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[2011] ZASCA 72
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Janse van Rensburg NO and Others v Botha (758/10) [2011] ZASCA 72 (25 May 2011)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 758/10
In the matter between:
JACOBUS
HENDRIKUS JANSE VAN RENSBURG N.O.
.....................
1
ST
APPELLANT
PHILIP FOURIE N.O.
.............................................................................
2
ND
APPELLANT
JACOB LUCIEN LUBISI
N.O.
................................................................
3
RD
APPELLANT
LILY MAMPINA
MALATSI-TEFFO N.O.
................................................
4
TH
APPELLANT
ENVER MOHAMMED MOTALA
N.O.
....................................................
5
TH
APPELLANT
RABOJANE MOSES KGOSANA
N.O.
..................................................
6
TH
APPELLANT
and
CHRISTIAAN
JOHANNES BOTHA
..........................................................
RESPONDENT
Neutral citation
:
Janse van Rensburg v Botha
(758/10)
[2011] ZASCA 72
(25 May
2011)
Coram:
NAVSA,
HEHER, SNYDERS, SHONGWE JJA and MEER AJA
Heard:
3 May 2011
Delivered:
25 May
2011
Updated:
Summary:
Company –
liquidation – corporate entities consolidated into one estate
for purposes of liquidation of pyramid scheme
– voidable
preferences – s 29 of
Insolvency Act 24 of 1936
– debtor
– who is – effect of illegality of contract giving rise
to ‘debt’.
____________________________________________________________________________________
ORDER
On appeal from:
North Gauteng High Court (Pretoria)
(Fabricius AJ sitting as court of first instance):
1. The appeal is upheld
with costs.
2. The order of the court
a quo is set aside and replaced by the following:
‘
1.
The payments amounting to R192 710.00 made to the defendant are set
aside in terms of
s 29
of the
Insolvency Act 24 of 1936
.
2. The defendant is
ordered in terms of
s 32(3)
of the Act to pay the amount of
R192 710.00 to the plaintiffs together with interest thereon at
the prescribed rate from date
of judgment to date of payment.
3. The defendant is
ordered to pay the costs of suit.’
_______________________________________________________________________
JUDGMENT
_____________________________________________________________________
HEHER JA (NAVSA, SNYDERS,
SHONGWE JJA AND MEER AJA concurring):
[1] This is an appeal
against a judgment of Fabricius AJ in the North Gauteng High Court,
Pretoria with leave of the learned judge.
[2] The appellants, the
joint liquidators of MP Finance Group CC, who are engaged in
winding-up the consolidated estate commonly
referred to as the Krion
pyramid scheme, instituted action under
s 29
of the
Insolvency Act 24
of 1936
against the respondent, Mr Botha, as an alleged investor in
the scheme. They claimed that within six months of the liquidation of
the scheme on 5 April 2002 it had paid amounts totalling R192 710.00
to the respondent at a time when its liabilities exceeded
its assets
and that the effect of those payments was to prefer him above the
general body of the scheme’s creditors. They
sought orders
setting aside the disposition and for payment of the amounts thus
disposed of.
[3] The action was
defended. The respondent set up various defences. In so far as they
remain relevant they were the following:
1. He was not a party to
the orders made by Hartzenberg J concerning the consolidation of the
various entities involved in the perpetration
of the scheme and which
purported to confer authority on the liquidators to administer the
estates of those as one close corporation,
and, consequently was not
bound by the terms of those orders.
2. He denied that the
Krion scheme carried on any business at all or received any payments
from or made dispositions to him.
3. He placed in dispute
that MP Finance Consultants CC, one of the entities being
administered by the liquidators as part of the
consolidated estate,
had been involved in the Krion scheme.
4. He pleaded that Ms
Marietjie Prinsloo had utilised the corporate entities (other than MP
Finance Consultants CC) being administered
by the liquidators as well
as various unincorporated entities or trading names as a smokescreen
for her personal involvement in
and control of the pyramid scheme,
and that, to the extent that he had invested in the scheme, he was
investing with Ms Prinsloo
in her personal capacity.
