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[2021] ZAGPPHC 190
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De Jongh Ontwikkelings (Pty) Ltd and Another v Kilotech Investments (Pty) Ltd and Others (63945/2013) [2021] ZAGPPHC 190; 2021 (4) SA 492 (GP) (25 March 2021)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
CASE
NO: 63945/2013
REPORTABLE
OF
INTEREST TO OTHER JUDGES
REVISED
In
the matter between:
DE
JONGH ONTWIKKELINGS (PTY) LTD
First
Plaintiff
ELIZABETH
WILANDA PRINSLOO N.O.
Second
Plaintiff
and
KILOTECH
INVESTMENTS (PTY) LTD
First
Defendant
THE
TRUSTEES FOR THE TIME BEING OF
THE
MILA DE JONGH FAMILY
TRUST
Second
Defendant
Coram:
DAVIS J
Insolvency
– disposition without value – the issue of illusory or
“adequate” value discussed – abandoning
right to
part payment of purchase price in favour of related company –
impeachable transaction in terms of sections 26, 29,
30 or 31 of
Insolvency Act
.
J
U D G M E N T
This
matter has been heard partly in open court and partly by way of
virtual hearing in terms of the Directives of the Judge President
of
this Division. The judgment and order are accordingly published
and distributed electronically.
DAVIS,
J
[1]
Introduction
On 22 April 2010 De Jongh
Ontwikkelings (Pty) Ltd (DJO) sold a property situated on Knysna’s
Eastern Heads for R 8,55 million
(the Knysna property). Part of
the purchase price, in the amount of R 5,5 million would be paid by
way of transfer of another
property, situated in nearby Sedgefield
(the Sedgefield property). However, on 13 September 2010,
transfer of the Sedgefield
property was registered into the name of
the first defendant, Kilotech Investments (Pty) Ltd (Kilotech).
DJO was provisionally
liquidated on 8 December 2010 and finally
liquidated on 14 March 2011. Its final liquidator claims that
the transfer of a
portion of the value or agreed purchase price of
the Sedgefield property constitute an impeachable transaction in
terms of either
section 26, 29, 30 or 31of the
Insolvency Act, no 24
of 1936
.
[2]
The parties and role players
2.1
DJO features as the first plaintiff and its
subsequently appointed final liquidator features as the second
plaintiff.
2.2
Kilotech is the first defendant and the
trustees of a trust, the Mila De Jongh Family Trust (the Trust) have
been cited as the second
defendant.
2.3
An attorney of this court, Mr Neil De
Jongh, was at all relevant times, a director of DJO and Kilotech.
He was also the creator
of the trust (Mila de Jongh is his
daughter). At the time of the alleged disposition he was the
principal shareholder of
both DJO and Kilotech.
[3]
Background facts
The following facts
surrounding the alleged disposition are not in dispute:
3.1
On 22 April 2010 DJO, represented by Mr De
Jongh, sold the Knysna property, to a Mr Sachs, for a purchase price
of R 8,55 million
in terms of a written offer to purchase which, upon
acceptance thereof, became a valid sale agreement.
3.2
The terms of the above agreement which are
relevant to the present dispute are the following:
“
2.
PAYMENT OF PURCHASE PRICE
2.3 See special
conditions …
25
SPECIAL CONDITIONS
1.
Payment of the purchase price will
be effected as follows:
1a.
The transfer of the purchaser’s property Erf 3198…
Sedgefield valued at R 5 500 000,
00 to the seller.
1b.
The balance of R 2 000 000, 00 plus the amount of R 1 050 000,00
to be paid
in cash.
2.
The transfer of the two properties will
take place simultaneously
”
.
3.3
Mr De Jongh, on behalf of DJO (as seller)
later granted Mr Sachs (as purchaser) a R 250 000,00 “discount”
due to
the fact that the dwelling that was being erected on the
Knysna property was only between 70% - 80 % completed at the time.
3.4
Mr Sachs had paid the conveyancing fees
together with the reduced balance of the cash portion of the purchase
price of R 2,8 million
in two payments, the first on 1 June 2010 (in
the amount of R 1 088 215,50) and the second 10 September
2010 (in the
amount of R 1 781 859,10 from which R
31 859,10 was deducted as Mr Sach’s pro rata share of the
rates and
taxes).
