit agreement, is an
application for an order to enforce a credit agreement.
3
After referring to authority
4
that there is little doubt that a sequestrating creditor’s
motive in applying for the sequestration of its debtor, may
be, and
often is, to obtain payment of its debt, the learned judge stressed
that the question whether an application for sequestration
constitutes an application for ‘an order to enforce a credit
agreement’ within the meaning of s 130(1) depended on
the
nature of the relief the creditor seeks and not on the creditor’s
underlying motive in bringing the application.
5
The learned judge next referred to
authority
6
which explained why it could not be said that an application for
sequestration was a proceeding by which one party sued another
for
something, or claimed something from another, and authority
7
in which it was held that an application for a winding up order was
not a proceeding ‘for the recovery of a debt’.
8
Applying the reasoning in these cases the learned judge proceeded
as follows:
9
‘
It seems to me
that the rationale of these judgments is equally applicable to the
proper interpretation of s 130(1) of the NCA,
which applies only to
an application to court ‘for an order to enforce a credit
agreement’. It does not apply to an
application by a credit
provider for the sequestration of a consumer’s estate based on
a claim in terms of a credit agreement
between them. Such an
application is not one for an order enforcing the credit provider’s
claim against the consumer. Section
9(2) of the Insolvency Act
indeed makes it clear that the sequestrating creditor’s claim
need not even be due, that is, need
not yet be enforceable. An
application for sequestration may be made on the strength of a claim
which is not yet enforceable,
because a sequestration order is not an
order for enforcement of the claim. Its purpose and effect are
merely to bring about a
convergence of the claims in an insolvent
estate to ensure that it is wound up in an orderly fashion and that
creditors are treated
equally. An applicant for sequestration must
have a liquidated claim against the respondent, not because the
application is one
for the enforcement of the claim, but merely to
ensure that applications for sequestration are only brought by
creditors with a
sufficient interest in the sequestration. Once the
sequestration order is granted, the enforcement of the sequestrating
creditor’s
claim is governed by the same rules that apply to
the claims of all the other creditors in the estate. The order for
the sequestration
of the debtor’s estate is thus not an order
for the enforcement of the sequestrating creditor’s claim.
I conclude that an
application for sequestration is not an application for enforcement
of the sequestrating creditor’s claim
and is thus not subject
to the requirements of s 130(1) of the NCA.’
The judgment further proceeds as
follows:
‘
[32] The
respondents, however, submitted that, whether or not an application
for sequestration is subject to s 130(1), it is in
any event subject
to s 130(3) which is not limited to applications for the enforcement
of credit agreements, but extends to ‘any
proceedings commenced
in a court in respect of a credit agreement’. The relevant
provisions of this section read as follows:
‘
(3) Depite any
provision of law or contract to the contrary, in any proceedings
commenced in a court in respect of a credit agreement
to which this
Act applies, the court may determine the matter only if the court is
satisfied that –
(a)
In the case of proceedings to which sections 127, 129 or 131 apply,
the procedures required by those sections have been complied
with ….’
[32] The respondents
submitted that an application for sequestration is a proceeding ‘in
respect of a credit agreement’
within the meaning of s 130(3)
and that it thus rendered such an application subject to the
requirements of s 129 of the NCA.
But s 130(3) does not extend the
scope of s 129. It merely provides that, in proceedings (already)
subject to the requirements
of s 129, the court must be satisfied
that there has been compliance with those requirements. One
accordingly has to turn to s
129 to determine whether its
requirements apply to applications for sequestration. The only
relevant requirements are those laid
down by s 129(1)(b), but they
also apply only to ‘legal proceedings to enforce’ credit
agreements. I have already
concluded that applications for
sequestration are not proceedings of that kind. They are accordingly
not subject to the requirements
of s 129(1)(b) and thus do not have
to comply with those requirements in terms of s 130(3).