5. He denied that the
payments made to him had the effect of preferring him above other
creditors in the estate.
6. Because the scheme was
unlawful and all obligations incurred or undertaken were void, the
scheme could not be a debtor for the
purposes of
s 29
and he, as an
investor, could not be its creditor.
[4] The action proceeded
to trial. The liquidators relied upon the expert evidence of Mr
Harcourt-Cooke, an auditor who had examined,
reconstructed and
analysed the affairs of the corporate entities in so far as they
could be done in the absence of books of account
or bank statements.
The first appellant also gave evidence. He had been the deponent in
support of the application proceedings
before Hartzenberg J in 2003
and his affidavit in that matter was made available to the trial
judge. The defendant testified in
his own defence and called two
former employees of Ms Prinsloo viz Ms Elaine Denysschen and Ms
Jessie Denysschen to speak to the
relationship between Ms Prinsloo
and her businesses. In addition Mr George Ewan, the agent who
introduced Mr Botha as an investor
and received his payments
testified about the role of Ms Prinsloo in operating the investment
business.
[5] Fabricius AJ held
that:
1. a court is not
competent to ‘create’ either a company or a close
corporation or any other statutory entity unless
this is done
strictly in accordance with the applicable statute, finding, in
effect, that Hartzenberg J had acted beyond his powers
in
consolidating the various entities of the scheme into one for the
purposes of liquidation and ordering that the consolidated
estate be
wound up as a (non-existent) close corporation;
2. the so-called
‘consolidation order’ could not and did not bind the
defendant;
3. the liquidators had
not proved the jurisdictional elements required by
s 29
of the Act,
by which it appears that the learned judge meant that they had not
established the debtor and creditor relationship
inherent in the
right to claim under the section.
[6] The
learned judge accordingly held that he had no choice but to dismiss
the liquidators’ claim.
[7] In the
Steyn
judgment
delivered simultaneously with this judgment I have explained the
terms, background, and meaning of the orders made by Hartzenberg
J.
If a defendant in proceedings brought by the liquidators in the
course of winding-up the Krion scheme is proved to be an investor
in
the scheme, the orders made by Hartzenberg J will be regarded as
res
judicata
between him or her and the
liquidators, save to the extent that the investor brings himself or
herself within the exception described
by Conradie AJA in
Fourie’s
case. The rule assumes that a final binding
judgment is a correct judgment whether that be so or not. That
applies with equal force
to Mr Botha.
[8] In the
Steyn
appeal I have
also held that, in accordance with the orders in their context the
scheme was a debtor as contemplated in
s 29
in respect of any
dispositions that it made to investors by repayment of capital or
interest arising from the operation of the
scheme. That position
holds with regard to the action instituted by the liquidators in this
matter.
[9]
Counsel’s argument based on the illegality of the scheme, while
superficially attractive, does not withstand closer analysis.
In
Commissioner for Inland Revenue v Insolvent
Estate Botha t/a ‘Trio Kulture’
[1990] ZASCA 2
;
1990
(2) SA 548
(A) this very problem arose in the context of an appeal
against a tax assessment issued by the Commissioner on income from
‘occasional
sales’. The respondent contended that the
insolvent had been conducting an illegal lottery, the effect of which
was to nullify
the effect of all ‘sales’ which were
undertaken in the course of the lottery. Hoexter JA assumed that the
Trio scheme
constituted such a lottery and went on (at 556A-557B) to
explain why the sales were nevertheless not deprived of statutory
efficacy:
‘
Since
a contract which is forbidden by statute is illegal and void, a Court
is bound to take cognisance of such illegality; and
it cannot be
asked to enforce or to uphold or to ratify such a contract:
Cape
Dairy and General Livestock Auctioneers v Sim
1924
AD 167
at 170. It is sometimes said that any juristic act performed
in defiance of a statutory prohibition is not only ineffective, but
further that it should notionally be thought away. Thus in
Schierhout
v Minister of Justice
1926
AD 99
, Innes CJ, having cited the
Code
1.14.5,
remarked at 109:
“
So
that what is done contrary to the prohibition of the law is not only
of no effect, but must be regarded as never having been
done - and
that whether the lawgiver has expressly so decreed or not; the mere
prohibition operates to nullify the act.”