3.5
What happened to the Sedgefield property,
was the following: on 23 April 2010, Kilotech, represented by its
sole director, Mr De
Jongh, in writing offered to purchase the
Sedgefield property from Mr Sachs at a purchase price of R 5,5
million, which offer Mr
Sachs accepted. The relevant terms of
this agreement were the following:
“
2.
PAYMENT OF PURCHASE PRICE:
2.2 For
the balance of the purchase price of R 5 500 000.00 the
purchaser will pay R nil as the transfer of
the property is in part
payment for … [the Knysna Heads property] …
25.
SPECIAL CONDITIONS
The
purchaser will pay the transfer duty
Transfer
of the two properties will take place simultaneously.
This
offer is subject to Absa bank’s valuation acceptable to the
purchaser within 14 days hereof
”
.
3.6
Absa’s subsequent valuation of the
property was R 4,8 million.
3.7
The simultaneous transfers of the Knysna
property to Mr Sachs and the Sedgefield property from Mr Sachs to
Kilotech took place on
10 September 2010.
3.8
Against security of a bond passed over the
Sedgefield property in the amount of R 4, 8 million, Kilotech was
loaned and advanced
R 3,6 million by Absa which was in turn on 15
September 2010 transferred by Absa by way of two journal credit
entries of R 1,1
million and R 2,5 million respectively in discharge
of outstanding debt on two accounts of DJO held at Absa.
3.9
Apart from the above payments neither Mr
Sachs nor Kilotech made any other payments to DJO.
[4]
The statutory provisions relied on
4.1
The relevant sections of the
Insolvency Act
relied
on by the liquidator, are the following:
“
26
Disposition without value
(1)
Every disposition of property not
made for value may be set aside by the court if such disposition was
made by an insolvent –
(a)
more than two years before the
sequestration of his estate, and it is proved that, immediately after
the disposition was made, the
liabilities of the insolvent excessed
his assets;
(b)
within two years of the
sequestration of his estate, and the person claiming under or
benefited by the disposition is unable to
prove that, immediately
after the disposition was made, the assets of the insolvent exceeded
his liabilities:
Provided
that if it is proved that the liabilities for the insolvent at any
time after the making of the disposition exceeded his
assets by less
than the value of the property disposed of, it may be set aside only
to the extent of such excess...
29 Voidable
preferences
(1)
Every disposition of his property
made by a debtor not more than six months before the sequestration of
his estate or, if he is
deceased and his estate is insolvent, before
his death, which has had the effect of preferring one of his
creditors above another,
may be set aside by the Court if immediately
after the making of such disposition the liabilities of the debtor
exceeded the value
of his assets, unless the person in whose favour
the disposition was made proves that the disposition was made in the
ordinary
course of business and that it was not intended thereby to
prefer one creditor above another …
30
Undue preference to creditors
(1)
If a debtor made a disposition of
his property at a time when his liabilities exceeded his assets, with
the intention of preferring
one of his creditors above another, and
his estate is thereafter sequestrated, the court may set aside the
disposition ...
31 Collusive
dealings before sequestration
(1)
After the sequestration of a
debtor’s estate the court may set aside any transaction entered
into by the debtor before the
sequestration, whereby he, in collusion
with another person, disposed of property belonging to him in a
manner which had the effect
of prejudicing his creditors or of
preferring one of his creditors above another.
(2)
Any person who was a party to such
collusive disposition shall be liable to make good any loss thereby
caused to the insolvent estate
in question and shall pay for the
benefit of the estate, by way of penalty, such sum as the court may
adjudge, not exceeding the
amount by which he would have benefited by
such dealing if it had not been set aside; and if he is a creditor
tor he shall also
forfeit his claim against the estate
”
.
[5]
The evidence
5.1
The only witness called by the plaintiff
was Mr De Jongh himself. In summary, he testified as follows:
-
Mr De Jongh and his brother Gideon,
respectively held 70% and 30% of the shares in DJO. Although
DJO was principally a property
development company specialising in
the development of townhouse complexes, the Knysna property was
intended to be a family holiday
home with a possible rental income as
a guesthouse.
