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[2013] ZAECPEHC 11
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Nedbank Ltd (formerly t/a Nedcor Bank Ltd) and Another v Abrahams and Another (1318/2012) [2013] ZAECPEHC 11 (26 February 2013)
IN THE HIGH COURT OF SOUTH AFRICA
(EASTERN CAPE – PORT
ELIZABETH)
Case No.: 1318/2012
Date heard: 14 February 2013
Date
delivered: 26 February 2013
In the matter between:
NEDBANK LIMITED (formerly
trading as
NEDCOR
BANK LIMITED)
Intervening
Party
YUNUS
ABRAHAMS
Applicant
and
AHDIEL
ABRAHAMS
First
Respondent
RAFIEKAH
ABRAHAMS
Second
Respondent
J U D G M E N T
DAMBUZA, J
:
In this matter a provisional order
was granted by this Court on 15 May 2012. In terms of that order the
estate of the first and
second respondents was placed under
provisional sequestration in the hands of the Master of this Court.
The provisional order
was returnable on 19 June 2012. On the return
day Nedbank (the Intervening Party) filed its papers seeking to
intervene and to
oppose the application for sequestration. As a
result of the application to intervene the matter was postponed on
the return
date and was further postponed on a number of occasions
for various reasons.
Nedbank is one of the creditors in
the estate of the respondents. It opposes sequestration of the
respondents’ estate on,
essentially, two grounds; firstly,
that the sequestration is “
overly friendly”
(and
not
bona fides
)
,
and that no benefit to creditors will
result therefrom.
The applicant, Yunus Abrahams, is a
businessman and is the first respondent’s brother. The first
and second respondents
are married to each other in community of
property. The first respondent is employed by the applicant. The
second respondent
is employed as an administration officer by the
Nelson Mandela Bay University.
The application for sequestration of
the respondents’ estate was brought against the background of
the applicant having
“
lent”
R6,100.00 to the
first respondent and the latter having confessed his inability to
repay that loan. In the founding affidavit,
the applicant states
that the loan of R6,100.00 was made to the respondents on 28
February 2012 and was due to be repaid by no
later than 15 March
2012. A letter addressed by the first and second respondents to the
applicant, dated 20 March 2012, expresses
the respondents’
inability to repay the loan. It is this letter which prompted this
application.
The applicant also alleges that the
respondents are, in fact, factually insolvent as their liabilities
exceed their assets.
In seeking to intervene in the
sequestration proceedings and to oppose same, Nedbank sets out
details relating to five loans granted
by it to the respondents over
time, from 1994 to 2008. The various amounts of loans are secured by
Mortgage Bonds registered
over the respondents’ property, Erf
4536, Gelvandale Township, Port Elizabeth. The total amount owing on
these loans appears
in a certificate of balance issued by Nedbank,
on 1 June 2012, as R2,106,108.02.
The application to intervene is not
opposed; in fact an admission is made in the applicant’s heads
of argument to the effect
that Nedbank does indeed have a real
interest in the proceedings. I am also satisfied that this is so.
The application for leave
to intervene therefore succeeds. However,
for convenience I shall, continue to refer to the intervening
creditor as “
Nedbank”
.
As I have stated, Nedbank opposes the
application for sequestration of the respondents’ estate on
the basis that, firstly,
such sequestration is “
overly
friendly”
and should be considered with circumspect. The
contention on behalf of Nedbank is that the conduct of the applicant
and the respondents
with regard to the loan does not accord with
what would ordinarily be expected of persons in their position and
is suggestive
of collusion aimed at avoiding legal proceedings being
taken by the respondents’ creditors against the respondents.
Brendan
Shane Edwards who had deposed to the answering affidavit on
behalf of Nedbank contends that given the “
negligible”
amount due by the respondents to the applicant there is no reason
why the applicant has not explored alternative means of recovering
the money, such as deducting it from the first respondent’s
salary, instituting proceedings in the Small Claims Court which
would culminate in execution on the respondents’ movable
assets (valued at R16,000.00), or causing a garnishee order to
be
issued against the respondents’ salaries.
Mr Mullins
who appeared on behalf of Nedbank submitted that this application
constitutes an abuse of court process and that this Court should,
for that reason alone, discharge the provisional order made.
It has been said that:
1
“
The
giving of a notice of inability to pay debts is frequently the means
used for the purpose of obtaining what is designated as
a ‘friendly
sequestration’, ie, the notice is deliberately given in order
to furnish the ‘friendly’ creditor
with an act of
insolvency for the purpose of sequestration proceedings to be brought
by the latter. Such a notice is indeed an
act of insolvency,
provided
the
application for sequestration does not constitute an abuse of the
process of the Court...”
