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[2023] ZAKZPHC 101
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Le Sueur v Stainton (12504/2022P) [2023] ZAKZPHC 101 (6 October 2023)
FLYNOTES:
INSOLVENCY – Sequestration –
Advantage
to creditors
–
Avers
no assets in estate to satisfy any judgments – Applicant
contends machinery of sequestration is to benefit of
creditors –
Enquiry under Insolvency Act may uncover assets that can be
realised for creditors – Investigation
warranted due to
respondent's conduct – Prospect of recovery of assets
through process of enquiry – Statutory
formalities complied
with – Postponement refused – Rule nisi confirmed –
Insolvency Act 24 of 1936
,
s 12(1)(c).
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
REPUBLIC OF SOUTH
AFRICA
KWAZULU-NATAL HIGH
COURTS
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE NUMBER:
12504/2022P
ROBERT ANTHONY LE
SUEUR
APPLICANT
and
RODERICK ROBERT
STAINTON
RESPONDENT
IDENTITY NO. 6[...]
DATE OF BIRTH: 7
SEPTEMBER 1969
MARRIED OUT OF
COMMUNITY OF PROPERTY TO
LINDA-JANE STAINTON
IDENTITY NO: 6[...]
JUDGMENT
ANNANDALE AJ:
[1]
This application served before me as
an opposed motion on the extended return date of an order
provisionally sequestrating the respondent’s
estate. Having
heard argument, I reserved judgment and extended the rule until
judgment was handed down.
[2]
When this case was allocated
to me for hearing, I advised the parties by email via my registrar
that as counsel I am involved in
litigation which includes
allegations that transactions to which the respondent was a party
were improper or simulated, and that
on 2 August 2023 whilst
presiding in motion court I had granted default judgment against
various parties including the respondent
in case 9788/2023P. I
requested the parties to indicate via email by 10 am on the day
before I was due to the hear the matter,
whether they were of the
view that either of the matters canvassed created in their clients’
minds an apprehension of bias
such that the application should be
heard by a different judge, or whether the default judgment which I
had granted needed to be
addressed either by way of supplementary
affidavits or supplementary heads of argument and, if so, when these
would be filed.
[3]
Both parties responded that the
disclosures did not create any perception of bias on the part of
their clients and that the default
judgment did not need to be
addressed either by way of supplementary affidavits or heads of
argument. In addition, the respondent’s
attorneys placed on
record that the respondent had consulted with me as counsel in late
2020 for advice on matters relating to
one of the developments in
which his company, Rokwil Civils (Pty) Ltd (Rokwil) had been
involved.
[4]
At the start of the hearing I
requested both legal representatives to confirm the positions
conveyed on email which they did. I
also raised with counsel for the
applicant whether the fact that I had consulted with the respondent
changed his client’s
position regarding the appropriateness or
otherwise of my hearing the application. He advised that it did not.
[5]
I consequently dealt with the
application. During argument, Mr Pedersen, who appeared for the
respondent made oral applications
for leave to file a further
affidavit and for the postponement of the hearing. I heard
submissions on both interlocutory applications
but directed Mr
Pedersen also to address me on the merits as I was not disposed to
deal with the matter piecemeal and wanted to
be able to give judgment
on the merits without delay if I refused the interlocutory
applications. I deal with both of these during
the course of this
judgment rather than at the outset, as the applications and my
decisions on them need to be understood in context.
Requirements for a
final sequestration order
[6]
The prerequisite for a final order
of sequestration are prescribed in
section 12(1)
of the
Insolvency Act 24 of 1936
, as follows: –
‘
12.
Final sequestration or dismissal of petition for sequestration.
—
(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
[1]
;
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.’
[7]
The first two of these three
conjunctive requirements are not in dispute. The applicant has a high
court judgment against the respondent
in an amount exceeding R103
million for which he holds no security. The respondent disputed and
resisted the applicant’s
claim all the way to the
Constitutional Court, but his attempts were in vain. The Sherriff
rendered a
nulla bona
return
in respect of that judgment which constitutes an act of insolvency
contemplated by
section 8(b)
of the
Insolvency Act. The
respondent is
also factually insolvent. He states he has no assets, although he has
not put up any bank statements or tax returns
in support of that
statement. In addition to the judgment in favour of the applicant,
there are three other judgments against the
respondent, which exceed
in aggregate R36 million, excluding the judgment granted at the
instance of Investec Bank referred to
at the outset of this judgment.
All these debts arose because the respondent stood surety for Rokwil,
which has gone into liquidation.
The respondent has additional
contingent liabilities of between R 242 and R 342 million arising out
of other suretyships which
have not yet been called up.