Such
general propositions are useful to stress the concept that
inter
partes
an illegal jural act is devoid of legal consequence. But
from such convenient generalisations it is not to be inferred that
because
an agreement is illegal a Court will in all circumstances and
for all purposes turn a blind eye to its conclusion; or deny its very
existence. As pointed out by Van den Heever J in
Van der
Westhuizen v Engelbrecht and Spouse; Engelbrecht v Engelbrecht
1942
OPD 191
at 199:
“
When
we say a juristic act is void or voidable, we pass judgment upon it
from various points of view, basing our judgment upon the
degree or
direction of its effectiveness....”
And
at 200:
“
...
(J)uristic acts may be impugned from varying directions and to
different degrees.”
That
the above approach is jurisprudentially sound is demonstrated by many
everyday practical situations. Obvious examples which
spring to mind
are sales conducted on a Sunday in violation of provincial
ordinances, and agreements pertaining to unlawful dealing
in rough or
uncut diamonds or unwrought precious metals. To the conclusion of
such illegal agreements the law accords recognition
for particular
purposes. That they are void
inter partes
does not rob them of
all legal result. For example, in dealing with a contravention of
s
142
of Transvaal Law 15 of 1898, Innes CJ in
R v Goldflam
1904
TS 794
remarked at 796:
“
The
detectives proved, and Mr
Stallard
does
not controvert the point, that there was an agreement to buy; and
that if the transaction had not been forbidden by
s 141
it would have
been an agreement upon which an action could have been brought. If
that be so, it appears to me that H there was
a purchase within the
meaning of the section.”
Cases
in point are not confined to the criminal law. In
Van der
Westerhuizen v Engelbrecht
(
supra
) Van den Heever J
elucidated the logical distinction with which he was there concerned
by reference to the facts of
Wilken v Kohler
1913 AD 135
, in
which case this Court held that in terms of
s 49
of Ord 12 of 1906 of
the Orange River Colony an oral contract for the sale of land in the
Free State was void. Having mentioned
(at 201) that a party to such
an agreement was (
qua
contracting party) remediless, Van den
Heever J proceeded to say:
“
In
other directions the contract did have legal effect. It would have
been futile for either party to claim, as against the tax
collector,
that no sale had taken place or against creditors (supposing that had
been the object of the transaction) that no disposition
in fraud of
creditors had been committed.”
Assuming
that the 'kweekkontrakte' are hit by the prohibition in the Gambling
Act, the fact of the matter is that in the instant
case the Court is
not being asked to 'enforce' or to 'uphold' or to 'ratify' a contract
which the law expressly forbids. The Court
merely looks at the
provisions of the Act in order to see whether the agreement contained
in the 'kweekkontrak' comes within the
literal language of the Act.’
[10] Thus the fact that
the scheme was illegal through and through as a pyramid scheme and a
contravention of various statutes,
does not necessarily deprive the
liquidators of the insolvent scheme of the debtor status contemplated
by s 29. The plain wording
of that section does not compel such a
conclusion. That section is designed to facilitate the administration
of an insolvent estate,
and, particularly, the recovery of assets
disposed of by the insolvent under the circumstances provided for in
the section, for
the benefit of creditors of the estate. The section,
being remedial, should be interpreted to assist the process, not to
hinder
it. If an insolvent stands in relation to the person to whom
he disposes of property as one who owes a debt, why should the
illegality
of the insolvent’s business be permitted to
influence the power and duty of a liquidator to rely on s 29 to
recover the money
or asset disposed of? To allow it to do so would
defeat the purpose of the provision, and, as this liquidation process
demonstrates,
work great inequity on the general body of creditors
while favouring individuals who have no claim to favour. It seems to
me, in
the circumstances of this case, to be essential to a proper
winding-up that the underlying illegality of the nature in question
should be disregarded when interpreting s 29. To do so will not
conduce to the upholding of an illegal contract.
