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[2023] ZAKZPHC 20
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Business Partners Limited v Gabela and Another (8626/2022P) [2023] ZAKZPHC 20 (2 March 2023)
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Certain
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IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
No:
8626/2022P
In
the matter between:
BUSINESS
PARTNERS
LIMITED
APPLICANT
and
WILSON
SENELE
GABELA
FIRST RESPONDENT
(ID
NO. [....])
(DATE
OF BIRTH: 17
TH
DECEMBER 1970)
(MARRIED
IN COMMUNITY OF PROPERTY
TO
2
ND
RESPONDENT)
NTOMBIZAMASWAZI
FORTUNATE GABELA
SECOND RESPONDENT
(ID
NO. [....])
(DATE
OF BIRTH: 4
TH
NOVEMBER 1975)
(MARRIED
IN COMMUNITY OF PROPERTY
TO
1
ST
RESPONDENT)
Coram:
Mossop J
Heard:
2 March 2023
Delivered:
2 March 2023
ORDER
The
following order is granted:
1.
A rule nisi is issued calling upon the first and second respondents
and any other
interested parties to show cause, if any, before this
court on the 13
th
day of April 2023, at 09h30, or so soon
thereafter as the matter may be heard, why an order should not be
granted in the following
terms:
1.1
That the joint estate of the first and second respondents, married to
each other
in community of property, is finally sequestrated and why
the costs of the application, including the costs relating to the
grant
of the provisional order of sequestration, are not to be costs
in the sequestration of the respondents’ estate;
2.
Paragraph 1.1 shall operate as an order provisionally sequestrating
the joint
estate of the respondents with immediate effect.
3.
This order is to be served on the first and second respondents, the
employees
of the respondents (if any), and on the South African
Revenue Service.
JUDGMENT
MOSSOP
J:
[1]
This is an opposed sequestration application brought by the applicant
against the respondents, who are married to each other in community
of property. The first and second respondents stood surety for
the
indebtedness of a company called Gabela Properties (Pty) Ltd (the
company), which had negotiated two loans from the applicant.
The
company defaulted on its repayment obligations to the applicant
arising out of those loans and was ultimately finally wound
up in
2017. The respondents were called upon to make payment to the
applicant consequent upon their respective deeds of suretyship,
but
failed to do so. Summons was therefore issued by the applicant
against them and judgment was granted against them, jointly
and
severally, for payment in the aggregate amount of R6 551 515.20
on 24 February 2017.
[2]
Since the entering of that judgment, some payments have been made to
the
applicant by both the liquidators of the company and by the
respondents and the indebtedness of the company, and therefore the
indebtedness of the respondents, has consequently been reduced. The
present state of the indebtedness of the company to the applicant
is
the amount of R4 528 855. There are no further payments
that can be made from the liquidators, as the principle asset
of the
company, an immovable property that had been rented out by the
liquidators during the winding up, has been sold.
[3]
The applicant issued a writ against the first and second respondents
arising
out of the judgment that it obtained against them, but when
he served it, the sheriff of this court only found movable property
to the value of approximately R16 800. This application is the
result of the sheriff’s return certifying this to be
the case.
[4]
Section 10 of the Insolvency Act
24 of
1936 (the Act)
reads as follows:
‘
If
the court to which the petition for the sequestration of the estate
of a debtor has been presented is of the opinion that
prima
facie
-
(a)
the
petitioning creditor has established against the debtor a claim such
as is mentioned in subsection (1) of section
nine
;
and
(b)
the
debtor has committed an act of insolvency or is insolvent; and
(c)
there
is reason to believe that it will be to the advantage of creditors of
the debtor if his estate is sequestrated,
it
may make an order sequestrating the estate of the debtor
provisionally.’