[8]
The respondent asserts that the
sequestration of his estate will not be to the advantage of creditors
because he has no assets with
which to satisfy any of the judgments.
[9]
The only issue is therefore whether
there is reason to believe that the sequestration of the respondent’s
estate will be to
the advantage of creditors.
[10]
The
applicant
bears the onus in this regard.
[2]
Discharging that onus does not require proof on a balance of
probabilities that advantage will accrue, simply that there is reason
to believe that an advantage will accrue, which is a considerably
lower threshold.
[3]
[11]
In
Stratford
and others v Investec Bank Ltd and others
2015
(3) SA 1
(CC
)
para 43, the Constitutional Court reaffirmed the principle of long
standing originally articulated in
Meskin
& Co v Friedman
1948 (2) SA 555
(W)
at 559 that:
‘
..the
facts put before the Court must satisfy it that there is a reasonable
prospect – not necessarily a likelihood, but a
prospect which
is not too remote – that some pecuniary benefit will result to
creditors. It is not necessary to prove that
the insolvent has any
assets. Even if there are none at all, but there are reasons for
thinking that as a result of enquiry under
the [Insolvency Act] some
may be revealed or recovered for the benefits of creditors, that is
sufficient.’
[12]
In addition, as was stated in the
oft endorsed
dictum
in
Chenille Industries v Vorster
1953
(2) SA 691
(O) at p 699 F – G :-
‘
Apart
from the direct financial advantage resulting from sequestration, the
Court must have regard,
inter alia,
to 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 administer the
estate, and the assurance that all creditors will be accorded the
treatment prescribed by law in the division of the proceeds.’
[13]
It
is convenient whilst considering matters of principle to deal with
the submissions made by the respondent on the basis of the
well-established requirement that sequestration must be to the
advantage of all creditors, or at least the general body of
creditors.
[4]
The respondent
argues that the fact that only the applicant has applied to
sequestrate his estate whilst other creditors have only
sought money
judgments requires me to draw the inference that the other creditors
do not believe that the respondent’s sequestration
will be to
their advantage.
[14]
Inferences
can only properly be drawn in civil proceedings when they are both
consistent with all the facts and where the inference
sought to be
drawn is the more natural or plausible conclusion than others that
could be drawn from the same facts.
[5]
Here, there could be any number of reasons why the respondent’s
other creditors have not applied for his sequestration, including
the
fact that the present application is pending. Reaching the conclusion
contended for by the respondent would therefore be engaging
in
speculation, not inferential reasoning.
Applicant’s
claimed grounds of advantage to creditors and respondent’s
stance
[15]
The applicant seeks to demonstrate
that the sequestration of the respondent’s estate will be to
the advantage of creditors
as contemplated in three respects.
[16]
First, relying on
Chenille
Industries
, the applicant submits that
the machinery of sequestration is to the benefit of the general body
of creditors. It ensures a fair
distribution between them and avoids
piecemeal execution which could result in a preference of one
creditor over another. That
machinery is however of no use without
the prospect of a pecuniary benefit to the creditors and its
mere existence does not
create advantage to creditors.
[17]
Second, the sequestration of the
respondent’s estate would protect the commercial public, as it
would prohibit the respondent
from continuing to act as a director of
any company which would be to the advantage of creditors generally
given the respondent’s
past conduct. This was not a basis upon
which the applicant sought to demonstrate advantage to creditors in
its founding affidavit.
The argument was instead advanced in response
to submission in the heads of argument filed on the respondent’s
behalf, that
sequestration would be personally prejudicial as it
would prevent him from practicing as a chartered accountant and
preclude him
from his ‘line of business as director of
companies in large-scale property, development, construction,
industry, and project
management.’
[18]
There are two reasons why it would
not be appropriate to regard this as a ground upon which advantage to
creditors could be demonstrated.
First, the applicant did not rely on
this ground originally and so the respondent was not given an
opportunity to deal with it
in answer. Second, the respondent’s
complaints regarding this kind of prejudice which would result from
his sequestration
would be irrelevant if I were to be satisfied that
there was reason to believe that his sequestration would be to the
advantage
of creditors. The complaints are akin to a defendant
arguing that judgment should not be granted against them as they did
not have
sufficient assets to satisfy the judgment even though the
plaintiff had proved their claim.
[19]
The third and main ground relied on
by the applicant is that there are reasons to believe that an enquiry
under the
Insolvency Act may
uncover assets that can be realised for
the benefit of creditors. These reasons are based primarily on what
was revealed by an
audit and review conducted in 2018 at the behest
of the applicant on the books of account and bank statements of
Rokwil (the 2018
investigation) and the respondent’s
explanations regarding its findings. In addition, but to a much
lesser extent, the applicant
relies on matter in a report filed by
the respondent’s provisional trustees.