[11] Before I turn to a
consideration of the defence evidence certain observations arising
from the evidence of Mr Janse van Rensburg
are pertinent. In the
first instance, Ms Prinsloo created and operated a pyramid scheme
which procured investments from gullible
or greedy members of the
public. There was only one scheme. Its business commenced with the
diversion of funds from the micro-lending
business of MP Finance
Consultants CC. Thereafter, in an effort to confer legitimacy on the
business Ms Prinsloo successfully made
use of registered corporate
entities (the entities in the consolidated estate). As the
consolidation orders emphasised, the pyramid
scheme was one ongoing
enterprise from beginning to end. Assets and liabilities were moved
from one to the next without formality
or any trappings of ownership.
Cash collected from investors under one name was used to pay
investments to other investors in another
name (albeit not the name
of the entity with which he or she had contracted or ‘invested’).
[12] The application was
brought to deal with the whole scheme. The liquidators had no
interest in winding up parts of it. They
readily conceded that they
could not distinguish between the input and output of the various
entities. Neither did they have knowledge
of why Ms Prinsloo had used
the names of unincorporated entities (save for M & B Co-operative
Partnership which seems to have
anticipated the registration of a
co-operative).
[13] The liquidators
applied to liquidate the registered corporate entities – nobody
suggests that any such entity that participated
in the scheme was
omitted. They recognised that Ms Prinsloo had used trading names to
further the scheme. Such names were in themselves
of little
significance since they did not acquire or dispose of investors’
money for themselves; they were either the alter
ego of Ms Prinsloo
or the names under which it suited her to operate the corporate
entities. Some were mentioned by the liquidators
in the application
for condonation; others (Finsure and MP Finance Sacco, for instance)
were not. Even Ms Prinsloo had admitted
at the s 417 enquiry that she
could not disentangle the roles of the various participants. In this
context the orders made by Hartzenberg
J were directed to a single
main object: by consolidating all the apparent operating arms of the
scheme into one coherent close
corporation the liquidators were to be
relieved of the necessity of attribution, especially in relation to
the recovery of assets.
That is what the order achieved. Before the
making of the order the learned judge may or may not have considered
whether the role
of Ms Prinsloo warranted the inclusion of her (or
her estate, since she may by then have been sequestrated) in the
consolidation.
That did not happen and the effect of the order was to
define the scheme according to the scope of the business conducted
under
the umbrella of the corporate entities.
[14] This last conclusion
does not mean that a defendant in Mr Botha’s position cannot,
by satisfactory evidence, persuade
a court that he contracted with a
party or entity outside the ambit of the scheme. In such a case the
liquidators will have failed
to discharge the onus on them. As I have
noted his counsel contended that Mr Botha invested with Ms Prinsloo
personally. In order
to evaluate this submission it is necessary to
analyse the evidence in some depth.
[15] Neither Mr
Harcourt-Cooke nor the first appellant possessed personal knowledge
of the relationships established between individual
investors and the
scheme or Ms Prinsloo. Both expressed opinions based upon in-depth
study of the affairs of the pyramid scheme
as reflected in the
investor files, property and bond searches, the creditors claims and
the evidence of Ms Prinsloo and others
in other proceedings.
Nevertheless the evidence of Van Rensburg that all her trading
activities were definitely part of the same
scheme should not be
disregarded. No-one regarded the difference in names as important.
They were all an attempt by Prinsloo to
legitimise her activities.
However it is also clear from all the evidence that ‘everybody
regarded the investments as made
with Ms Prinsloo’.
[16] That the corporate
entities (other than Krion Financial Services Ltd towards the end of
the life of the scheme) were empty
shells in the sense of the absence
of proof of assets or liabilities, bank accounts, financial records
and minute books is also
clear. However those facts do not go very
far to establishing the identity of the operator or owner of the
investment scheme because
of its entirely cash-based business
strategy and the total lack of concern showed by Ms Prinsloo and her
associates towards distinguishing
between the corporate entities. It
must also be noted that although there was evidence of a regular
division of investors cash
received between agents (10%) and Ms
Prinsloo and her family members, this is consistent with her general
disregard for legal distinctions.
She apparently neither contracted
in her own name nor used documents which suggested that she intended
such an impression to be
created in the minds of investors.