[5]
Section 12(1) of the Act reads as
follows:
‘
(1)
If at the hearing pursuant to the aforesaid rule
nisi
the
court is satisfied that-
(a)
the petitioning creditor has
established against the debtor a claim such as is mentioned in
subsection (1) of section
nine
;
and
(b)
the debtor has committed an act of
insolvency or is insolvent; and
(c)
there is reason to believe that it
will be to the advantage of creditors of the debtor if his estate is
sequestrated,
it
may sequestrate the estate of the debtor.’
[6]
Section 9(1) provides that:
‘
A
creditor (or his agent) who has a liquidated claim for not less than
fifty pounds, or two or more creditors (or their agent) who
in the
aggregate have liquidated claims for not less than one hundred pounds
against a debtor who has committed an act of insolvency,
or is
insolvent, may petition the court for the sequestration of the estate
of the debtor.’
[7]
A
sequestration application is not in its essential nature an ordinary
judgment that is limited in its scope. As was stated
in
Naidoo
v ABSA Bank Limited,
[1]
‘…
a
sequestration order as a species of execution, affecting not only the
rights of the two litigants, but also of third parties,
and involves
the distribution of the insolvent's property to various creditors,
while restricting those creditors' ordinary remedies
and imposing
disabilities on the insolvent - it is not an ordinary judgment
entitling a creditor to execute against a debtor.’
[8]
If the court forms an opinion that
prima
facie
the three requisites set
out in s 10 of the Act have been met, a provisional sequestration
order may be issued. The threshold of
the test at that stage is much
lower than at the stage when a final order is sought in terms of s 12
of the Act.
[9]
The applicant has submitted that the respondents have committed acts
of
insolvency in terms of section 8
(e)
and 8
(g)
of the
Act. Section 8
(e)
and
(g)
read as follows:
‘
A
debtor commits an act of insolvency-
(e)
if he makes or offers to make any
arrangement with any of his creditors for releasing him wholly or
partially from his debts;
. .
.
(g)
if he gives notice in writing to any one
of his creditors that he is unable to pay any of his debts;’.
[10]
The reliance upon these grounds by the applicant arises from two
letters drawn by the first
respondent and sent to the applicant’s
attorneys. It is important at this stage to mention that the first
respondent is an
attorney of this court and the letters are
accordingly not the writings of a person unskilled in the law or
those of a person who
may not have appreciated what the consequences
of such writings may be. The first letter, dated 29 April 2021 (the
first letter),
records, inter alia, a statement by the first
respondent that he and the second respondent are:
‘
not intent at
[sic] defending our indebtedness to your client in this matter’,
and that the respondents would be in a position
to make payment of
R250 000 to the applicant by the end of June 2021. The second
letter, dated 7 July 2021 (the second letter),
is marked as being
‘without prejudice’ and contains the following offer by
the respondents:
‘
We do make an
offer on [sic] without prejudice basis to settle the arrears due to
your client in the sum of R850 000.00 (Eight
Hundred and Fifty
Thousand Rand) which shall be due and payable to your client on or
before 31 August 2021 in full and final settlement
of the arrears
due.’
[11]
The applicant holds the view that the first letter constitutes an
acknowledgement by the
respondents that they are unable to
immediately pay their entire indebtedness to the applicant. The
indebtedness of the respondents
exceeds R4 million. The first letter
advises only of a potential payment of R250 000 at a later date. In
my view, the meaning contended
for by the applicant is correct as the
first letter does not propose a payment of the full amount due to the
applicant, but only
a future payment of a portion of the admitted
debt.
[12]
The second
letter, as previously mentioned, is marked ‘without prejudice’.
Ordinarily, that would mask it from the court’s
view and
prohibit it from inclusion in the papers. However, in
Absa
Bank Ltd v Chopdat
,
[2]
van Schalkwyk J, stated that:
'. . . a
s
a matter of public policy, an act of insolvency should not always be
afforded the same protection which the common law privilege
accords
to settlement negotiations. A creditor who undertakes the
sequestration of a debtor's estate is not merely engaging
in private
litigation; he initiates a juridical process which can have extensive
and indeed profound consequences for many other
creditors, some of
whom might be gravely prejudiced if the debtor is permitted to
continue to trade whilst insolvent. I would
therefore be inclined to
draw an analogy between the individual who seeks to protect from
disclosure a criminal threat upon
the basis of privilege and the
debtor who objects to the disclosure of an act of insolvency on the
same basis
.'