-
Mr De
Jongh and his later ex-wife
(the mother of Mila de Jongh) had previously owned a series of
properties prior to the acquisition
of the Knysna property. The
Knysna property was purchased in the name of DJO for VAT and tax
benefit purposes. The
property was bought as an empty stand
upon which the construction of a dwelling was nearing completion at
the time of the sale
to Mr Sachs.
-
Kilotech was a shelf company which Mr De Jongh had “bought”.
Initially the intention was for Kilotech to acquire
the Knysna
property from DJO as the intention was not for DJO as a development
company to retain the holiday home indefinitely.
This
acquisition, however, never took place.
-
At the time of the sale of the Knysna property to Mr Sachs,
who had been introduced to Mr De Jongh and the property by an estate
agent, Mr De Jongh and his wife had become divorced. Prior to
the conclusion of the divorce settlement, it was contemplated
that Mr De Jongh’s then soon to be ex-wife would be given one
or more sectional title units in one of DJO’s developments.
At the time of the actual divorce, however, there were no unbonded
sectional title units “available” and the parties
to the
divorce then agreed that the Knysna property would be sold and that
the ex-wife would be entitled to half of the nett proceeds
of the
sale instead of the intended unbonded sectional title units.
-
Shortly after the conclusion of the sale of the Knysna
property by DJO to Mr Sachs, the latter complained of expected
unforeseen
expenses which would be necessary to complete the
construction on the property. This resulted in Mr De Jongh (on
behalf of
DJO) giving Mr Sachs a “discount” on the sale
price which, on Mr De Jongh’s recollection, was between R
200 000,00
and R 300 000.00. This discount was,
however, not recorded anywhere and the written agreement was not
amended in this
regard.
-
Due to the non-completion of the construction of the house on
the Knysna property, it had been difficult to obtain a purchaser.
Mr Sachs was also only prepared to purchase if he could “pay”
a part of the purchase price by way of transfer of his
Sedgefield
property. It was described as a “swop” of the
Sedgefield property for the Knysna property with Mr
Sachs paying an
additional amount in chash.
-
When the above was agreed, Mr De Jongh then discussed this
with his ex wife and agreed that the Sedgefield property would be
“given”
to her instead of the intended half share of the
proceeds of the sale of the Knysna propery. The ex Mrs De Jongh
had no option
but to agree. Kilotech was described by Mr De
Jongh as the vehicle by which he would comply with his obligations in
terms
of the divorce settlement. That is how the sale agreement
between Mr Sachs and Kilotech came into being.
-
At
that time, both Mr de Jongh and DJO enjoyed preferred client status
with Absa, being DJO’s banker and principal creditor.
Mr
De Jongh explained the proposed result of the property transactions
as follows to Absa (my translation – original in the
footnote):
“
We
wish to confirm the following: The Knysna property to be sold for R
8 550 000.00 and the Sedgefield property to be
purchased
for R5 500 000.000. The amount of cash available
would then be R 3 050 000.00 to be applied
as follows: The
current facility of Absa on be Knysna property is R 4,8 million which
facility would be completely settled upon
registration and replaced
with a R 3,6 million facility on the Sedgefield property.
In other words, a capital reduction
of R 1, 2 million in order to
terminate the current facility of R 4,8 million. The balance of
R 474 087. 36 on account
number …. as at 30/4/2010 will
also be paid off together with interest on date of registration which
will result in the
total exposure at Absa to be reduced by R
1 677 087, 36 plus interest …
”
[1]
.
-
Although the above email was sent as a proposal on 3 June
2010, its contents were implemented by the actual facts as set out in
paragraphs 3.5 – 3.7 above, as also confirmed by Mr De Jongh
during his evidence with reference to specific bank statements.
Lastmentioned also confirmed the repayment of the abovementioned R
477 087, 36 plus interest, which was done by way of transfer
into the specific account by the conveyancers from the funds paid by
Mr Sachs.
-
What also happened, was that Absa had indeed valued the
Sedgefield property at R 4,8 million, which value was accepted by Mr
De
Jongh as it was sufficient so that a R 3,6 million bond could be
passed over it (being 75% of the bank valuation).
