Jansen van Rensburg v Kitchenbrand and Another (25207/2021) [2022] ZAGPJHC 515 (2 August 2022)

80 Reportability

Insolvency Law

Brief Summary

Sequestration — Provisional sequestration — Application for confirmation of rule nisi — Applicant seeking final sequestration of respondents’ estate based on alleged insolvency — Respondents opposing on grounds of lack of personal investment and absence of advantage to creditors — Court admitting extensive affidavits for context — Intervention application by third party supported by applicant — Court finding sufficient grounds for intervention and proceeding with confirmation of sequestration without delay.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings consisted of two related applications heard under the same case number in the Gauteng Local Division, Johannesburg. The principal matter was an application by Dr Chris Jansen van Rensburg for the confirmation of a rule nisi previously granted in urgent court, which had placed the joint estate of Mr Mark Dean Kitchenbrand and Ms Naomie Elizabeth Kitchenbrand (married in community of property) under provisional sequestration. The second matter was an application by Mr Jacobus Barend Johannes Pretorius for leave to intervene in the sequestration proceedings as a further applicant.

The procedural history was that, on 11 June 2021, Georgiades AJ granted a provisional sequestration order, issued a rule nisi calling upon the respondents to show cause why the order should not be made final, and ordered that costs be costs in the sequestration. That interim order was extended from time to time and ultimately served before Nochumsohn AJ for final determination. During that period, extensive affidavits were filed, including some filed out of time and without leave; the court admitted all affidavits in the interests of justice to provide context.

The general subject-matter of the dispute concerned the sequestration of the Kitchenbrands’ joint estate, with the applicants alleging that large sums were placed under Mr Kitchenbrand’s control for investment purposes without any return, and that the statutory requirements for final sequestration were met. The intervention application arose because Mr Pretorius alleged that he too had substantial claims arising from similar dealings with Mr Kitchenbrand and sought to participate as a creditor-applicant in the sequestration proceedings.

Material Facts

It was common cause that the sequestration proceedings had already resulted in a provisional sequestration order granted by Georgiades AJ, and that the matter now concerned whether the rule nisi should be confirmed and whether Mr Pretorius should be permitted to intervene. It was also not in dispute that Mr and Mrs Kitchenbrand were married in community of property, with the consequence that sequestration would concern the joint estate.

The court treated as significant that both Dr Jansen van Rensburg and Mr Pretorius advanced materially similar complaints: each asserted that he had placed substantial funds under Mr Kitchenbrand’s control for investment purposes, had not received the promised returns, and had been unable to obtain repayment or satisfactory explanation. The court recorded that Mr Kitchenbrand’s defences, distilled from the affidavits, were essentially that the investments were made into companies controlled by him (rather than made to him personally), that no act of insolvency had been committed, and that sequestration would not be to the advantage of creditors.

In relation to Mr Pretorius, the court accepted as material the detailed account in his founding affidavit describing multiple transactions in which he said he was induced to pay substantial sums on the basis of representations concerning investment opportunities, share acquisitions, and other ventures, including allegations that certain entities did not exist as represented and that intellectual property and shareholdings were not owned by Mr Kitchenbrand as alleged. The court also treated as material Mr Pretorius’ allegation that Mr Kitchenbrand repeatedly pleaded an inability to pay when confronted with demands for repayment.

The court drew attention to the respondents’ opposition papers in the intervention application, stating that Mr Kitchenbrand did not meaningfully engage with Mr Pretorius’ factual allegations and instead raised broad and generic allegations. The court considered that, on the papers, Mr Kitchenbrand’s denials were bald, lacking adequate engagement, and did not create a genuine factual dispute requiring oral evidence.

The court also considered the affidavit of Shawn Williams, described as the provisional trustee of the Kitchenbrands’ estate, from which the court concluded that the respondents had failed to cooperate with the provisional trustee despite numerous requests. This was treated as context relevant to the sequestration process and the prospects of effective investigation under the Insolvency Act.

Legal Issues

The first central legal issue was whether Mr Pretorius met the requirements for intervention in the sequestration proceedings, specifically whether he had a direct and substantial interest that was adversely affected or likely to be affected by the order sought.

The second central legal issue was whether the applicants had satisfied the statutory requirements for a final sequestration order in terms of section 12 of the Insolvency Act 24 of 1936, namely whether a claim had been established, whether the debtors had committed an act of insolvency or were insolvent, and whether there was reason to believe that sequestration would be to the advantage of creditors.

The dispute involved a combination of legal questions and the application of legal standards to motion-proceeding facts. In particular, the court had to determine whether any alleged disputes of fact should prevent relief on the papers, and whether the respondents’ denials were sufficient to displace the applicants’ versions under the motion proceedings approach.

Court’s Reasoning

On intervention, the court applied the Constitutional Court’s articulation of the governing test. It held that an intervening party must show a right adversely affected or likely to be affected by the order sought, and that the party must have a direct and substantial interest in the subject matter. The court emphasised that, where such direct and substantial interest is demonstrated, the court has no discretion and must permit intervention.

