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[2013] ZAECPEHC 41
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Absa Bank Ltd v Nyaumwe (1332/2013) [2013] ZAECPEHC 41 (29 August 2013)
NOT REPORTABLE
IN THE HIGH COURT OF
SOUTH AFRICA
EASTERN CAPE, PORT
ELIZABETH
Case No.: 1332/2013
Date Heard: 15 August
2013
Date Delivered: 29 August
2013
In the matter between:
ABSA BANK LIMITED
.......................................................................................
Applicant
and
BEN HILARIUS NYAUMWE
..........................................................................
Respondent
JUDGMENT
EKSTEEN J:
[1] The applicant herein
has launched an application for the provisional sequestration of the
estate of the respondent. The application
is opposed.
[2] The history leading
to the financial difficulties of the respondent are not contentious.
During or about 2008 a company, Auspex
Property (Pty) Limited secured
the advance of a considerable sum of money from the applicant to
undertake the development of the
Radisson Blu Hotel in Port
Elizabeth. In due course, and by agreement, Auspex Hotels and Leisure
Management Company (Pty) Limited
(herein referred to as “Auspex
Hotels”) was substituted as the applicant’s debtor in
respect of the loans. Accordingly,
on 18 September 2008 the applicant
and Auspex Hotels entered into a separate loan agreement formalising
this arrangement. The respondent,
as Managing Director of Auspex
Hotels, was required to a sign a personal suretyship in respect of
the obligations of Auspex Hotels
to the applicant.
[3] The development of
the Radisson Blu Hotel ran into difficulties for reasons which are
not material to the application. Auspex
Hotels defaulted on their
loan obligations and the applicant issued liquidation proceedings
against Auspex Hotels. Auspex Hotels
was finally liquidated on 18
September 2012.
[4] In terms of the
suretyship signed by the respondent, he bound himself as surety and
co-principle debtor
in solidum
in favour of the applicant for
all sums of money which may be due by Auspex Hotels to the applicant.
On 12 September 2012 the applicant
accordingly instituted action
against the respondent, as first defendant, for the payment of the
amount of R101 234 782,50,
same being the amount which was
owed by Auspex Hotels to the applicant. Judgment was duly taken
against the first respondent on
23 October 2012 for the payment of
the said sum together with interest.
[5] A writ of execution
was duly served on the respondent on 12 November 2012 followed by a
return of service of the acting sheriff
dated 15 November 2012. It
appears from the return of service that the applicant pointed out
movable goods to the value of R24 530,00
and advised the sheriff
that he has no further movable assets whatsoever. This prompted the
application for the provisional sequestration
of the respondent.
[6] It is not in dispute
that the applicant has obtained judgment against the respondent in
the aforesaid amount or that the respondent
has committed a deed of
insolvency in terms of the provisions of section 8(b) of the
Insolvency Act, 24 of 1936 (herein referred
to as “the
Insolvency Act&rdquo
;). The respondent opposes the application purely
on the basis that it is contended that no facts have been presented
upon which
a court could be of the opinion that,
prima facie
,
there is reason to believe that it will be to the advantage of
creditors of the respondent, as envisaged in
section 10(c)
of the
Insolvency Act, if
his estate is sequestrated.
[7] On 11 October 2012
the applicant signed a statement of assets and liabilities which was
provided to the applicant purporting
to reflect the respondent’s
financial position as at 31 August 2012. Therein the respondent
reflected personal assets to
the value of R5 887 865,00
made up as follows:
Residence – House
Pamusha R3 000 000,00
Personal Effects –
R300 000,00
Current Account - First
National Bank R176 696,00
Current Account -
Standard Bank R61 988,00
Credit Card - First
National Bank R5 732,00
BMW X6 - R784 540,00
Chrysler Grand Voyager -
R620 000,00
Loan – Kuhuni
Mukanya Trust - R633 431,00
Loan – Tongai
Nyaumwe Family Trust - R305 478,00.