-
This acceptance of Absa’s valuation was reflected by Mr
De Jongh in an addendum to the Sedgefield sale agreement of Kilotech,
dated 7 May 2010 as follows: “
Notwithstanding the provisions
of the conditions of sale … . The purchaser hereby
declares that he is satisfied with
Absa Bank’s valuation of R
4 800 000.00
”. The addendum also made
provision for the purchase of R 40 000.00 of movables but
nothing turns on this.
It also provided that nothing changed
regarding the agent’s original commission earned on the sale.
Factually also,
Mr Sachs was not required to pay in the difference
between the R 4,8 million and the R 5,5 million. Neither the
transfer
particulars nor any other agreement was amended, hence the
letter of 3 June 2010 by Mr De Jongh to Absa still reflected the
purchase
price as R 5,5 million as did the subsequent particulars of
the transaction in the Deeds Office records. There was also
another
addendum, the contents of which were irrelevant to the
current dispute.
-
The Sedgefield property was used as a holiday home by Mr De
Jongh, his ex-wife and his in-laws and otherwise rented out.
The
R 3,6 million bond was serviced by the rental proceeds.
-
Upon or shortly before Mr de Jong’s
sequestration, which took place simultaneously with the liquidation
of DJO and which followed
as a result of he being a surety for DJO,
his shareholding in Kilotech was transferred to the Trust.
-
Mr De Jongh testified that the arrangement regarding Kilotech
and the Sedgefield property had been reached so that Mr De Jongh’s
divorce settlement obligations can be fulfilled. Never in his
wildest dreams did Mr De Jongh at that stage foresee a looming
liquidation of DJO, least of all at the instance of Investec Bank,
who, as liquidating creditor, had a single bond facility and
little
exposure when compared to Absa’s exposure secured by multiple
bonds.
-
Mr De Jongh maintained that, according to his estimates, DJO’s
assets exceeded its liabilities at the time the transfer of
the
Sedgefield property to Kilotech.
-
Adv Greyling, who appeared for the Defendants, led Mr De Jongh
in cross-examination to confirm the following: The sale price
of the Knysna property was R8,55 million, which was VAT inclusive.
This meant that the capital value to be received by DJO,
would be the
sale price, less VAT of R1,05 million, less R250 000.00
discount, less estate agent’s commission of R 513 000.00,
leaving a balance of R 6 737 000.000. Of this, DJO
has received R 2 870 074, 60 from Mr Sachs, R 3,6
million
from Kilotech who had paid off some of DJO’s debt to the same
value from the proceeds of the bond over the Sedgefield
property,
leaving a shortfall of R 266 295.40, according to Adv. Greyling
calculations. Neither DJO nor the liquidator
at any stage
sought to recover this shortfall from Mr Sachs.
-
Both Adv Amm, who appeared for the plaintiffs, and Adv.
Greyling also had Mr De Jongh traverse the Liquidation and
Distribution
account in his evidence. Mr Amm concentrated on
the fact that the total liabilities of creditors reflected therein
amounted
to R 30 318 994, 77 while the total amounts
distributed from the proceeds of the sale of assets amounted to only
R 13 095 444.16,
constituting a deficiency in excess of R
17 million. Adv Greyling, on the other hand, pointed out that
virtually all of the
creditors had relied on the proceeds of their
securities and thereby, in terms of
Section 89
(2), limited their
claims to those amounts.
5.2
The defendants closed their case without
calling any witnesses.
[6]
Evaluation
6.1
Was there a disposition?
6.1.1
There can be little argument that Mr De
Jongh has, on behalf of DJO, failed to demand transfer of either the
Sedgefield property
or the agreed value thereof, which had become due
to DJO by virtue of the express terms of the agreement whereby the
Knysna property
had been sold. To clarify this further: had the
payment terms agreed on by Mr De Jongh with Mr Sachs in respect of
the sale
of the Knysna property been complied with, DJO would have
ended up with the both Sedgefield property and R 3,05 million in cash
(subject to the later discount of R 250 000.00).
6.1.2
Mr Sachs had upheld his end of the bargain.
