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[2022] ZAKZPHC 49
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Stewart N.O and Others v Pillary N.O and Another (8855/2017P) [2022] ZAKZPHC 49 (16 September 2022)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
no. 8855/2017P
In
the matter between:
STEWART
N.O., MICHAEL LAWRENCE
FIRST PLAINTIFF
BODIBE
N.O., PULENG FELICITY
SECOND
PLAINITFF
MASHAMBA
N.O., JERIFANOS THIRD
PLAINITFF
(IN
THEIR CAPACITY AS THE JOINT LIQUIDATORS
OF
CARMOL DISTRIBUTORS (PTY) LTD
(in
liquidation)
and
PILLAY
N.O., SUMENTHREN POOBALAN
FIRST DEFENDANT
PILLAY
N.O., ROMILADEVI MOGHAMBRY
SECOND DEFENDANT
(IN
THEIR CAPACITY AS THE DULY APPOINTED
TRUSTEES
OF THE SUMEN PILLAY
PROPERTY
TRUST)
JUDGMENT
KHALLIL
AJ
Introduction
[1]
The Plaintiffs are the duly appointed joint liquidators of Carmol
Distributors (Pty) Ltd (Carmol) which was placed under provisional
liquidation on 1 October 2015 and which order was made final on 30
November 2015 in the Gauteng Local Division of the High Court,
Johannesburg.
[2]
The First and Second Defendants are the Trustees of the Sumen Pillay
Property Trust (the Trust), a Trust duly registered in
the
Pietermaritzburg Deeds Office with Trust Number IT1129/2011.
[3]
It is common cause that a Ms Carawan was the sole director of Carmol
and her husband, Mr Moola, held himself out as the managing
director,
and was responsible for the day-to-day operations of Carmol
[1]
.
[4]
The Plaintiffs, as joint liquidators, seek to recover excess
payments, consisting of 101 transactions, made by Carmol to the
Trust
in terms of Section 26 (1) (b) of the Insolvency Act 24 of 1936
(Insolvency Act), as voidable dispositions, made to the Defendant
within two (2) years of Carmol’s winding-up. The Trust
“invested” R3.3 million in a Scheme operated by Carmol
and in return received R66 087 300-00.
[5]
By virtue of Item 9 of Schedule 5 to the
Companies Act 71 of 2008
,
Chapter 14 of the repealed Companies Act 61 of 1973 continues to
apply to insolvent companies, until a date to be determined.
Sections
339 and 340 form part of Chapter 14. Section 339 makes the provisions
of the law relating to insolvency
mutatis mutandis
applicable
to the winding up of a company unable to pay its debts. Section
340(1) provides:
‘
(1)
Every disposition by a company of its property which, if made by an
individual, could, for any reason, be set aside in the event
of his
insolvency, may, if made by a company, be set aside in the event of
the company being wound up and unable to pay all its
debts, and the
provisions of law relating to insolvency shall mutatis mutandis be
applied to any such disposition.’
[6]
In accordance with Section 340 (2) (a) of Act 61 of 1973 read
with section 348 of Act 71 of 2008, the effective date of
Carmol’s
winding-up is the date when the application for its winding-up was
presented to the Johannesburg High Court
[2]
,
namely, 18 August 2015, and the two (2) year period is to be
calculated with reference to such date.
[7]
The Defendants whilst admitting that the various payments were made
by Carmol to the Trust, deny that the payments were made
without
value. In amplification of its denial, the Defendants have pleaded
that the said payments received, were repayments of
monies it
advanced to Carmol
[3]
. This
defence pleaded was however not pursued at trial.
[8]
At trial, only the evidence of the lead liquidator, Mr M L Stewart
(First Plaintiff) was led on behalf of the Plaintiffs’
and the
Defendants elected to close its case without leading any evidence.
The Defendants’ contend that as the Schedule relied
upon by the
Plaintiffs to prove the payments (in excess of the deposit) made by
Carmol to the Defendants (in relation to the scheme),
was authored by
another person (Spies) and not by Mr Stewart, his evidence relating
thereto constituted hearsay evidence and ought
to be disregarded. The
Defendants also take issue that all the relevant bank statements
running into hundreds of pages were not
produced in court.