[8] In the same statement
he reflected his liabilities to amount to R1 414 445,00
made up as follows:
Finance Agreement –
Wesbank R566 392,00
Finance Agreement –
Wesbank R445 890,00
Credit Card –
Standard Bank R76 677,00
Loan – LR Nyaumwe
Family Trust R325 486,00.
[9] This statement of
assets and liabilities was forwarded to the applicant under cover of
letter from the respondent’s erstwhile
attorneys, Attorneys
Pagdens, which set out an explanation in respect of certain of the
assets and liabilities. The material portions
of the letter record as
follows:
“
2. My
clients find themselves in a dire financial position. A copy of Mr
Nyaumwe’s statement of assets and liabilities is
attached.
3. In this regard, please note that:
3.1 Although the residence is listed
as an asset of R3 000 000,00 rand and does not have a
corresponding liability, the
property was bonded in favour of FNB as
a suretyship bond for purposes of monies loaned and advanced by FNB
to Auspex Properties
(Pty) Ltd. This liability is reflected in the
management accounts of Auspex Properties (Pty) Ltd. There is no
equity in the house.
3.2 The motor vehicles, as indicated
in the notes below, are reflected at cost and not at their
depreciated or market values. It
is estimated that the market values
are considerably less than the value as listed under assets, and in
fact estimated to be less
than the value as listed in the
liabilities.
3.3 Further, the Kuhuni Mukanya Trust
and the Tongai Nyaumwe Family Trust are trusts in which my client has
a major interest and
confirm that both entities are actually
insolvent.
4. ...
5. From the above it is clear that Mr
Nyaumwe is not in a financial position whatsoever to make any sort of
meaningful offer to
ABSA.
6. The Nyaumwe Family Trust owns
nothing and holds no equity whatsoever.”
[10] It is apparent from
the explanation that the residence is bonded to First National Bank
(FNB) to the full value of the residence
and that the motor vehicles
and loans set out in the assets are worthless. The net value of his
estate as reflected in the statement
of assets and liabilities, as
explained, therefore amounted to R142 253,00. .
[11] In its founding
papers the applicant avers that it would be to the advantage of
creditors for the estate of the respondent
to be sequestrated as on
his own version he owned assets with a total value of R5 887 685,00
as at 31 August 2012. It
is alleged that the assets reflected therein
could be realised by the trustee of the insolvent estate for the
benefit of creditors
to the extent that they are still in existence,
and to the extent that these assets have been dissipated, the trustee
may investigate
whether any such assets disposed without value or
preferring one creditor above another may be recovered for the
benefit of his
creditors. In addition it is contended that whereas
the respondent pointed out assets to the value of just R24 530,00
on 12
November 2012, only one month after the submission of his
statement of assets and liabilities, it is imperative that the
respondent
be divested of his estate and that a trustee be appointed
to administer and distribute his estate in terms of the provisions of
the
Insolvency Act.
>
[12] In his answering
affidavit the respondent refers to the letter of explanation which
accompanied the statement of assets and
liabilities and accordingly
contends that the applicant was aware at all material times, and
particularly at the time when the
application for the sequestration
was launched, that there are no disposal assets which could be
utilised for the benefit of creditors,
nor is there any prospect of a
dividend to be received by any creditors should his estate be
sequestrated. He contends that the
immovable property (the residence)
is realistically valued at somewhere between two and a half and three
million rand. He states
that the house has been on the market since
early March 2013 and the agents engaged to try to sell the property
have received only
three enquiries since the house was placed on the
market. Only one prospective purchaser viewed the property. The
respondent does
not however lay any basis for the estimation of the
value of the property nor does he declare the asking price for which
the property
has been placed on the market.
[13] Insofar as the
personal effects are concerned he contends himself by declaring that
the sheriff may have undervalued the movable
assets and states that
the value placed on the movable assets by the sheriff is a clear and
realistic indication that the true
value of second-hand furniture is
nowhere near the replacement value which is more in line with the
R300 000,00 as indicated
in the statement of assets and
liabilities. This explanation loses sight, however, of the fact that
he had indicated in his statement
of assets that he was possessed of
personal effects to the value of R300 000,00.
[14] With reference to
the credit in the accounts at First National Bank and Standard Bank
he now contends that both these accounts
are significantly overdrawn.