He has surrendered the Sedgefield property to Mr De Jongh and
he had paid what
he had to, after he had negotiated a discount. The
disposition came about by Mr De Jongh, no longer acting in the
interest of DJO,
but in his own interests in respect of his divorce
settlement obligations, and acting on behalf of a dormant company,
Kilotech
as a vehicle, having devised to have Kilotech “acquire”
the Sedgefield property. The sale agreement between Kilotech
and Mr Sachs is a sham. Kilotech did not buy the Sedgefield
property. It did not pay Mr Sacks a cent (and was never
able to
do so right from the start). The sale agreement was simply the
instrument whereby Mr De Jongh contrived the transfer
of that which
should have gone to DJO, to Kilotech as agreed with his ex wife, in
lieu of his personal obligations.
This contrivance
clearly amounts to a disposition.
6.2
What was the extent of the disposition?
In simple terms, the
disposition had the result that DJO was dispossessed of that which it
had previously possessed. After
the conclusion of the sale
agreement with Mr Sachs regarding the sale of the Knysna property,
DJO “possessed” two claims
for payment of the purchase
price, one of R 5,5 million and one of R 3,05 million. The
agreement was that the second claim
was to be satisfied in cash and
the R 5,5 million claim be satisfied in specie, that is by way of a
transfer of an immovable property,
the Sedgefield property.
This transfer never happened and consequently DJO never “possessed”
the Sedgefield property
itself. DJO could therefore, not be
“dispossessed” of the property, or, to put it in the
language of the
Insolvency Act, a
disposition thereof could not take
place. It could be dispossessed of its claim though. The
claim for payment of R
5,5 million initially remained unsatisfied
until the amount of R3,6 million was transferred by way of journal
entries in Absa’s
books. DJO thereafter remained
“dispossessed” of the balance of its claim in the amount
of R1,9 million.
There was therefore a disposition of the R 1,9
million portion of DJO’s claim of R 5,5 million.
6.3
Does the disposition quality as one
contemplated in
section 26?
0in;
line-height: 200%">
6.3.1
Adv Greyling argued on behalf of the
Defendants that
section 26
contemplates dispositions for
no
value and not for dispositions for “inadequate” value.
For this proposition, reliance was placed on the line
of cases
starting with
Swannee’s Boerdery
(Edms) Bpk v Trust Bank
1986 (2) 850 AD
which has held that the following dictum in
Bloom’s
Trustee v Fourie
1921 TPD 591
at 601:
“
It seems to me that the word
“value” means “adequate value” or “just
and valuable consideration
”, is
no longer applicable.
Swannee’s
Boedery
followed the defining of
“value” as set out in
Estate
Wege v Strauss
1932 Ad 76
and
Estate
De Jongh v Whitaker and Another
1944 Ad
246.
The latter decision determined at 250 that “
The
words “disposition not made for value
”
mean, in their ordinary signification, a
disposition for which no benefit or value is or has been received or
promised as a quid
pro quo
”.
In
Estate Wege
the issue was dealt with at 82 as follows: “
What
is meant by value? It certainly does not bear the same meaning
as valuable consideration in English Law. There
is nothing in
the insolvency Act which would lead us to infer that the legislature
meant to give some technical meaning to the
word ‘value’.
It can therefore only mean value in the ordinary sense of the words …
the object is to prevent
a person in insolvent circumstances from
engaging in the ordinary transactions of life, but to prevent a
person from impoverishing
his estate by giving his assets away
without receiving any present or contingent advantage in return
”.
6.3.2
The line of cases relied or by the
defendants continued to
Langeberg
Koöperasie Bpk v Inverdoorn Farming and Trading Company Ltd
1965 (2) SA 597
(A) which at 604 referred with approval to the dictum
in
Goode, Durrant and Murray Ltd v
Hewittand Cornell NNO
1961 (4) SA 286
(N) where it was stated: “
The word
“value” is not confinfined to a monetary or tangible
material consideration, nor must it necessarily proceed
from the
person to whom the disposition is made. Whether an insolvent
has received “value” for a disposition,
must be decided
by reference to all the circumstances under which the transaction was
made
”.
6.3.3
A further case heavily relied on by the
defendants was
Terblanche NO v Baxtrans
CC and Another
1998 (3) SA 912
(CPD),
which referred to all the abovementioned cases and found at 917 B –
C that “…
the rejection in
Swanee’s Boerdery
of the dictum in
Bloom’s
Trustee
relates to the defining
of “value” in relation to adequacy as also in relation to
the concept of just and valuable
consideration”.