The
Scheme
[9]
The background to the claims against the Defendants as sketched in
the Particulars of Claim, is the following
[4]
:
9.1
Carmol conducted an illegal Scheme of a company ostensibly trading in
petroleum products. Funds were solicited
from members of the public
under the pretext that such funds would be used to fund diesel
trading and the profits generated were
used to pay returns to
“investors” (participants).
9.2
Participants were offered and paid a monthly return of 6 to 8 per
cent amounting to between 72 to 96 per cent
per annum.
93.
The main business of the Scheme was the acceptance of
deposits from participants (members of the public) in the
Scheme,
which deposits were repayable to participants upon the expiry of 12
months following the deposits being made.
9.4
The alleged diesel business was no more than a front in order to
create an illusion that real business was
being conducted.
9.5
There were approximately 3 800 participants in the scheme and an
amount of R925 million had been “invested”
in Carmol
pursuant to the conducting of the Scheme.
9.6
Carmol operated what is often referred to as Pyramid or Ponzi Scheme,
and as all these schemes do, it collapsed
when the inflow of the
deposits (funds) could no longer sustain the outflow of exorbitant
returns to participants.
[10]
Carmol in conducting the Scheme contravened section 11(1) of the
Banks Act 94 of 1990 in that it conducted the business of
a bank by
soliciting and accepting deposits from the general public as a
consistent feature of the scheme, in circumstances where
Carmol was
not registered as a bank.
[11]
The Scheme operated by Carmol also constituted a harmful business
practice and was declared unlawful
[5]
.
It constituted a multiplication scheme under
section 43
of the
Consumer Protection Act 68 of 2008
in that participants were offered
an effective annual return which was at least 20 percent above the
Repo rate determined by the
South African Reserve Bank as at the date
of the various “investments”
[6]
.
[12]
It is common cause that Mr Moola has been convicted of a litany of
charges (over 3 700) relating to the operation of the Scheme
and is
awaiting sentencing
[7]
.
[13]
The particulars of the various dispositions by Carmol to the
Defendant Trust are set out in paragraph 5 of the Particulars
of
Claim. The dispositions constitute 101 payments, totalling R66 087
300.00 commencing on 19 August 2013 to 22 November 2014
[8]
.
It is common cause that these dispositions were all made within two
(2) years of the winding-up of Carmol (18 August 2015).
[14]
The Plaintiffs’ accordingly contend that any payments made by
Carmol in relation to the Scheme in excess of the deposits
received,
were made unlawfully and constitute dispositions without value.
Relevant
Legal Principles
[15]
Section 26 (1) (b) of the Insolvency Act reads;
‘
(1)
Every disposition of property not made for value may be set aside by
the court if such disposition was made by an insolvent
–
(b)
within two years of the sequestration of his estate, and the person
claiming under or benefitted by the disposition is unable
to prove
that, immediately after the disposition was made, the assets of the
insolvent exceeded his liability:
Provided
that if it is proved that the liabilities of the insolvent at any
time after the making of the disposition exceeded his
assets by less
that the value of the property disposed of, it may be set aside only
to the extent of such excess.’
[16]
The only disputes on the pleadings relate to whether the dispositions
were not made for value and whether the dispositions
constituted
repayments of monies advanced by the Defendant to Carmol
[9]
.
[17]
In order to succeed with their claims, the Plaintiffs need to
establish the following:
17.1
The various dispositions by Carmol
[10]
.
17.2
Of Carmol’s property
[11]
.
17.3
The dispositions were made within two (2) years of Carmol’s
winding-up; and
17.4
The dispositions were not made for value
[12]
.
The
above factors (save for paragraph 17.4) are common cause. In respect
of the dispositions made not for value, there has been
no evidence
led by the Defendants’ to rebut the Plaintiffs’ version
that no benefit or value was received.
Facts
[18]
In regard to the Scheme operated by Carmol, the Defendants have
pleaded no knowledge of such facts and nor have they denied
that the
101 payments constitute dispositions of Carmol’s property. Such
allegations are accordingly deemed to be admitted.