He tenders no explanation whatsoever as to when and under what
circumstances monies were withdrawn
from these accounts between 11
October 2012 and 12 November 2012.
[15] In addition the
respondent, in setting out his present employment, avers that he is
presently employed by Meritorque (Pty)
Limited t/a Thaton (herein
referred to as “Meritorque”) as a manager at a net salary
of R57 000,00 per month.
He is also employed by Majestic Silver
Trading 118 (Pty) Limited (herein referred to as “Majestic
Silver”) as a manager.
For these services he receives a net
salary of R30 000,00 per month. The respondent emphasises that
whereas he was previously
a director in Majestic Silver he has now
resigned such position and holds no interest whatsoever in the
company and is not a shareholder.
[16] This prompted the
applicant to deal with Majestic Silver and Meritorque in the replying
papers where the applicant attacks
the credibility of the aforestated
contentions. The applicant annexes a CIPC company report dated 17
July 2013 to its replying
papers which reflects the respondent as the
sole director in both Meritorque and Majestic Silver. Moreover, the
applicant conducted
an electronic Deeds Office search illustrating
that Majestic Silver owns four immovable properties to the value of
R10 900 000,00.
In these circumstances the applicant’s
attorneys caused Ms Radloff, a professional assistant at the offices
of the firm McWilliams
and Elliot Incorporated to attend to the
registered office of Meritorque and Majestic Silver to formally
verify the directorships
and shareholding in these entities. Ms
Radloff states that she attended the offices of the auditors of these
companies, HDP Incorporated
on 19 July 2013 and was informed by one
Hayden du Preez, that the respondent was at that time the sole
director in these entities.
She says that despite her specific
request in this regard, Du Preez did not disclose the shareholding of
these entities, and merely
stated that he thinks that the shares are
held by “trusts” and that all company information is kept
at the respondent’s
offices. He advised Radloff that he was
under strict instructions from the respondent and his attorneys not
to disclose any information.
Radloff was, however, undeterred and
again attended upon the offices of HDP Incorporated on 22 July 2013
insisting to inspect the
share register of the companies. Again no
information was furnished to her and despite leaving detailed
messages for Du Preez to
contact her urgently he failed to respond.
[17] Radloff states,
however, that she attended an enquiry in terms of the provisions of
section 417 of the Companies Act, 61 of
1973 (herein referred to as
“the Companies Act”) in respect of the affairs of Auspex
Hotels on 20 May 2013 when the
respondent was summoned to be
examined. A copy of the transcript of these proceedings are annexed
to the replying papers. The transcript
records the following passage
from the evidence of the respondent to which reference is made in the
affidavits:
“
Can you just
clarify for me MST is that Majestic Silver Trading 188? ---
Uh-huh.
Sorry, the machine does not pick up a
grunt ... Whose machine?
Is it yes? --- Yes, sorry, yes.
MST is yes? --- Yes.
Majestic Silver Trading 188 (Pty) Ltd
is company of which you are the sole
director and shareholder? ---
(indistinct) shareholder, yes.”
[18] Although portion of
the evidence is reflected as “(indistinct)”, Radloff
declares on oath that it was the evidence
of the respondent at the
enquiry, which was held on 20 May 2013, that he was the sole director
and shareholder in both Meritorque
and Majestic Silver. The effect of
this is, of course, that he had admitted that he was the sole owner
of Majestic Silver.
[19] At the hearing of
the application Mr
Beyleveld
, on behalf of the
respondent, sought leave to hand in a fourth set of affidavits in
order to deal with matter raised in the replying
papers. The
affidavit which was handed up from the Bar by consent alleges that
most of what is contained in the replying papers
is new matter which
should (and could) have been dealt with in the founding papers. In
addition it is contended that the reference
to testimony given by the
respondent at the enquiry constitutes inadmissible evidence and
should be struck out. In the event that
such matter may not be struck
out, the affidavit proceeds to deal with these matters. At the
hearing no application was made to
strike out any portions of the
replying affidavit. The response thereto was accordingly accepted as
a fourth set of affidavits.