(Emphasis
supplied)
On the other hand in addition to its
statutory discretion when asked to grant a sequestration order, the
Court has an inherent
jurisdiction to prevent abuse of its process.
Therefore:
“
...
although a case for sequestration may be capable of being
established, the Court will not grant the order where the sole or
predominant motive or purpose of the applicant is something other
than the
bona
fide
achievement
of the sequestration of the estate for its own sake, ...
2
As to the approach by Courts when
considering friendly sequestrations the following has been said:
“
Although
the consideration that an application for sequestration is a
“friendly” one does not for that reason alone
preclude
the grant of the application, it entails the careful scrutiny thereof
by the Court in order to protect the interests of
creditors, and to
satisfy itself that the application is not brought
primarily
for
the relief of a harassed debtor. Such scrutiny should be directed,
inter
alia
,
to the sufficiency of the evidence of the claim upon which the
applicant relies. Even where a provisional order of sequestration
has
been granted, the Court may still refuse the granting of a final
order where it appears that there is an abuse of the process.
A
“friendly” sequestration which is not an abuse of the
process of the Court may still be refused by the Court in the
exercise of its discretion.”
3
During argument
Mr
Mullins
referred me to
Mthimkhulu v Rampersad and
another (BOE Bank Ltd, Intervening Creditor)
4
in which Combrinck J cited, with
approval, the following remarks made by Conradie J (as he then was)
in
Craggs v Dedekind and
others
5
about collusive arrangements in
sequestration proceedings:
“
Friendly
sequestrations seem to share certain characteristics. Although, like
pornography, they may be hard to define, they are
easy to recognise.
The debt which the sequestrating creditors relies upon is almost
always a loan. It is usually quite a small
loan, very often made in
circumstances where it would have been apparent to the whole world
that the respondent was in serious
financial difficulty. Despite
this, the loan is customarily made without security of any sort. It
is seldom evidenced by a written
agreement, or even subsequently
recorded in writing. The only writing that is produced to the Court
is the letter stating, with
appropriate expressions of dismay that
the debt cannot be paid and, sometimes, for good measure, setting out
details of the respondent’s
assets and liabilities. Very often
debtor and creditor are related: fathers commonly sequestrate sons,
wives sequestrate husbands
and sweethearts sequestrate each other,
without, I am sure, any damaging effect on their relationship.
Co-operation
between debtor and creditor, which is fine, can easily turn into
collusion which is not. A Court should, I consider,
be on its guard
against it. Because of this, and when the signs are there; a Court
may be forgiven for requiring rather more from
a friendly petitioner
in the way of establishing his claim than it might otherwise do. He
should, I believe, present sufficiently
detailed evidence to satisfy
a sceptical Court that he indeed has a claim against the respondent.”
In this case, I agree that the debt
owed to the applicant is negligible, just as in
Mthimkhulu’s
case where the amount of the debt was R6,000.00. The loan was
repayable only two weeks after it was made by the applicant. On the
applicant’s version, he would have already been aware of the
respondents’ difficulties in meeting their (monthly)
financial
obligations when he made the loan; yet he did not insist on any
security for it. Further, as was submitted on behalf
of Nedbank, the
conduct of the applicant, in writing to his brother, demanding
repayment of the loan on the due date is/was unusual,
given their
relationship and that they worked together. One would have expected
that the applicant would have, at first, simply
demanded payment
orally, and only thereafter, when he experienced difficulty in
getting a positive response, start to establish
a “
paper
trail”
. It is also significant that, although the loan was
made to the first respondent, repayment was immediately demanded
from both
respondents and both respondents responded in writing.
The submission by
Mr Dyer,
on
behalf of the applicant, that alternative means of recovering the
debt would have constituted preference of one creditor over
others
does not add much value to the applicant’s case in my view.
The creation of the loan at a time when the respondents
were already
experiencing such financial difficulties that the loan would be
irrecoverable was designed to facilitate the sequestration.
Before a Court can grant a final
order of sequestration it must be satisfied that there is reason to
believe that such sequestration
will be to the advantage of
creditors. The applicant is required to state why this will be so.
6
Even where an act of insolvency has
been committed, the Court cannot grant a final sequestration order
if the applicant does not
discharge the onus on it to establish that
there is reason to believe that sequestration will be to the
advantage of creditors.
In order for there to be an advantage
to creditors a pecuniary benefit in the form of a dividend, which is
not immaterial, must
be anticipated. There must be a reasonable
prospect of a “
not negligible”
dividend.