[17] Mr Ewan, as a
witness, was ambivalent. He does not seem to have been much aware of
legal distinctions. Early in his evidence
he said,
‘
Die
dokumentasie het kort-kort verander, maar niks het verander nie . . .
daar was nie ‘n maatskappy nie, ons het vir Marietjie
gewerk .
. . jy het jou geld by Marietjie belê. . . [Sy] was die lewe en
vlees en bloed van die
maatskappye
.’
(My emphasis.)
Later he admitted that,
as instructed, he had represented to investors that they were dealing
with a ‘kapitaal-kragtige’
company.
[18] Mr Botha was first
approached by Ewan to invest in the cash loan business (of MP
Financial Consultant CC). It was represented
to him that it was a
company for investment and a registered business, and that convinced
him to invest in it. The only knowledge
he had of Ms Prinsloo’s
businesses and organisation was derived from what Ewan told him.
[19] Ms Jessie Denysschen
who was an employee involved in the administration testified:
‘
MP
Finance het begin met hierdie beleggings en ons het by die cash loans
begin te werk, en toe het sy [Ms Prinsloo] oorgegaan na
ander
maatskappye, na die
beleggings
afdeling
.’
(My emphasis)
[20] Perhaps more
valuable than the recollections of naïve and unskilled witnesses
uttered many years after the event are the
inferences provided by
contemporaneous documents. The investor file of Mr Botha was produced
at the trial. As the testimony establish
such files were
‘meticulously’ maintained by the persons administering
the scheme. In the file were the following relevant
documents:
1. On 8 August 2001 Mr
Botha signed what purported to be a subscription for shares in
Martburg Finansiële Dienste Bpk at R5000
per unit (paying R20
000);
2. On 15 August 2001
Botha and Ewan signed an ‘ontvangserkenning’ (receipt)
recording that Ewan, as agent for Martburg
Finansiële Dienste
Bpk had received R70 000 from Botha ‘for shares purchased’
in that company;
3. (a) On 16 August 2001
Botha, as ‘shareholder’, signed a ‘membership
certificate’ in ‘MP Finance
Sacco’ for a payment of
R70 000 for 12 months at a return of 10 per cent per month. This
document was apparently countersigned
by Ms Prinsloo (Pelser) under
circumstances not explained in evidence.
(b) On the same day
Botha, as ‘shareholder’, signed a ‘share agreement’
with MP Finance Sacco represented
by Prinsloo (who countersigned) in
which receipt of R70 000 was acknowledged and which provided for
payment of returns at a rate
of R7000 per month.
4. On 17 August 2001
Botha and Ewan signed a receipt recording that Ewan had received R170
000 for shares purchased in the same
company.
5. On 6 September 2001
Botha purported to subscribe for shares in Martburt Finansiële
Dienste Bpk to an amount of R20 000.
6. (a) On 14 October 2001
Botha was ostensibly issued with a ‘membership certificate’
in M & B Korporasie Bpk for
an investment of R62 768,57 for 12
months at a return of 10 per cent per month. The certificate was
signed by Botha and H H Prinsloo
(the husband of Ms Prinsloo).
(b) On the same day Botha
was issued with a ‘membership certificate’ in M & B
Korporasie Bpk for an investment of
R20 000 for 12 months at a return
of 10 per cent per month. This too bears the signatures of Botha and
H H Prinsloo.
7. On 22 October 2001
Botha was issued with a ‘membership certificate’ in M &
B Ko-öperasie Bpk (sic) in return
for an investment of R20 000
paying ‘dividends’ of R2000 per month and bearing his own
signature and that of H H Prinsloo.
8. (a) On 18 January 2002
Botha was issued with a ‘membership certificate’ signed
by H H Prinsloo on behalf of M &
B Ko-öperasie Bpk in
relation to an investment of R170 000 for four months at a return of
10 per cent per month.
9. On 25 January 2002
Botha was once again the recipient of a ‘membership
certificate’ in M & B Ko-öperasie
Bpk for an
investment of R170 000 bearing a return of R17 000 per month. This
document appears to have been signed by Botha, Ewan
and H H Prinsloo.