It was, however, argued that the evidence
given at the enquiry was inadmissible in evidence. I shall revert to
this aspect below.
[20] As to the factual
averments set out in the fourth set of affidavits the respondent
acknowledges that he was previously a director
of Majestic Silver
Trading and reiterates his earlier statement that he has since
resigned. He annexes to his papers a copy of
the notice of his
resignation dated 21 May 2013, the day after he was confronted in the
section 417 of the Companies Act enquiry.
[21] In respect of the
shareholding, the respondent denies that he instructed Du Preez not
to divulge any information and records
that he merely stated that any
request should be made through his attorneys of record who would
respond thereto. He then proceeds
to record as follows:
“
In any
event, I understand that there are specific provisions in terms of
the Act which sets out the procedure for inspection of
a share
register. Inasmuch as inferentially it has been suggested that the
shareholding in the two companies is being withheld
because it might
implicate me, I annex hereto ... copies of the share certificates
which indicates that I am not a shareholder
in either of these
companies. I also repeat that I am not a shareholder in any other
company. As is evidenced by such share certificates,
I am not the
shareholder therein. I have no interest directly or indirectly in the
Trust that is the shareholder.”
(Sic)
[22] Three annexures are
annexed in support of this protestation. The first purports to be a
share certificate in Majestic Silver
indicating that Nyaumwe
Investment Trust held 100 shares in the company on 23 November 2011.
The further annexures indicate that
as at 20 January 2012 one
Christian Gouws held 120 shares in Meritorque and that the Nyaumwe
Investment Trust held a further 120
shares on the same date.
[23] The CIPC company
report annexed to the answering affidavit indicates that 1 100
ordinary shares have been issued in Majestic
Silver Trading and 1 000
ordinary shares in Meritorque. In the circumstances the annexures
annexed to the fourth set of affidavits
do not support the
contentions raised by the respondent. In the first instance they do
not deal with all the shares in the companies
as reflected in the
CIPC reports and in addition, at best, the share certificates
indicate some shares were held by the trust on
the dates reflected on
the share certificates. A copy of the securities register as
contemplated in
section 50
of the
Companies Act, 71 of 2008
, remains
conspicuous by its absence from the papers. This would, of course,
have provided absolute clarity in respect of the shareholding
at all
material times.
[24] It is significant
that the respondent does not deny the correctness of the transcript
of the enquiry nor does he challenge
Radloff’s confirmation as
to what was in fact said.
[25] In these
circumstances, Mr
Scott
, on behalf of the applicant,
argues that if the evidence given at the enquiry is admissible, as he
contends it is, then it must
be accepted either that the respondent
was not frank about his involvement in the companies when he
testified on oath at the enquiry,
or that he has divested himself of
the shareholding in the companies since 20 May 2013. In either event,
so it is argued, it would
be to the advantage of creditors that his
affairs be investigated by an independent trustee. I have recorded
earlier that he does
not, despite having the opportunity to do so,
deny that Radloff accurately conveys what was in fact said at the
enquiry. Transcript
of the enquiry appears to bear her out. The
frustration of her endeavours to obtain insight into the share
register coupled with
the failure to provide a copy of the security
register in support of the respondent’s denial, raises further
questions about
the respondent’s involvement in the companies.
It is not in dispute that Majestic Silver owns properties with a
value in
excess of R10 million. In the event that the respondent is
the sole shareholder of Majestic Silver, or that he was the sole
shareholder
of Majestic Silver on 20 May 2013 and has divested
himself thereof by means of an impeachable transaction, there is
clearly a benefit
to creditors. In determining the reasonableness of
the prospects of there being such a benefit to creditors in
sequestration, it
is proper to have regard to the significance itself
of the very fact of the administration in insolvency. In
Chenille
Industries v Vorster
1953 (2) SA 691
(O) at 699F-H Horwitz J
observed that:
“
[There are]
… the superior legal machinery which creditors acquire by
sequestration, the right to control the collection,
custody and
disposal of all the assets through their nominee, the trustee, the
right to control similarly the sale of the assets,
the certainty that
the insolvent cannot contract further debts and diminish the estate,
and the assurance that all creditors will
be accorded the treatment
prescribed by law in the division of the proceeds.”