Applying those principles, the court found that Mr Pretorius’ allegations, if accepted, disclosed a substantial creditor interest in the sequestration of the Kitchenbrands’ joint estate. The court considered that he was alleged to have suffered multi-million rand losses through dealings with Mr Kitchenbrand, and that Mr Kitchenbrand’s opposition to the intervention application failed to meet those allegations with meaningful engagement. The court characterised Mr Kitchenbrand’s opposing affidavit as insufficient in content, substance, and form, and rejected it as failing to respond properly to the detailed case advanced by Mr Pretorius. On that basis, the court concluded that Mr Pretorius had demonstrated the required legally recognised interest and was entitled to intervene.

The court then proceeded, with the agreement of counsel for all parties, to deal immediately with the confirmation of the rule nisi in the sequestration application. In addressing the respondents’ reliance on disputes of fact, the court invoked the approach in motion proceedings associated with Plascon-Evans, stating that Mr Kitchenbrand’s versions were “palpably implausible, farfetched and so clearly untenable” that they could be rejected on the papers. The court therefore accepted Mr Pretorius’ account of Mr Kitchenbrand’s repeated assertions of inability to pay, and held that an act of insolvency was established in relation to Mr Pretorius as contemplated by section 8(g) of the Insolvency Act.

Turning to the requirements for final sequestration under section 12, the court stated that the applicants had to establish a claim, an act of insolvency or insolvency, and advantage to creditors. The court held that, on the voluminous papers filed after the provisional order, there was “not a single shred of credit worthy evidence” from the Kitchenbrands sufficient to cast doubt on the claims of either Dr Jansen van Rensburg or Mr Pretorius. The court accepted that the claims were genuine and held that they lay, to a large extent, against Mr Kitchenbrand personally. It further reasoned that Mr Kitchenbrand’s companies were, to a large extent, treated as his alter ego, used to deceive both applicants into placing funds into his hands.

On the requirement of advantage to creditors, the court held that the papers demonstrated an asset base sufficient to justify advantage to creditors if the rule were confirmed. The court also made an evaluative assessment that final sequestration would serve the best interests of the applicants and the general body of creditors because the investigative mechanisms under the Insolvency Act, exercised by trustees, might uncover the disposition, dissipation, or concealment of funds. The court considered that such investigation was the only competent remedy for tracing the flow of monies and establishing what had happened to the funds.

Finally, the court recorded that it had been satisfied that the provisional order granted by Georgiades AJ had been competent and necessary, and stated its agreement with the reasoning in that earlier judgment, without repeating it.

Outcome and Relief

The court granted leave to Mr Pretorius to intervene and ordered that he be reflected as the Second Applicant in the sequestration proceedings. The court confirmed the rule nisi granted by Georgiades AJ and made the provisional sequestration of the Kitchenbrands’ joint estate a final sequestration order.

As to costs, the court ordered that the costs of both the intervention application and the sequestration application, including all reserved costs of prior hearings, were costs in the sequestration, to be taxed by the taxing master on the scale as between attorney and client.

Cases Cited

SA Riding for the Disabled Association v Regional Land Claims Commissioner and Others 2017 (5) SA 1 (CC)

Plascon-Evans Limited v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A)

Legislation Cited

Insolvency Act 24 of 1936 (sections 8(g) and 12)

Rules of Court Cited

No specific rule of court was cited in the judgment.

Held

The court held that Mr Pretorius had established a direct and substantial interest in the sequestration proceedings and therefore had to be permitted to intervene as a further applicant. The court further held that the requirements for a final sequestration order in terms of section 12 of the Insolvency Act were satisfied, including that the applicants had established claims, that an act of insolvency had been shown (including under section 8(g) in relation to Mr Pretorius), and that there was reason to believe sequestration would be to the advantage of creditors. The rule nisi placing the Kitchenbrands’ joint estate under provisional sequestration was accordingly confirmed and made final, with costs to be costs in the sequestration on an attorney-and-client scale.

LEGAL PRINCIPLES

A party seeking leave to intervene in proceedings must show a right adversely affected or likely to be affected by the order sought and must demonstrate a direct and substantial interest in the subject matter of the litigation. Where such a legally recognised direct and substantial interest is established, the court has no discretion and must permit intervention to avoid determining the matter in the absence of an interested party.

In motion proceedings, a court may reject a respondent’s version on the papers where it is so farfetched, implausible, or untenable that it cannot credibly give rise to a genuine dispute of fact requiring oral evidence, consistent with the approach in Plascon-Evans.

For a final sequestration order under section 12 of the Insolvency Act 24 of 1936, the applicant must establish a claim against the debtor, show that the debtor has committed an act of insolvency or is insolvent, and demonstrate reason to believe that sequestration will be to the advantage of creditors. The advantage-to-creditors inquiry may include consideration of whether sequestration would enable statutory investigation and inquiry mechanisms, through trustees, that may uncover assets or trace the disposition of funds for the benefit of the body of creditors.