[20]
The respondent disputes that the
sequestration of his estate will be to the advantage of creditors. He
asserts that an enquiry will
not reveal anything more than the
applicant already knows by virtue of the 2018 investigation. If that
investigation didn’t
uncover any assets, argues the respondent,
it is because they simply don’t exist. The respondent contends
that to the extent
an enquiry is warranted, this can be achieved by
means short of sequestrating him, namely: an enquiry in the Rokwil
liquidation
or referring this application for the hearing of oral
evidence or by adjourning the sequestration application and requiring
the
respondent’s provisional trustees to conduct an enquiry and
deliver a report to court on advantage to creditors.
[21]
To assess these competing
contentions, it is necessary first to consider what emerged from the
2018 investigation and the respondent’s
explanations for its
findings and then the aspects of the provisional trustees’
report upon which the applicant relies.
Flows of funds
revealed in the 2018 investigation
[22]
The 2018 investigation was conducted
for the purpose of establishing the value created in Rokwil and the
financial benefits obtained
by the respondent from that company. It
occurred with the consent and co-operation of the respondent and
Rokwil and was performed
over a period of eight months by three
accountants who were given access to the bank account statements of
the respondent and his
wife.
[23]
The 2018 investigation revealed
significant flows of funds between the bank accounts of Rokwil and
the respondent and his spouse.
The flows of funds are not disputed,
what is in issue is whether they have been satisfactorily explained
or constitute a basis
upon which there is reason to believe that the
respondent’s sequestration would be to the advantage of
creditors.
[24]
The respondent drew more than R182
million from Rokwil during the period February 2013 to October 2017.
Based on the 2018 investigation,
the applicant submits that R 63.8
million of this was used to fund the respondent’s lifestyle.
The respondent denies that
he received in excess of R63 million to
fund his lifestyle but gives no details of what became of the R63.8
million.
[25]
During part of the period
referred to in the immediately preceding paragraph, namely between
February 2016 to October 2017,
R 108 million was transferred from
Rokwil to the respondent’s personal bank account, and a little
over R74 million was transferred
back to Rokwil. I refer to the
difference between the two sums as the R 34 million differential. The
applicant submits that as
the respondent obtained the benefit of the
R 34 million differential over those 21 months it is therefore
unlikely that he has
no assets. The respondent denies this but has
not explained what became of the R 34 million differential.
[26]
Over R194 million was transferred
from Rokwil to the personal bank accounts of the respondent’s
spouse between February 2016
and October 2017. During the same
period, a little over R192 million was transferred from the personal
bank accounts of the respondent’s
spouse to Rokwil. The use to
which the R 2 million differential was put is not explained by the
respondent.
[27]
The applicant submits that in the
light of the above, it is unlikely that the respondent has no assets,
and the flow of funds
cries out for investigation, particularly
what became of the R 63.8 million and the R 34 million differential.
According to the
applicant that clamour increased in volume with the
respondent’s explanations in his answering affidavit, which are
labelled
as questionable and themselves warranting investigation.
The respondent’s
explanations of the flow of funds
[28]
The respondent stated that
there was nothing untoward about the flow of funds, which were simply
movement of monies between four
accounts: Rokwil, Keystone Trust and
two Investec market link accounts in his name. As will become
apparent, the respondent’s
wife’s account was also
involved.
[29]
In relation to flows to the Investec
market link accounts, the respondent stated that sometimes when
Rokwil received funds they
would be paid into the market link
accounts because the respondent was extremely concerned when dealing
with large sums of monies
that the day-to-day bank account of Rokwil
could be hacked if he left all his ‘proverbial eggs in one
basket’. To avert
this, surplus funds not immediately required
by Rokwil would be left in the Investec accounts rather than paid
into Rokwil’s
day to day bank accounts. Quite why the
respondent’s Investec accounts would be any less susceptible to
hacking than those
of Rokwil is not explained.
[30]
The respondent has not adduced the
trust deed of the Keystone Trust. He does however disclose that he
and his family are the beneficiaries
and that it was established ‘for
both asset protection and estate planning’. It is not without
significance that the
reason for the establishment of the trust is
provided in the context of the respondent explaining that he does not
have any movable
property registered in his name, and that when he
started out in business, having previously qualified as a chartered
accountant,
he was aware from his education and based on legal advice
from his attorneys that there were no certainties in business.
[31]
The respondent states that the trust
sold ‘part of’ its shares in Keystone Park CC for R 15
million. What other assets
the trust has or how it acquired them is
not disclosed and the respondent has not put up any financial
statements of the trust.