Uniform Rule 22
(3) of the Uniform Rules of Court provides:
‘
(3)
Every allegation of fact in the combined summons or declaration which
is not stated in the plea to be denied or be admitted,
shall be
deemed to be admitted. If any explanation or qualification of any
denial is necessary, it shall be stated in the plea.’
[19]
Mr Stewart who is the lead liquidator and of considerable relevant
experience testified that Carmol conducted a typical pyramid
scheme
which used diesel return sheets as a way of giving credence to the
fraud perpetrated by it. Carmol conducted no business
whatsoever
apart from taking deposits from members of the public and making
exorbitant return payments. It had no ability to generate
profits
with which to repay its obligations to the participants other than by
obtaining new “investments”. From the
time Carmol
received the first “investment”, it was accordingly
unable to pay its debts and was insolvent.
[20]
At the time when the Second Meeting of Creditors and Contributors
Report was drawn in August 2016, Carmol had assets of R187
506 137-00
and liabilities of R576 000 000.00
[13]
.
Its insolvency increased when the South African Revenue Services
lodged a claim for proof in excess of R276 000 000-00 which was
later
settled at R70 million.
[21]
Mr Stewart in his evidence referred to a Schedule
[14]
where each payment by and to the Defendant Trust is reflected.
Although this Schedule was prepared by one Jaco Spies, a chartered
accountant (who was not called to testify), he examined in detail the
bankstatements of Carmol consisting of some 4000 pages and
confirmed
the correctness of the Schedule insofar as it relates to the R3.3
million “investment” by the Trust in the
Scheme and all
payments not made for value by Carmol to the Trust. The Defendants
take issue in their Heads of Argument that this
constitutes hearsay
evidence. I disagree. Mr Stewart clearly examined the bank statements
and Schedule as lead liquidator and satisfied
himself regarding the
correctness of amounts stipulated in the Schedule. It was not
suggested otherwise to him during cross-examination.
The information
in the Schedule, even if it did constitute hearsay evidence, the
Defendants’ clearly did not object to the
admission of such
evidence when Mr Stewart testified on this aspect. Moreover, no
contrary version was put to Mr Stewart in relation
to the R3.3
million “investment” by the Defendant Trust in Carmol or
the subsequent payments by Carmol to the Trust.
[22]
In ascertaining the amounts paid by Carmol to the Trust, the fact
that all the bank statements of Carmol were not produced
to court, it
of no consequence. These payments were admitted in the pleadings and
confirmed by Mr Stewart when he testified. His
explanation that he
only attached the statements relevant to this case is understandable,
particularly in view of the fact that
the payments by Carmol to the
Trust were admitted.
[23]
The evidence obtained at the section 418 (read with section 417)
Enquiry
[15]
, together with the
bank statements obtained and examined, I am satisfied, bolsters the
evidence of dispositions not for value by
Carmol to the Trust. The
evidence of Mr Stewart was clear and uncontroverted that the claims
herein are amounts paid to the Trust
by Carmol in excess of the
payments (R3.3 million) made by the Defendant to Carmol. Given his
considerable practical experience
as liquidator, the fact that he has
limited qualifications does not, to my mind, derogate from his
competence or the reliability
of his evidence. Mr Stewart was an
impressive witness.
Conclusion
[24]
The Defendant elected not present any evidence in rebuttal of the
Plaintiffs’ case
[16]
.
That elevates the prima facie case to a conclusive one
[17]
.
The Defendants were well placed to have come forward to deny the
prima facie evidence. The rebuttal of the Plaintiffs’ claim
lay
within the power of the Defendants. At the least, I am satisfied that
a prima facie case has been made out for the relief claimed
in terms
of
section 26
(1)(b) of the
Insolvency Act.
[25
]
In Ex Parte Minister of Justice: In Re Rex v Jacobson and Levy it was
stated:
[18]
‘
Prima
facie evidence in its usual sense, is used to mean prima facie proof
of an issue the burden of proving which is upon the party
giving that
evidence. In the absence of further evidence from the other side, the
prima facie proof becomes conclusive proof and
the party giving it
discharges his onus.’