The method generally used in
assessing whether there is reason to believe that sequestration will
be to the benefit to creditors
is to first make an allowance for the
anticipated costs of sequestration and then determine if there is a
reasonable prospect
of an actual payment being made to each creditor
who proves a claim.
In the founding papers the applicant
sets out the respondents’ financial position as composing of
an immovable property
valued at R860,000.00, two vehicles valued at
R30,000.00 each and movable assets valued at R16,000.00 (i.e. assets
valued at
a total of R936,000.00). The applicant, then gives an
estimate of the respondents’ liabilities as R1,017,851.85;
resulting
in the liabilities exceeding the assets by R81,851.85. The
applicant then contends that the creditors will receive a benefit of
R0.60. He then makes an allowance for trustee’s costs of
R25,000.00. The applicant then computes the benefit to creditors
as
follows:
Total
Assets
R936,300.00
LESS
Preferred
Creditor (SARS)
R21,000.00
Secured
Creditor NEDBANK
R726,000.00
Cost
of Sequestration
R25,000.00
SURPLUS
R164,300.00
Value
of Concurrent Creditors
R270,850.94
DIVIDEND
R0.60
In disputing the benefit to creditors
Edwards points out that firstly provision has to be made for
trustees fees calculated as
3% of the value of immovable and 10% of
movable assets in the estate. Further costs which, according to
Edwards are not provided
for in the applicant’s calculation
include auctioneer’s fees, Master’s fees, bonds of
security, night watchmen’s
charges and advertising costs.
These costs amount to R147,026.33, which, on estimated proceeds of
R700,000.00 from a forced sale,
would result in Nedbank being a
secured creditor for R596,165.00 and a concurrent creditor for the
remaining portion of its claim
for an amount of R174,752.48.
It is not in dispute that when these
administration costs are taken into account in the end there will be
unpaid debts of R420,726.62
and unpaid costs of R28,819.33. It is
for this reason that Nedbank contends that there will be
insufficient free residue to discharge
the administration costs of
the sequestration and that sequestration will most likely result in
additional contribution towards
costs having to be paid by the
creditors.
I am mindful of the fact that the
parties disagree on the evaluation of the respondents’
immovable property. The difference
in the evaluation by the parties
is R160,000.00, in that, whereas the evaluation on behalf of the
applicant is R860,000.00, the
evaluation on behalf of Nedbank is
“
R700,000.00 to
R850,000.00”
. The
requirement is that applicant must put up acceptable evidence upon
which the Court can determine, not what the market value
of the
assets is prior to sequestration, but what they will realise post
sequestration at a forced sale.
7
No such evidence was put up in the
founding affidavit. On the other hand Nedbank’s estimate of
R770,000.00 as proceeds of
a forced sale is, in my view, fair,
reasonable and even generous. But a shortfall will still remain
after deduction of administration
costs.
Having considered all these issues I
am not satisfied that a proper case has been made out for
sequestration of the respondents’
estate.
An application to strike out certain
portions of the Edward’s affidavit was brought by the
applicant on the basis that allegations
made therein are either
malicious, vexatious and/or scandalous. In a nutshell these
allegations are that the applicant placed
no proof of his
allegations that he had first made a verbal demand for repayment of
the loan amount, that the amount of debt
is “
trifling”
and that other courses were open to the applicant to recoup the
loan. My view is that there is nothing malicious, vexatious or
scandalous about these allegations. During argument when I expressed
this view to
Mr Dyer
I gained the impression that the
applicant was not persisting with the application. It remains my
view that the allegations were
properly made in the course of
advancing Nedbank’s case.
Consequently I make the following
order:
leave is granted to Nedbank to
intervene in this application;
the application to strike out is
dismissed with costs;
the Rule
Nisi
is
discharged; and
the applicant is ordered to pay
the intervening party’s costs of the application.
_______________________
N. DAMBUZA
JUDGE OF THE HIGH COURT
Appearances:
For the Intervening Party:
Adv N. Mullins
Instructed by:
BLC Attorneys, Port Elizabeth
For the applicant:
Adv E. Dyer
Instructed by:
Keith Deitrich Attorneys, Port
Elizabeth
For the respondent:
No appearance
Instructed by:
1
Meskin,
Insolvency Law, Issue 37, 2.1.2.7 at 2 – 16, 17 and the
authorities cited therein.
2
Meskin,
supra
, Issue 34, 2.1.5 at 2 – 25.
3
Meskin
supra
, Issue 34 at 2 – 26
4
[2000]
3 All SA 512
at 516 e-h.
5
1996
(1) SA 935
(C) at 937B
.
6
See
Paarl Wine and Brandy Company Limited v Van As
1955 (3) SA
558
(O).
7
Mthimkhulu
(supra)
at 517.