[32]
Whilst stressing that the purchase
price of the shares was paid into the trust’s account because
it was the true owner of
the shares, the respondent states: ‘I
chose to keep the money to assist in the liquidity of (Rokwil)’.
That suggests
a measure of unilateral control of the trust as the
respondent’s alter ego.
[33]
The respondent’s explanation
of the way in which he gave effect to his choice of how the funds
should be utilised is curious:-
‘
..when
money was needed by Rokwil, it would be loaned into my wife Linda’s
account, to then “loan” same to Rokwil.
This money would
then be utilised for company expenses. As soon as money was received
back into Rokwil’s account, such would
again be reversed paid
back to Linda’s account, which would be given back to the
Keystone Trust.’
[34]
The respondent does not explain why
his wife’s account was interposed in these flows of funds if
they were loans between Rokwil
and the trust. There is no indication
on the papers that the respondent’s wife had anything to do
with the business of Rokwil.
In addition, the respondent has not put
up any of the bank statements of the trust which show the flow of
funds as he alleges.
The provisional
trustees’ report
[35]
The provisional trustees filed a
report on 13 April 2023 pursuant to paragraph 3.1 of the provisional
sequestration order which
directed them to report to the court prior
to the return date. I deal with the implications of that portion of
the order later
in this judgment.
[36]
The provisional trustees’
report stressed that their powers were very limited and obtaining
information from the respondent
had been impossible because he had
been totally uncooperative. Annexed to the report are a series of
emails and WhatsApp messages
evidencing attempts to contact the
respondent and his wife and obtain information from them, including
the mandatory statement
of affairs and personal particulars.
According to the provisional trustees, these efforts were met with
silence.
The provisional trustees
were in no position to express a view on advantage to creditors. The
report does however detail such additional
information as the
provisional trustees were able to obtain through searches of
the companies and deeds offices.
[37]
This information included the fact
that the respondent is a director or member of fourteen different
corporate entities in which
he may have some financial interest as a
shareholder or as a creditor with claims on loan accounts. The
respondent did not mention
these in his opposing affidavit, but the
applicant does not seek to make anything of that, or of the existence
of these interests
as he regards them as worthless given the collapse
of Rokwil and other companies associated with it.
[38]
The report details that the
respondent and his wife were married in 1996 and both declared the
nett value of their estates
as zero in their antenuptial contract.
The respondent’s wife has not been an active director of any
company since 2018. Whilst
the respondent has no immovable properties
registered in his name, his wife owns three: one in Kloof, another in
Everton and a
third in Assegai. Only one of the properties is subject
to a mortgage bond, which is in the sum of R 3.9 million and in
favour
of Investec. The respondent and his wife reside in the
unencumbered property in Kloof, which is described in the report as
‘a
palatial home in an upmarket area.’ The provisional
trustees conducted a Google search which confirmed that the
improvements
to this property are substantial and the grounds large.
The respondent’s wife has not applied for the release of any
asset
to which she may lay claim, even though the immovable
properties vest in the insolvent estate until released by the
trustees in
terms of
section 21
of the
Insolvency Act.
[39
]
The applicant submitted that it
might be that some of the funds received by the respondent and his
wife from Rokwil were used to
acquire the immovable properties
registered in his wife’s name.
[40]
In heads of argument filed on his
behalf, the respondent takes issue with the report insofar as it
records that he and his wife
had been uncooperative. The heads of
argument ‘record his dispute with the contents’ of the
report, without any further
particularity. The respondent did not
file an affidavit dealing with the aspects of the report which he
regards as incorrect.
[41]
During the hearing, Mr Pedersen
attempted to make several submissions regarding why the report was
incorrect when it stated that
his client and his wife had been
uncooperative and sought to hand to the court the respondent’s
statement of affairs which
he submitted had been filed after the
report was furnished. He also sought to advance arguments regarding
the knowledge he suggests
one of the provisional trustees must have
regarding the respondent’s affairs and why his sequestration
would not be to the
advantage of creditors, by virtue of that
provisional trustee’s employment with the firm ‘handling
a number of matters
interrelated with the respondent’. The
difficulty with all of this is that there was nothing on the papers
to support these
submissions, which therefore amounted to attempts to
give evidence from the bar.
[42]
When
confronted with this obstacle, Mr Pedersen submitted that that the
rules make no provision for filing further affidavits or
other means
of responding to the trustees’ report, so it was sufficient for
the respondent merely to record his disagreement
and argue these
matters. That submission is not sound in law. I engaged Mr Pedersen
on the principle that the court has a discretion
to allow the filing
of further affidavits
[6]
and
would tend to allow a further affidavit by a respondent if they
wanted to deal with new matter arising in the replying affidavit.