[26]
The Plaintiffs being successful, there is no reason why costs should
not follow the result.
Order
In
the result, the following order is made:
1.
The dispositions (totalling 101 in number) made by Carmol
Distributors (Pty) Ltd to the Defendant Trust (Sumen Pillay Property
Trust) are set aside.
2.
Payment in the sum of R62 778 947-00 by the Defendants to the
Plaintiffs.
3.
Interest on the aforesaid amount calculated at 7.75 per cent per
annum from the date of judgment to date of payment.
4.
The Defendants shall bear the costs.
KHALLIL
AJ
Appearances
Counsel
for Plaintiffs
: J W
Steyn
Instructed
by :
Brand Potgieter Incorporated, Johannesburg
Counsel
for Defendants
: N G Winfred
Instructed
by :
S P Attorneys, Sandton
Date
of Reservation :
23 August 2022
Date
of Judgment :
16 September 2022
[1]
Exhibit
“A”, paragraph 1, page 388, wherein Moola formally
admitted in the resultant criminal proceedings under
section 220
of
the
Criminal Procedure Act 51 of 1977
under case 41/154/2016, the
following: “I admit that Fathima Carawan (accused two) is my
customary wife, and I only used
her name to register Carmol
Distributors (Pty) Ltd (accused three). She was in no way involved
in the operations of the business.
I fully represented accused three
at all times.”
[2]
Paragraph
1.7 of the Particulars of Claim read with paragraph 1 of Defendants’
Plea, page 174 of Exhibit “A”.
See also Notice of Motion
in Liquidation Application.
[3]
Paragraph
4 of Defendants Plea, pages 36 – 37.
[4]
Paragraph
4 of Particulars of Claim, Exhibit “A”, pages 8 –
10.
[5]
Notice
1135 of 1999 (Government Gazette number 20169 dated 9 June 1999),
promulgated in terms of Section 12 (6) of the Consumers
Affairs
(Unfair Business Practices) Act 71 of 1988.
[6]
Consumer
Protection Act 68 of 2008 (section 43 in particular – Pyramid
and Related Schemes).
[7]
Exhibit
“A”, pages 373 – 394
[8]
Exhibit
“A”, paragraph 5 of Particulars of Claim, pages 10 –
16.
[9]
Exhibit
“A”, pages 36 – 37, First and Second Defendants’
plea, paragraph 4.
[10]
Langeberg
Koöperasie Bpk v Inverdoorn Farming and Trading Company Ltd
1965 (2) SA 597
(A) at 602
[11]
Ibid
[12]
Commissioner
of Inland Revenue v Bowman NO
[1990] ZASCA 28
;
1990 (3) SA 311
(AD) at 314. As to the
meaning of “not made for value”, cf, Strydom NO and
another v Snowball Wealth (Pty) Ltd and
Others (356/2021)
[2022]
ZASCA 91
(15 June 2022) at paragraph 25. (There must be no value,
i.e., there must have been no
quid
pro quo).
[13]
Report
submitted by Liquidators at the Second Meeting of Creditors, Exhibit
“A”, pages 257 - 263
[14]
Exhibit
“A”, pages 369 – 372
[15]
Exhibit
“A”, pages 294 – 368
[16]
Trust
Bank of Africa Ltd v Senekal
1977 (2) SA 587
(W) confirmed on appeal
in Senekal v Trust Bank of Africa Ltd
1978 (3) SA 373
(A).
[17]
Ex
Parte Minister of Justice: in Re Rex v Jacobson and Levy
1931
AD 466
at 478. Followed in Marine and Trade Insurance Co. Ltd v Van
der Schyff
1972 (1) SA 26
A at 37; S v Boesak
2003 (3) SA 381
SCA,
paragraph 46 -47 and Moscon hyme CC v JP Krugerrand Dears CC (Case
No: 16451/2010) [2014] ZAGPJHC 24 (25 February 2014).
[18]
Ibid