[34] The respondents
lastly invoked s 88(3) of the NCA. It provides, inter alia, that a
credit provider, who receives notice of
a consumer’s
application for debt review in terms of s 86(4)
(b)
(i),
‘may not exercise or enforce by litigation or other judicial
process any right or security’ under a credit agreement
between
the credit provider and the consumer, until certain conditions have
been met. But, for the reasons already mentioned,
an application by
a credit provider for the sequestration of a consumer does not
constitute litigation or other judicial process
by which the credit
provider exercises or enforces any right under the credit agreement
between itself and the consumer. The credit
provider may rely on its
claim in terms of a credit agreement to qualify as a creditor with
standing to bring the application for
the sequestration of the
consumer. But it does not exercise or enforce its right under the
credit agreement by doing so. Such
an application is accordingly
also not precluded by s 88(3).
[35] I conclude that the
respondents’ defences under the NCA cannot be upheld. None of
the provisions upon which they rely
precludes an application by a
credit provider for the sequestration of a consumer, based on a claim
under the credit agreement
between them.’
In casu
,
if I understood her correctly, Mrs Wright sought to distinguish the
present case from
Investec
on the basis that the
magistrate had in fact issued a debt re-arrangement order in respect
of both her and the trust (ie in terms
of either s 87 or s 86(9)
read with (7)(c) of the NCA). She, too, sought to invoke s 88(3).
Suffice it to state that the fact
of the magistrate’s order
does not import a distinguishing feature and that the reasoning set
out in
Investec
remains
applicable.
It was not contended that any other
section of the NCA could operate to bar the present proceedings for
the sequestration of Mrs
Wright and the trust. The defence of a
reliance on the provisions of the Act must therefore fail.
Remaining issues
Memoak 6
The papers disclose that the close
corporation is commercially and actually insolvent, it failed to
respond to the letter of demand,
it has closed its doors, it has, at
least, assets in the form of vehicles valued (in the earlier
application brought by Mrs Wright
for its sequestration) at R380
000,00, liquidation would prevent further legal costs or any
preferences to other creditors, and
the affairs of the corporation
would be the subject of investigation. In the circumstances it would
be proper for an order for
the provisional liquidation of the close
corporation to issue.
Memoak 7
Similar comments apply to this close
corporation save that its assets appear to be worth R77 000,00 (if
Mrs Wright’s allegation
that the amount owing on a particular
motor vehicle exceeds its value, is correct). Again, an order for
provisional liquidation
would be proper.
Mrs Wright
(a) On her own showing Mrs Wright is
hopelessly insolvent. She did not respond to the applicant’s
letter of demand.
(b) Spence alleged that as far as he
is aware her only source of income was the three businesses, ie the
two close corporations
and the trust. Mrs Wright claimed, however,
that she has income ‘as disclosed in the debt review’.
That income has
not been revealed in the present application.
Mrs Wright owns an erf at Colchester
purchased by her in 2006 for R1 500 000,00. It is common cause that
the present value of
the plot is approximately R2 000 000,00, but
that it is mortgaged for sums in excess of that figure. There is
therefore no equity
available in the property.
It is common cause that she is
possessed of certain policies, the surrender value of which is R152
000,00. The policies have,
however, been ceded to the applicant.
In her answering affidavit she
reflected that her assets include one motor vehicle valued at R280
000,00 (which is ‘secured’
by a credit agreement).
She, however, referred to four bank vehicle finance agreements,
involving a much higher total (one
of which agreements may relate to
a trust vehicle). In a supplementary answering affidavit motor
vehicles involving three bank
finance agreements were mentioned (the
amounts owing, a total of R598 572,00, exceeding the alleged value
of the vehicles by
some R85 500,00), plus three other bank vehicle
finance agreements relating to vehicles owned, apparently, by the
trust. However,
Spence annexed to his replying affidavit a balance
sheet as at November 2008 signed by Mrs Wright, which reflected a
Mercedes
Benz motor vehicle, a Jaguar motor vehicle and a boat,
having a total value of R852 000,00. On the other hand, the balance
sheet
reflected a liability of R653 000,00 on instalment sale
agreements, which, presumably, related to the vehicles, and possibly
the boat. Mrs Wright has not explained what happened to the assets
reflected in her balance sheet.