[7]
Here, the new matter arises not from the replying affidavit but from
the appointment of a provisional trustee with particular knowledge
and the provisional trustees’ report, but by parity of
reasoning, the respondent could have applied to file a further
affidavit
dealing with that report. The court would have been
inclined to allow such an affidavit to be filed, had application been
made
timeously, the purpose of the affidavit explained, and its
content relevant to a determination of the issues.
[43]
Mr Pedersen thereupon applied for an
adjournment of the hearing and for leave to file a further affidavit.
He stated that the purpose
of the further affidavit would be to
explain why the respondent disputed the provisional trustees’
assertions that he and
his wife had been uncooperative, and to put up
the statement of affairs that had been submitted to the provisional
trustees after
their report was filed.
[44]
The respondent’s case has been
unwavering that he has no assets registered in his name. The
statement of affairs is therefore
unlikely to be helpful in
determining this application. I do not intend to attach any weight to
the provisional trustees’
assertions regarding the respondent’s
lack of cooperation in determining whether there is reason to believe
that the sequestration
of his estate would be to the advantage of
creditors. The affidavit the respondent envisages filing would
therefore take the matter
no further. In any event, the respondent
has been in possession of the report since 13 April 2023, and should
have made application
to file any further affidavits long before the
date on which the matter was set down. That would have avoided the
prejudice necessarily
occasioned by adjourning the matter on the
scheduled date of an opposed hearing. I therefore refuse the
application to file a further
affidavit and will determine whether
there is reason to believe that sequestration of the respondent’s
estate will be to
the advantage of creditors on the papers as they
stand.
Analysis
[45]
There are a number of matters which
could be usefully investigated.
[46]
The respondent has failed to explain
what became of the admitted R 34 million differential or the R 2
million that flowed from Rokwil
to his wife. The respondent does not
engage with the assertion based on the 2018 investigation that he
received R 63.8 million
to fund his lifestyle between February 2013
and October 2017 beyond proffering a bare denial. These sums are
substantial and the
use to which the funds were put is
not explained. It is in my view a prospect not too remote that
investigation into what
became of these monies may reveal assets
which can be recovered for the benefit of creditors.
[47]
The respondent’s
explanation regarding the transfers to and from his Investec accounts
due to fear of hacking is unconvincing.
No reason is suggested why
the Investec accounts were any less susceptible to being hacked than
those of Rokwil. The reasons for
the transfers and what became of the
funds also appear worthy of investigation.
[48]
The involvement of the respondent’s
wife in what are said to be loans by the Keystone Trust to Rokwil is
unexplained and does
not make sense on the respondent’s version
regarding the nature of the transactions. The role of the Keystone
Trust and its
financial position also raise questions, including
whether it has been used as the respondent’s alter ego or as an
illegitimate
means of placing assets which are actually his own
beyond the reach of creditors. The respondent’s failure to
produce any
documentation regarding the Keystone Trust or the
transactions in which it was involved underlines the need for an
investigation.
[49]
The
means by which the respondent’s wife was able to acquire
significant immovable properties is not disclosed and she has
not
sought their release. Were she to do so she would be required to
prove that they were in fact her separate property and that
the
transactions in terms of which she acquired them were not simulated
or designed to defeat the rights of creditors in the event
of her
husband’s insolvency.
[8]
In these circumstances, the submission by counsel for the applicant
that investigation into the source of the funds to purchase
these
properties may reveal that they were acquired with some of the funds
received by the respondent from Rokwil is not at all
far-fetched.
[50]
All
these matters, together with the nature of the flows of funds, their
significant magnitude and the scant or total lack of information
provided by the respondent warrant investigation and satisfy me that
there is a not too remote a prospect of the recovery of assets
through a process of an enquiry.
[9]
[51]
It is of course difficult to assess
in circumstances like the present what dividend would result if
assets were recovered. There
is no absolute rule that sequestration
will not be to the advantage of creditors if the likely dividend is
below a certain number
of cents in the rand. The claims against the
respondent are significant, but so are the funds he and his wife
received. If recovery
were to encompass the R 63 million received by
the respondent and the R 2 million retained by his wife, that would
yield a dividend
of between 13.5 and 17 cents in the rand depending
on whether the respondent’s contingent liabilities are at the
top or bottom
of the range he states.