(b) On the same day Botha
was issued with a ‘certificate of membership’ in the same
entity reflecting an amount of R20
000 invested for three months at a
10 per cent return each month.
10. On a date not
identified Botha purported to apply for membership in M & B
Ko-öperasie Bpk, stating that he had had
insight into the
objectives and operations of that entity ‘as set out in the
information document and its statutes’.
The truth of this
acknowledgment was not investigated in evidence bearing in mind that
Ms Prinsloo apparently intended to register
the co-operative but her
application to do so was apparently refused.
[21] Certain of these
documents probably represented reinvestments of earlier matured
investments.
[22] A consistent element
in the administration of the scheme was an accounting to investors on
documentation headed ‘MP Financial
Services’ but which
contained no reference to the entity in which the investment had been
made or the identity of the payer
of interest or ‘dividends’.
It may be assumed as a probable inference that MP Financial Services
was merely a vehicle
for administration purposes. The use of the name
favours the case of neither party.
[23] With the exception
of MP Finance Sacco, the recipients of Mr Botha’s investments
were entities expressly consolidated
into MP Finance Group CC and
administered by the appellants as such in terms of the orders of
Hartzenberg J.
[24] Counsel for Mr Botha
submitted that MP Finance Sacco was, on the probabilities, a vehicle
used by Ms Prinsloo to pursue her
own personal business agenda. I
think the submission is far-fetched. As I have pointed out the orders
of Hartzenberg J by which
Mr Botha is bound were premised on the
acceptance that Ms Prinsloo carried on one seamless scheme under the
auspices of the corporate
entities. Given the terms, nature, timing
and circumstances of Mr Botha’s involvement in MP Finance Sacco
it is inconceivable
that it was operated outside of the overall
scheme.
[25] The probabilities
disclosed by the evidence are that Ms Prinsloo intended to operate
the whole swindle under the umbrella of
the companies albeit subject
to her direction and control. The cash brought into the scheme
(sometimes apparently as much as R20
million in a day) belonged to
the principal represented by the agent who dealt with the investors
on each occasion and which was
one of the entities included in the
consolidated estate, albeit that because such transactions were void
and unlawful each investor
obtained an immediate right to reclaim his
investment. (In fact no-one appears to have exercised that right,
being more interested
in the returns.)
[26] The payment made to
Mr Botha was made by one of the entities in the consolidated estate
of the scheme and were dispositions
from that estate. That the
liquidators were unable to prove which entity paid the money is of no
relevance in the light of the
orders, since the scheme was a debtor
contemplated in s 29. Mr Botha and the scheme occupied a relationship
of creditor and debtor
for the purposes of that section.
[27] When the payments
were made the liabilities of the consolidated estate exceeded the
value of its assets. That was established
by the order and repeated
in evidence by Mr Harcourt-Cooke.
[28] Mr Botha was an
investor in the scheme, which was the subject of the rule nisi
published according to the instructions of the
High court. However he
adduced no evidence which might have had the effect of releasing him
from the binding effect of the orders
made when the rules were
confirmed.
[29] It follows that the
appeal must succeed. The following order is made:
1. The appeal is upheld
with costs.
2. The order of the court
a quo is set aside and replaced by the following:
‘
1.
The payments amounting to R192 710.00 made to the defendant are set
aside in terms of
s 29
of the
Insolvency Act 24 of 1936
.
2. The defendant is
ordered in terms of
s 32(3)
of the Act to pay the amount of
R192 710.00 to the plaintiffs together with interest thereon at
the prescribed rate from date
of judgment to date of payment.
3. The defendant is
ordered to pay the costs of suit.’
____________________
J A Heher
Judge of Appeal
APPEARANCES
APPELLANTS: F du Toit SC
Strydom & Bredenkamp
Inc, Pretoria
Symington & de Kok,
Bloemfontein
RESPONDENT: T Strydom
Mills & Groenewald
Attorneys,
c/o Van Zyl Le Roux &
Hurter Inc, Pretoria
Naudes Attorneys,
Bloemfontein