The
learned judge continued
: “The
question of adequacy should, however, not be equated with the concept
of illusory or nominal value. Illusory
or nominal value is what
those words suggest – no value at all. “Illusory
value” is value in name only.
Adequacy, on the other
hand, in relation to value connotes a far more extensive idea
”.
6.3.4
The above dictum was followed in the
unreported case relied on by Adv Greyling in
P.
H Strydom NO and Another v Snowball Wealth
(Pty) Ltd and Others
(10287/2019)
[2020] ZAWCHC 103
(11 September 2020) which concluded,
on the facts of that case, “
The
Plaintiffs’ own factual allegations are destructive of any
claims in terms of
Section 26
of the
Insolvency Act &hellip
; .
Even if accepted that the value paid was less than the reasonable
market value, no basis was laid nor suggested that there
was anything
remiss therewith. In would be an absurdity to equate the
position that, when paying a discounted price, it can
be said you
gave no value
”.
6.3.5
Two important observations need to be made
about the judgments relied on: the first is that a distinction should
be made between
those cases where the disposition was in the form of
a surety and the “value” given and received in return was
either
intangible or not easily quantifiable (such as in
Swannee’s
Boerdery
,
Langeberg
Koöperasie
and
Goode,
Durrant and Murray)
and secondly, the
dicta in cases which dealt with the question of “no value”
at a pleadings and exception stage (only).
The latter should be
read in the context in which it had been given.
6.3.6
Dealing with the “surety-cases”:
the sum total of the judgments in those cases, as I read them,
determined that where
an insolvent furnished a suretyship to another
party, often a related or holding company (which furnishing, it has
been held, constitutes
a disposition) then if there is “some”
benefit, be it for example in the support of a group structure
or maintenance
of financial stability in business ventures, to be
derived from the furnishing of the surety, then the disposition
occasioned thereby
would not be without value. The value may
not be immediate or empirically quantifiable, but it would still have
some beneficial
consequence. On that basis, those dispositions
were held to fall outside the ambit of
section 26:
those dispositions
would not be “without value” as contemplated by that
section. Those cases are, however, distinguishable
on the
facts, from the present case.
6.3.7
I do not read the second line of cases, the
“exception” cases, to find, as a rule of law, that once a
value, which is
not an illusion or nominal only, but simply an
“inadequate” value, has been given,
section 26
cannot
apply. In fact, in the
PH Strydom
NO
case, the learned judge, in dealing
with the pleadings to which his judgment was limited, opened the door
by contemplating possible
scenario’s where a disposition at an
inadequate value might still be impeachable under
section 26.
This much is clear from his words: “
The
pleadings excepted against must be taken as it stands, the
truthfulness thereof is accepted for these purposes … no basis
was laid or suggested that there was anything remiss …
”.
This was in the context where shares were sold under their alleged
“reasonable market price”. Similar
difficulties
with the pleadings were expressed in
Terblanche
NO
at 917 G – H as follows:
“
Plaintiff concedes that Malo
received some value and refers to R 383 639, being the
settlement amount paid to the banks.
There is, however, no
allegation that the value conceded should be treated as equivalent to
no value being received
”.
The learned judge made the position clear as follows: “
(the)
submission that
section 26
can only apply where there is an absence
of value cannot be upheld … . The answer in my view is
that where a party
who wishes to rely upon
section 26
, alleges that
the monetary or other benefit is illusory or nominal and that it
therefore amounts to no value at all must plead
that fact
”.
6.3.8
The dicta quoted in paragraph 6.3.3 above,
indicate that the mere giving of “some” value, would not
necessarily “save”
a disposition. For
example, if R 10.00 is disposed of in return for R 5.00, then clearly
value was only given
for half of the disposition and for the balance
of R 5.00 no value was given at all. If either the insolvent or
the recipient
attempts to create the illusion that the furnishing of
R 5.00 in return for a disposition of R 10.00 constitute the
furnishing
of value, then the value given is illusory and
section 26
would still apply. It might well be that such a disposition
(also) falls to be impeached in terms of the other sections of
the
Insolvency Act, such
as those relied on by the liquidator in this
case in the altenative. This possibility was also alluded to by
Selikowitz J
in
Terblanche NO
at 917 D – F as follows: “
Dispositions
which have the effect of preferring a creditor
(section 29)
or which
are intended to prefer a creditor
(section 30)
or which prefer a
creditor or prejudice others as a result of collusion
(section 31)
are the stuff of inadequacy. Inadequate value by its nature
results in preferring a creditor and proof of inadequate value
is
evidential material to be weighed in assessing preference as also
collusion and fraud and in deciding whether a disposition
was in the
ordinary course of business
”.