[52]
It follows that there is reason to
believe that the sequestration of the respondent’s estate will
be to the advantage of creditors
as envisaged in
section 12(1)(c)of
the
Insolvency Act, and
that I should grant a final order, unless the
respondent’s contentions that there are other satisfactory
means of having
an enquiry which are preferable to sequestration have
merit. I therefore deal which each of the three alternatives he
proposes
An enquiry in the
Rokwil liquidation
[53]
The
respondent’s first proposal is that there could be
interrogation proceedings in the winding up of Rokwil.
Section 415(1)
of the Companies Act 61 of 1973 permits interrogations ‘concerning
all matters relating to the company, or its business or
affairs…
and concerning any property belonging to the company.’ Section
417 of the 1973 Companies Act is to similar
effect insofar as the
ambit of an enquiry is concerned, permitting interrogation
‘concerning the trade, dealings affairs
and property of the
company’. Such proceedings could not investigate the matters
highlighted in this judgment as any interrogation
in the Rokwil
liquidation would perforce focus on Rokwil. It would be an abuse for
the focus to be diverted to the respondent.
In any event, any
information obtained during such an enquiry is not evidence, and if
obtained from third parties would not be
admissible against the
respondent.
[10]
[54]
The possibility that an
enquiry could be held in the Rokwil liquidation is therefore no
reason to refuse a final order of sequestration
for all the reasons
articulated by Rogers J as follows in
In
dustrial
Development Corporation of South
Africa
Ltd v Burger and Another (10679/13 & 10680/13)
[2014] ZAWCHC 23
(4 March 2014):-
‘
[13]
I do not think that the possibility of investigation in other
liquidations and sequestrations is a
reason not to make available to
creditors the investigative advantages which would flow from a
sequestration of the personal estates
of the Burgers. The
investigation which can permissibly be conducted in relation to any
particular liquidation or sequestration
is circumscribed. It cannot
be taken for granted that all the dealings of the Burgers in their
individual capacities, including
transactions between themselves and
their spouses and between themselves and family trusts, could
permissibly be investigated in
(for example) the liquidation of SBT.
Moreover, and even if the investigations legitimately conducted in
other liquidations and
sequestrations could uncover irregular
dealings of the Burgers in their personal capacities, only a trustee
in the insolvent estates
of the Burgers could exercise certain
resultant remedies such as those pertaining to impeachable
transactions.’
Reference to
oral evidence
[55]
The second alternative
proposed by the respondent is that I refer this application to oral
evidence to enable cross-examination
of witnesses and production of
documents. In my view such an order would not be appropriate. A
reference to oral evidence is competent
where there is a genuine
dispute of fact in motion proceedings. An enquiry into whether there
is reason to believe that sequestration
will be to the advantage of
creditors calls for a value judgement. It is not an inquiry
into objective facts, such as the
whether the debtor has committed an
act of insolvency. Consequently:-
‘
Where
the advantage to creditors is said to lie in the pecuniary benefit
which may be yielded by investigation, the court, in making
its value
judgement, does not necessarily need to resolve disputed allegations
of impropriety on the part of the debtor. The very
fact that there
are allegations of impropriety is a relevant consideration, even
though they may be disputed. The court cannot
be expected, in order
to determine whether there is reason to believe that it will be to
the advantage of creditors to grant a
final sequestration order, to
investigate and determine the very matters which the petitioning
creditor says should be investigated
by way of the machinery provided
by the
Insolvency
Act. Where
a court grants a final sequestration order because of the benefits
which might flow from future investigation, the possibility
always
exists that in the event the investigation will not bear fruit. That
does not mean that the court, when it granted the final
order, erred
in being satisfied that there was reason to believe that
sequestration would be to the advantage of creditors.’
[11]
Enquiry by the
provisional trustees
[56]
The respondent’s third
proposal is that these proceedings be adjourned to allow his
provisional trustees to conduct an enquiry
and report to the court on
advantage to creditors before a decision is made on the grant of a
final order. This rather unusual
suggestion has its origins in the
inclusion of paragraph 3.1 of the provisional sequestration order
which reads:-
‘
3.1
The trustee is directed to report to Court
prior to the return date on whether there
is an
advantage to creditors.’
[57]
Mr Pedersen submitted that paragraph
3.1 of the provisional sequestration order both requires and empowers
the provisional trustees
to conduct an enquiry, including subpoenaing
documents and witnesses if necessary and then to report on advantage
to creditors,
which they have failed to do. Their report was not
preceded by an enquiry and expressed no view on advantage to
creditors. Mr Pedersen
argued that the order had to be complied with
before a final decision on the application could be taken and this
meant that the
application had to be adjourned for the provisional
trustees to conduct an enquiry and file a report. Evaluation of these
submissions
requires me to interpret paragraph 3.1 of the provisional
sequestration order.