The
learned judge concluded that:
'In this case the
respondent has admitted his insolvency. Public policy would require
that such admission should not be precluded
from these proceedings,
even if made on a privileged occasion.'
[3]
[13]
In
Absa
Bank Ltd v Hammerle Group
,
[4]
the Supreme Court of Appeal confirmed this approach and stated that:
‘
It
is true that, as a general rule, negotiations between parties
which are undertaken with a view to a settlement of their
disputes are privileged from disclosure. This is regardless of
whether or not the negotiations have been stipulated to be without
prejudice. However, there are exceptions to this rule. One of these
exceptions is that an offer made, even on a 'without prejudice'
basis, is admissible in evidence as an act of insolvency. Where
a party therefore concedes insolvency, as the respondent did
in this
case, public policy dictates that such admissions of insolvency
should not be precluded from sequestration or winding-up
proceedings,
even if made on a privileged occasion. The reason for the exception
is that liquidation or insolvency proceedings
are a matter which by
its very nature involves the public interest. A concursus creditorum
is created and the trading public
is protected from the risk of
further dealing with a person or company trading in insolvent
circumstances. It follows that any
admission of such insolvency,
whether made in confidence or otherwise, cannot be considered
privileged.
’
[14]
I am
therefore satisfied that the second letter contains admissible
evidence and that such evidence is properly before the court.
[15]
The applicant contends that the second letter constitutes an attempt
by the respondents
to have them released from the balance of their
indebtedness to the applicant upon payment of the lesser amount of
R850 000
and is, thus, an attempt to have the applicant release
them partially from their debts and is accordingly an act of
insolvency.
Given that the respondents have not disputed the quantum
of their indebtedness, it is inescapable that the respondents in
sending
the second letter attempted to secure their release from the
full extent of their admitted indebtedness. In my view that
constitutes
an act of insolvency.
[16]
Even if I am incorrect in this view, the papers clearly make out a
case in terms of section
8
(b)
of the Act, which provides as
follows:
‘
A debtor commits
an act of insolvency-
(b)
if a court has given judgment against him and he fails, upon the
demand of the officer whose duty it
is to execute that judgment, to
satisfy it or to indicate to that officer disposable property
sufficient to satisfy it, or if it
appears from the return made by
that officer that he has not found sufficient disposable property to
satisfy the judgment;’.
Judgment
in a substantial amount has been obtained against the respondents and
the sheriff has not found sufficient assets with
which to satisfy
that judgment.
[17]
The applicant has caused an immovable property held in the name of
the first respondent
to be valued. In 2020, the appraiser appointed
by the applicant assessed the value of the immovable property,
situated at 17 Trafford
Avenue, Dawncliffe, Westville, as having a
market value at R1,85 million and a forced sale value of
R1,25 million. The current
municipal valuation of the property
is R2 140 000. This exercise was embarked upon to establish
that there will be an
advantage to creditors if the respondents are
sequestrated. It has not been denied by the respondents that there is
substantial
equity in the immovable property, it only being
encumbered in the amount of R350 000.
[18]
In their defence, the respondents raise several points. The first is
raised in limine and
is to the effect that this court lacks
jurisdiction to hear this application. The respondents contend that
‘the whole cause
of action arose in Durban’, the
inference therefrom being that this matter should be heard in Durban
and not in Pietermaritzburg,
where it is being heard. This point need
not detain us significantly: in terms of section 50(1)
(g)
of
the
Superior Courts Act 10 of 2013
, the KwaZulu-Natal High Court,
Pietermaritzburg is the main seat of the KwaZulu-Natal Division of
the High Court, and has jurisdiction
over the province of
KwaZulu-Natal. Durban clearly is situated within this province and
this court consequently has jurisdiction.