[26] In these
circumstances, I understand Mr
Beyleveld
to concede
that in the event that the evidence before the
section 417
of the
Companies Act enquiry
is admissible, then it must follow that a case
has been made out on the papers that there is reason to believe that
there will
be an advantage to creditors of the respondent if his
estate is sequestrated.
[27] It is accordingly
necessary to consider the admissibility of the evidence tendered at
the enquiry. It has been held repeatedly
that evidence given by an
examinee before a private enquiry in terms of the
Insolvency Act or
the
Companies Act is
admissible in subsequent civil litigation
against the person who gave such evidence. (Compare
Simmons NO
v Gilbert Hamer and Co. Limited
1963 (1) SA 897
(N);
Du
Plessis NO v Oosthuizen; Du Plessis NO v Van Zyl
1995 (3) SA
604
(O);
Wessels NO v Van Tonder en ‘n ander
1997
(1) SA 616
(O); and
O’Shea NO v Van Zyl NO
2012
(1) SA 90
(SCA).)
[28] In
Bernstein
and Others v Bester and Others NNO
[1996] ZACC 2
;
1996 (2) SA 751
(CC) a
challenge was made to the constitutionality of
section 417.
Ackerman
J, in writing the majority judgment, considered the purpose of
section 417
and the object of an enquiry in terms of the section. He
stated at 808D:
‘
As I have
endeavoured to show in this judgment, the very purpose of the
proceedings under ss 417 and 418 of the Act is in order
to provide
the company with information about itself, its own affairs, its own
claims and its own liabilities, which it cannot
get from its
erstwhile “brain” and other “sensory organs”
or other persons who have a public duty to furnish
such information
but are unwilling or reluctant to do so fully and frankly.’
[29] This I think accords
with the conclusion to which Nicholas J came in considering the
predecessor to section 417 contained in
the Companies Act, 46 of
1926. In
S v Heller
1969 (2) SA 361
(W) at 364E
Nicholas J, after considering the history of the section concluded:
“
The effect
of these cases is that proceedings under the sec. 115 of the English
Act are private proceedings, the object of which
is to enable the
liquidator to obtain information so that he may decide what course to
take in regard to litigation on behalf of
the company, either
contemplated or pending. The position under sec. 155 of our Act is
the same.”
[30] Section 417 (7) of
the Companies Act, however, distinguishes a section 417 enquiry from
other private enquiries in terms of
the Companies Act and the
Insolvency Act. It
provides that:
“
(7) Any
examination or enquiry under this section or
section 418
and any
application therefor shall be private and confidential, unless the
Master or the Court, either generally or in respect
of any particular
person, directs otherwise.”
[31]
Section 417(7)
was
introduced into the Companies Act in 1985. Prior to that, however,
the court had a discretion to make an order on the application
by the
liquidator for an enquiry under section 417 that the application and
all proceedings consequent thereon be kept private
and confidential.
The effect of such an order, it has been held, is to deny all persons
access to the application and any documents
accompanying it and to
the examination or enquiry itself, the record of it and to any books
or papers produced at it. (Compare
McDuff and Co. Limited v
Lawn
1922 (WLD) 66 at 70; and
Kotze v De Wet NO
and Another
1977 (4) SA 368
(T) at 375.) The purpose
for making such an order was to avoid a situation where the object of
the enquiry is defeated. Where the
object of the enquiry would not be
threatened it would be appropriate for the court to relax the
rigidity of its prior order. See
Kotze v De Wet NO
supra
at 375B-C.
[32] I think that section
417(7) has the same purpose and effect which an order in similar
terms would have had prior to the introduction
of subsection (7).