[58]
Mr Pedersen also informed me from
the bar that there was to be ‘an enquiry’ by the
provisional trustees on 24 August
2023, although he was not sure what
form the ‘enquiry’ would take and accepted it might only
be a meeting. Mr Pedersen
moved for the adjournment of the
application pending the finalisation of that enquiry, submitting that
the application should be
re-enrolled for further argument and final
decision only once the provisional trustees had filed a report
following the enquiry
or meeting.
[59]
As I understood his argument, the
adjournment was sought regardless of my decision on the
interpretation of paragraph 3.1 of the
provisional sequestration
order. I accordingly deal with the application for a postponement on
both bases.
Interpretation of
paragraph 3.1 of the provisional sequestration order
[60]
The language of paragraph 3.1 of the
provisional sequestration order must be interpreted purposively and
in the context of the contentions
in the litigation and the scheme of
the
Insolvency Act.
[61
]
The provisional sequestration order
was handed down immediately after argument had been heard on an
opposed basis. No judgment was
delivered which can provide further
context. However, given the respondent’s contentions in his
opposing affidavit, the report
was presumably intended to assist the
court seized with the matter on the return date in dealing with the
question of advantage
to creditors.
[62]
Although
there is no statutory duty on a provisional trustee to carry out an
investigation and report, such reports are unobjectionable
if
a provisional trustee obtains information which has a bearing upon
the various matters arising for determination on the return
day.
[12]
The
extent to which they can be of assistance is however constrained by
the limited powers of provisional trustees to obtain information
in
the light of various provisions of the
Insolvency Act, and
the fact
that the duty to investigate and report in accordance with
section 80
of the
Insolvency Act rests
on final and not provisional trustees.
The court which granted the order would have been alive to these
limitations.
[63]
Turning to the language, the order
does not direct the trustees to conduct an enquiry, simply to report.
That is in my view significant,
as provisional trustees have no
independent power to conduct enquiries.
[64]
Sections
64
to
66
of the
Insolvency Act provide
for enquiries at meetings of
creditors and create the means whereby the attendance of persons to
be interrogated can be secured
and enforced. Such meetings are only
convened after the grant of final orders of sequestration.
[13]
Those sections could not therefore empower the provisional trustees
to conduct the enquiry the respondent contends was envisaged
by
paragraph 3.1 of the. order
[65]
Provisional
trustees can apply to the Master for permission to invoke
section 152
of the
Insolvency Act for
the purpose of examining persons before the
Master or a member of the public service designated by the
Master.
[14]
This process would
need to be funded by someone, something for which paragraph 1.3 of
the order makes no provision and it would
take time both to seek and
obtain approval and to hold the enquiry. The return date of the rule
issued on 26 January 2023 was 13
April 2023, it is highly unlikely
that an enquiry under
section 152
could have been approved and
conducted before the return date. An examination under
section 152
of
the
Insolvency Act is
by the Master or his designate, not by the
provisional trustee and if the Master were to refuse permission, the
examination could
be not held. In addition,
section 152
examinations
are private, and the information obtained cannot ordinarily be shared
with the public,
[15]
and could
not therefore properly be put before the court in a report unless
additional permission to disclose the information had
been obtained.
So
section 152
of the
Insolvency Act also
accords the
provisional trustees no power to do what the respondent submits was
required by paragraph 3.1 of the order.
[66]
Mr Pedersen submitted that despite
these provisions of the
Insolvency Act paragraph
3.1 of the order
must be interpreted as conferring the power to conduct enquiries on
the provisional trustees by implication. That
would be a very
far-reaching implication indeed. It would run counter to the whole
scheme of the
Insolvency Act, and
it is not apparent where a court
would source the power to make such an order even if it were so
minded. Neither of the representatives
appearing for the parties
could identify a suitable empowering provision.
[67]
I consequently find that paragraph
3.1 of the provisional sequestration order cannot be interpreted as
the respondent contends.
The effect of this finding is that the
respondent’s submission that an enquiry could be held by the
trustees as an alternative
to the final sequestration of his estate
cannot be upheld, and the application for an adjournment on the basis
of alleged non-compliance
with paragraph 3.1 must be dismissed.
Adjournment due to
meeting scheduled with provisional trustees
[68]
I turn then to the respondent’s
application for an adjournment due to the meeting with the
provisional trustees scheduled
for 24 August 2023. It is clear from
the scheme of the
Insolvency Act outlined
above that what is
scheduled is not an enquiry but a meeting.