In her answering affidavit Mrs Wright
claimed that her only other personal assets (ie furniture, etc) were
worth R8 000,00. In
the supplementary answering affidavit she
detailed personal assets having a total value of R42 500,00, which,
she contended,
constitutes the free residue in her estate. On that
basis she contested that her sequestration would be to the advantage
of
creditors, as any dividend payable would allegedly be negligible.
(She put her total liabilities at some R9½ million and
her
total assets at some R2,7 million, as opposed to the figures of some
R3½ million and R2½ million, respectively,
reflected
in her first answering affidavit. In fact, the applicant put her
liabilities at some R19 million). However, in the
balance sheet
referred to above she reflected personal assets valued at R400
000,00 and cash of R10 000,00. The fate of those
personal assets
and cash was not revealed by her.
The balance sheet also reflects that
she owned a property in Sherwood valued at R850 000,00 on which,
apparently there was a mortgage
bond of R430 000,00. In her
supplementary affidavit she alleged, somewhat cryptically, that the
property was sold for its market
value and the mortgage bond
settled. What the net proceeds were and the fate thereof was not
revealed.
The inference is strong that Mrs
Wright has been somewhat coy about her assets and it seems likely
that a trustee in her insolvency,
after a proper investigation, will
uncover assets additional to those which she has disclosed.
Prima
facie
there is a
reasonable prospect that cognizably more than a negligible dividend
to creditors will result.
(i) I am therefore satisfied that
prima facie
there is reason to believe that it will be to the advantage of
creditors for the estate of Mrs Wright to be sequestrated.
Accordingly,
it would be proper for an order for the provisional
sequestration of Mrs Wright to issue.
[47] The trust
(a) That the trust is hopelessly
insolvent and cannot pay its debts is not in dispute. It did not
respond to the applicant’s
letter of demand. The debt
re-arrangement order issued by the magistrate reflects that the
trust’s total indebtedness is
some R15 million. That figure,
however, includes sums which, in terms of my earlier finding, are
owed to the applicant by the
close corporations, but for which the
trust is in any event liable as surety. In the application by Mrs
Wright’s husband
for the sequestration of the trust the
latter’s debts were reflected at some R21 million and the
assets at some R4,8 million.
On behalf of the applicant Spence
accepted this latter figure, but he gave a slightly lesser figure in
respect of the debts.
In her answering affidavit Mrs Wright put the
debts at some R21 million and the assets at approximately R4 ½
million. The
latter figure does not, however, take account of
various motor vehicles which are the subject of certain bank vehicle
finance agreements,
the amounts owing thereunder being listed as
liabilities. She has also allocated markedly lower figures as the
values of four
residential erven owned by the trust than the figures
alleged in the application launched by Mr Wright, and accepted by
Spence.
She explained this approach by reference to a forced sale in
the present economic climate. There is no reason why at this stage
Mrs Wright’s figures should be accepted. What is not dealt
with by Mrs Wright is the remainder of the assets, valued at
approximately R1 million, referred to in the application of Mr
Wright. The inference is once again that Mrs Wright has been less
than candid with regard to the assets of the trust, no doubt to
bolster her contention that sequestration ‘will only deliver
up
very little in the rand’.
(c) In my judgment it has been
established
prima facie
that a cognizable dividend will accrue to creditors and that there is
a likelihood of further assets being discovered pursuant
to an
investigation by a trustee in insolvency into the affairs of the
trust, in regard to which it may be added that according
to Mrs
Wright the trust is earning rental of R15 000,00 per month.
(d)
Prima
facie
therefore
sequestration would be to the advantage of creditors, and it would be
proper for an order for the provisional sequestration
of the trust to
issue.