The point raised by the
respondents is a point that may be taken with some profit in
magistrates’ court litigation but not
in litigation before this
court. The point in limine must thus fail.
[19]
Various other issues are raised in the respondents’ answering
affidavit. Almost all
of them relate to the winding up of the company
and are not relevant to the facts of this application. As regards the
offer of
settlement in the amount of R850 000 mentioned in the
second letter, the first respondent reveals that the amount proposed
was not an amount that he actually possessed, or which was under his
control, but was apparently an amount due to him at some point
in the
future as fees from a Land Claims Court matter that he was involved
in. The offer was thus speculative in its nature as
those fees had
not yet been received by the first respondent. This, however, does
not detract from the fact that an attempt was
made to secure the
respondents’ release from their indebtedness to the applicant.
The respondents further claim that they
have never given notice to
the applicant, or any other person, that they are unable to pay their
debts. Yet, it is indisputable
that the amount due to the applicant
by the respondents, which the respondents professed in the first
letter not to dispute, has
not been paid since judgment was taken
against them in February 2017. The inference is irresistible that it
has not been paid because
the respondents lack the means to pay it.
[20]
Mr Quinlan pointed out in his heads of argument that the respondents
have not taken the
opportunity in their answering affidavits to
disclose the true state of their financial situation to the court. If
they contend,
as they appear to do, that they are not insolvent, then
this was a golden opportunity that could have been used by them to
establish
their solvency. The first respondent responded by saying
that in drafting his answering affidavit he merely responded to the
allegations
in the founding affidavit. That is a rather narrow view
to take regard being had to the fact this is a sequestration
application
and to the fact that the respondents themselves have the
best knowledge of the state of their financial affairs and should
have
disclosed such information if they are to avoid the result
prayed for by the applicant.
[21]
Having heard argument this morning from Mr Quinlan and from the first
respondent, who appeared
in person, I stood the court down to
consider judgment.
[22]
In the circumstances, I am satisfied that the applicant has
established that it is a creditor
of the respondents, that the
respondents have committed acts of insolvency and that there is
reason to believe that it will be
to the advantage of creditors of
the respondents if the respective estates of the first and second
respondents are sequestrated.
[23]
I accordingly grant the following order:
1. A rule nisi is
issued calling upon the first and second respondents, and any other
interested parties, to show cause, if
any, before this court on the
13th day of April 2023, at 09h30, or so soon thereafter as the matter
may be heard, why an order
should not be granted in the following
terms:
1.1
That the joint estate of the first and second respondents, married to
each other in community
of property, is finally sequestrated and why
the costs of the application, including the costs relating to the
grant of the provisional
order of sequestration, are not to be costs
in the sequestration of the respondents’ estate;
2. Paragraph 1.1 shall
operate as an order provisionally sequestrating the joint estate of
the respondents with immediate effect.
3. This order is to be
served on the first and second respondents, the employees of the
respondents (if any), and on the South African
Revenue Service.
MOSSOP
J
APPEARANCES
Counsel
for the appellant
: Mr P. D. Quinlan
Instructed
by:
: Thorpe and Hands
Locally represented by:
Stowell and Company
295 Pietermaritz Street
Pietermaritzburg
Counsel
for the respondent
: In person
Instructed
by
: Not applicable
Date
of Hearing
: 2 March 2023
Date
of Judgment
: 2 March 2023
[1]
Naidoo
v ABSA Bank Limited
[2010]
ZASCA 72
;
2010 (4) SA 597
(SCA) para 4.
[2]
Absa
Bank Ltd v Chopdat
2000 (2) SA 1088
(W) at 1092H-1093A.
[3]
Ibid
at 1094F-G.
[4]
Absa
Bank Ltd v Hammerle Group
[2015] ZASCA 43
;
2015 (5) SA 215
(SCA) para 13.