[69]
I enquired of Mr Pedersen what would
be disclosed at such a meeting which would likely affect the outcome
of the application. He
submitted that the respondent would answer
whatever questions the provisional trustees wished to ask him at the
meeting, and also
wanted to give details to the provisional trustees
of what he called ‘avoidable debts’ in the region of R600
million,
in respect of his potential suretyship exposure, which could
be avoided if he were not sequestrated.
[70]
There are questions regarding the R
34 million differential and the R 63 million alleged benefit the
respondent derived from Rokwil
as well as the R 2 million which his
wife retained, which were raised pertinently on the founding papers
and which the respondent
chose not to answer when he should have
done. The consequences of that election cannot be undone at the
eleventh hour by the notional
possibility of what might happen at the
meeting. If anything, proffering an explanation to the provisional
trustees which was not
proffered on oath to the court could reflect
adversely on the respondent’s credibility.
[71]
The extent of the respondent’s
suretyship exposure is already apparent from the papers. There is
nothing to indicate that
the creditors in whose favour those
suretyships have been given will not act on them if the respondent is
not sequestrated. In
any event, if assets or impeachable
transactions are discovered, any execution or recovery will benefit
the holders of the
suretyships.
[72]
I therefore find that neither of the
reasons advanced for the postponement warrant deferring making a
final decision on this application
on the papers and the application
for a postponement is refused.
[73]
On the papers, for the reasons set
out above, I am satisfied that there is reason to believe that the
sequestration of the respondent’s
state will be to the
advantage of creditors. It is not in dispute that the relevant
statutory formalities have all been complied
with both in respect of
the application and service of the provisional order.
Order
[74]
I consequently grant the following
order :-
1.
The respondent’s application to file
a further affidavit is refused.
2.
The respondent’s application for a
postponement is refused.
3.
The rule nisi granted on 26 January 2023 is
confirmed.
A.M. ANNANDALE, AJ
JUDGMENT RESERVED:
15 AUGUST 2023
JUDGMENT HANDED
DOWN: 6 OCTOBER 2023
COUNSEL FOR APPLICANT:
GME Lots SC
Instructed by:
Hay & Scott Attorneys
Pietermaritzburg
Tel:
033 342 400
Ref:
MR P S HAY00
E-mail:
paul@hayandscott.co.za
FOR
THE RESPONDENT:Mr M B Pedersen (attorney)
M B
Pedersen & Associates
Hillcrest
Tel:
031 072 0324
Ref:
M B Pedersen
E-mail:
admin@durban-law.co.za
c/o
Bertus Appel Attorney
Pietermaritzburg
Tel:
033 342 3551
E-mail:
bertusappelattorneys@gmail.com
[1]
A
liquidated claim of not less than R 100.
[2]
Trust
Wholesalers and Woollens (Pty) Ltd v Mackan
1954
(2) SA 109
(N)
at 112C-D.
[3]
Amod
v Khan
1947(2)
SA 432 (N) at 437 – 438
In
dustrial
Development Corporation of South Africa Ltd v Burger and Another,
InRe; Industrial Development Corporation of South Africa
Ltd v
Burger
and
Another
(10679/13
& 10680/13) [2014] ZAWCHC 23 (4 March 2014) para 19
[4]
Lawclaims
(Pty) Ltd v Rea Shipping Co SA
1979
(4) SA 745
(N) at 755H.
[5]
Govan
v Skidmore
1952
(1) SA 732
(N) at 734 C- D, approved in
AA
Onderlinge Assuransie-Assosiasie
Bpk
v De Beer
1982
(2) SA 603
(A) at 614 H – 615 C.
[6]
Hano
Trading CC v JR 209 Investments (Pty) Ltd and
Another
2013 (1) SA 161
(SCA)
paras 10 – 13.
[7]
Rens
v Gutman NO
[2002]
4 All SA 30
(C)
36.
[8]
Kilburn
v Estate Kilburn
1931 AD 501
at 507- 508.
[9]
Commissioner
SARS v Hawker Air Services (Pty) Ltd
and
others
[2006] ZASCA 51
;
2006 (4) SA 292
(SCA) para 29.
[10]
Cordiant
Trading CC v Daimler Chrysler Financial Services
2005
(4) SA 389
(DCLD) at 397 D -F.
[11]
Industrial
Development Corporation op cit
paragraph
58
,
para
22.
[12]
Cf
Smith
and Walton (SA) (Pty) Ltd v Holt
1961
(4) SA 157
(D) at 162.
[13]
Section
40(1)
of the
Insolvency Act.
[14
]
Appleson
v The Master
1951
(3) SA 141 (T).
[15]
Simmons,
NO v Gilbert Hamer & Co Ltd
1962
(2) SA 487
(D) at 496 E -F.