Orders
[48] In the result, the following
order will issue:
(1) In case 138/2010:
1. That the respondent close
corporation be placed in provisional liquidation in the hands of the
Master of the High Court in terms
of the provisions of the
Close
Corporations Act 69 of 1984
;
2. That a rule
nisi
be issued calling upon all interested persons to show cause, if any,
to this Court on Tuesday, 13 July 2010 why
(a) a final order of liquidation
should not be granted;
(b) the applicant’s costs of
this application should not be costs in the liquidation;
3. That service of this order be
effected as follows:
3.1 by the sheriff of this Court on
the respondent at its registered office at 26 Centenary Road,
Lorraine, Port Elizabeth;
3.2 by the sheriff of this Court on
the offices of the South African Revenue Services, Port Elizabeth;
3.3 by the sheriff of the Grahamstown
High Court by affixing a copy to the front door of the respondent’s
premises at corner
of Victoria Road and Orsmond Terrace, Grahamstown;
3.4 on all known creditors of the
respondent by way of registered mail;
4. That this order be published once
in the Eastern Province Herald and Die Burger (Oos-Kaap) newspapers.
In case no. 139/2010
1. That the respondent close
corporation be placed in provisional liquidation in the hands of the
Master of the High Court in terms
of the provisions of the
Close
Corporations Act 69 of 1984
;
2. That a rule
nisi
be issued calling upon all interested persons to show cause, if any,
to this Court on Tuesday, 13 July 2010 why
(a) a final order of liquidation
should not be granted;
(b) the applicant’s costs of
this application should not be costs in the liquidation;
3. That service of this order be
effected as follows:
3.1 by the sheriff of this Court on
the respondent at its registered office at 26 Centenary Road,
Lorraine, Port Elizabeth;
3.2 by the sheriff of this Court on
the offices of the South African Revenue Services, Port Elizabeth;
3.3 by the sheriff of the Grahamstown
High Court by affixing a copy to the front door of the respondent’s
premises at corner
of Victoria Road and Orsmond Terrace, Grahamstown;
3.4 on all known creditors of the
respondent by way of registered mail;
4. That this order be published once
in the Eastern Province Herald and Die Burger (Oos-Kaap) newspapers.
In case no. 140/2010:
That the estate of the respondent be
placed in provisional sequestration in the hands of the Master of
the High Court;
That a rule
nisi
be issued calling upon all interested persons to show cause, if
any, to this Court on Tuesday, 13 July 2010 why:
a final order of sequestration
should not be granted;
why the applicant’s costs of
the application should not be costs in the sequestration;
That service of this order be
effected:
by the sheriff of this Court on the
respondent personally;
by the sheriff of this Court on the
offices of the South African Revenue Services, Port Elizabeth;
That this order be published once in
the Eastern Province Herald and Die Burger (Oos-Kaap) Newspapers.
In case no. 141/2010:
That the estate of the respondent
trust be placed in provisional sequestration in the hands of the
Master of the High Court.
That a rule
nisi
be issued calling upon all interested persons to show cause, if
any, in this Court on Tuesday 13 July 2010 why:
a final order of sequestration
should not be granted;
why the applicant’s costs of
the application should not be costs in the sequestration;
That service of this order be
effected:
by the sheriff of this Court on
Sheryl Jeanette Wright personally;
by the sheriff of this Court on the
offices of the South African Revenue Services, Port Elizabeth;
by the sheriff of the Grahamstown
High Court by affixing a copy to the front door of the
respondent’s premises at corner
of Victoria Road and Orsmond
Terrace, Grahamstown;
4. That this order by published once
in the Eastern Province Herald and Die Burger (Oos-Kaap) newspapers.
______________
F
KROON
Judge
of the High Court
Appearances:
For
the Applicant:
RG Buchanan instructed by
Pagdens Attorneys
Pagdens Court
18 Castle Hill
Central
Port Elizabeth
P O Box 132, PE, 6000
(Tel: 041 585 2141)
(F Vienings/In/STA 118/0143)
For the Respondents
Mrs
Wright, in person
Port Elizabeth
1
Case No 14397/2009, KZND, 15 December 2009, unreported, at paragraph
[12].
2
2010 (1) SA 265
(GSJ).
3
Ibid at para [26].
4
Estate Logie v Priest
1926 AD 312
at 319.
5
Investec
, note 2 above, para [28].
6
Collett v Priest
931 AD290 at 299.
7
Prudential Shippers SA Ltd v Tempest Clothing (Pty) Ltd
1976
(2) SA 856
(W) at 863D-865A.
8
Investec,
note 2 above, paras [29] and [30].
9
Ibid, at para [31].