[33] The subsection
creates privacy and confidentiality in order to protect the integrity
of the process so as not to frustrate
the achievement of the goal of
the liquidator (as set out earlier) in instituting an enquiry in
terms of section 417. The Master,
or the Court, as the case may be,
has the discretion, where that purpose would not be frustrated, to
make an order uplifting the
confidentiality provisions, either
generally or in respect of a particular person. Until and unless the
Master, or the Court, relaxes
the confidentiality, as they are
entitled to do in terms of section 417(7), no-one may have access to
the transcript or other evidence
before the enquiry. In this case the
applicant has obtained a copy of the transcript and there is no
suggestion that access has
been improperly obtained. Once that has
occurred, I consider that the record of the evidence given by any
examinee at such an enquiry
is placed on precisely the same footing
as any other private enquiry in terms of the
Insolvency Act or
the
Companies Act. The evidence given by an examinee will then be
admissible as evidence against him in any other civil proceedings.
(Compare
NPC Electronics Limited v S Taitz Kaplan and Co.
[1998] 1 All SA 390
(W) at 399e.)
[34] After the
introduction of the Constitution of the Republic of South African
certain portions of section 417 of the Companies
Act came under
scrutiny in
Ferreira v Levine NO and Others; Vryenhoek and
Others v Powell NO and Others
1996 (1) SA 984
(CC). Portions
of section 417(2), as it then read, were declared to be invalid for
being in conflict with the provisions of the
Constitution, hence the
substantial amendment to section 417(2)(b) and (c) of the Companies
Act in 2002. Section 417(2)(c) was
drafted expressly to limit the
admissibility of evidence obtained at a 417 enquiry. It provides that
any incriminating answer or
information directly obtained, or
incriminating evidence directly derived from, an examination in terms
of section 417 shall not
be admissible as evidence in criminal
proceedings in a court of law against the person concerned or the
body corporate of which
he or she is or was an officer, except in
criminal proceedings relating to certain specified conduct. The
section does not limit
the admissibility of evidence in civil
proceedings against an examinee in a section 417 enquiry.
[35] In all the
circumstances, I think that the evidence tendered by the respondent
at the section 417 enquiry where he admitted
to being the sole
director and shareholder in Meritorque and Majestic Silver is
admissible in these proceedings. No challenge has
been made to the
correctness of Radloff’s rendition thereof, nor to the manner
in which the transcript was acquired. In the
circumstances, I hold
that such evidence was properly placed before me.
[36] It is, of course,
not evidence that the respondent is in fact or was at the time of his
evidence, the sole director and shareholder
of Majestic Silver, but
merely that he said so. The court has a discretion in subsequent
litigation to admit the use of the record
of this evidence. (See
Du
Plessis NO v Oosthuizen
supra
at 621C; and
Cordiant
Trading CC v Daimler Chrysler Financial Services
(Pty)
Ltd
2005 (4) SA 389
at 397D-G.)
[37] Once it is accepted
that the evidence is properly before me, as I have found, then, for
the reasons which I have set out earlier
in this judgment, I am of
the opinion that there is reason to believe that it will be to the
advantage of creditors of the debtor
if his estate is sequestrated.
[38] In the result, I
make the following order:
1. The estate of the
respondent is hereby placed under provisional sequestration in the
hands of the Master of the High Court.
2. A rule
nisi
will issue calling upon the respondent and all other interested
parties to show cause, if any, to this Honourable Court on Tuesday,
1
October 2013 at 09h30 or as soon thereafter as the matter may be
heard, why a final order of sequestration should not be granted
against the respondent’s estate.
3. A copy of this order
is to be served:
3.1 by the sheriff on the
respondent;
3.2 by the sheriff on the
South African Revenue Services;
3.3 by the sheriff on the
employees of the respondent, if any;
3.4 by the sheriff on the
trade union representing the respondent’s employees, if any;
3.5 by one publication in
each of the Eastern Province Herald and Die Burger (Oos-Kaap);
3.6 on all known
creditors of the respondent by registered mail.
4. The costs of the
application will be costs in the sequestration.
J W EKSTEEN
JUDGE OF THE HIGH
COURT
Appearances:
For Applicant:
Adv
P Scott SC instructed by Mc Williams & Elliot Inc,
Port Elizabeth
For Respondent:
Adv A Beyleveld SC instructed by Gouws Incorporated,
Port Elizabeth