6.3.9
My reading of the authorities referred to,
is therefore that they determined the following:
-
In matters where the disposition was in the
form of the furnishing of a guarantee or suretyship, it may be that
the value given
in return was intangible or indeterminate, but such a
disposition would not, by reason thereof, be for “no value”
at
all;
-
In the case of other dispositions where
some value was given, it must be determined whether that value was
illusory or nominal.
If so, then “no value” was
given.
-
In each case, however, if reliance is
placed on illusory, nominal or absence of value and, when reliance is
placed on
section 26
of the
Insolvency Act, the
facts relied on must
be pleaded.
-
In each case, all relevant facts must be
taken into consideration.
6.3.10
Was the disposition of that portion of the
R 5,5million for which no value was received sufficiently pleaded?
After some amendments,
the relevant portions of the liquidator’s
particulars of claim read as follows:
“
4.
On, during or about mid to late 2010, De Jong Ontwikkelings made a
payment, donation
or disposition to and/or on behalf of the first
defendant alternatively the Trust in an
amount of R 3 400 000,00 alternatively R 5 500 00.00
further alternatively
in a lesser amount as can be proven by the
plaintiffs and which payment alternatively disposition pertained
directly and/or indirectly
to the payment of the purchase of an
immovable property being Erf 3198, Sedgefield Township, Western Cape
Province
.
6.
The disposition falls to be set aside by virtue of the provisions of
section 26(1)(b)
of the
Insolvency Act in
that:
6.1
It constitutes a disposition not made for value and/or was made for
nominal or inadequate
value, such that it was not made for value as
contemplated, understood and meant by
section 26
of the
Insolvency
Act; and
6.2
It was made within two (2) years of the winding-up of De Jong
Ontwikkelings …”
6.3.11
In my view, the amended pleading satisfied
the requirements referred to in
Terblanche
NO
and
PH
Strydom NO
. The facts proven and
as determined above, particularly in paragraph 6.2 earlier in this
judgment, have satisfied the alternatives
pleaded.
6.3.12
I find that DJO had disposed of a claim of
R 5, 5 million in favour of Kilotech and insofar as the payment or
discharge of DJO’s
obligations to Absa in the amount of R 3,6
million was supposed to create the illusion that the claim of R 5,5
million had been
satisfied thereby, it is illusory to the extent of
constituting
“no value” as contemplated in
section 26
of the
Insolvency Act for
the balance of the amount. The
alternative, more simple construction of the facts is that, for the
balance of R 1,9 million,
DJO has received no value when it abandoned
its claim for R 5,5 million and only contrived to receive R 3,6
million in return.
6.3.13
Once a determination as above has been
made, a liquidator is entitled to the recovery of the amount of the
disposition. See:
Barnard and Lynn
NNO v Schoeman and Another
2000 (3) SA
168
(NPD). In this case, it will be for the recovery of the
nett disposition or, put differently, for that portion of the
disposition
for which no value had been received. That is the R
1,9 million.
6.4
Is the amount claimed recoverable in terms
of the other sections of the
Insolvency Act relied
on in the
alternative by the liquidator?
Even if I am wrong in
either my reading of the case law discussed in paragraph 6.3 above or
in the determination of the recoverability
of the R 1,9 million in
terms of
section 26
of the
Insolvency Act, I
further find as follows:
6.4.1
The disposition of the claim of R 5,5
million and the arrangement whereby Mr De Jongh, with the
acquiescence and co-operation of
his bank manager (who was also the
bank manager of DJO) created a reduction of Absa’s exposure,
clearly had the effect of
preferring one creditor above another.
The effect of the transactions, as detailed in Mr De Jongh’s
e-mail of 3 June
2010 was, not only to limit Absa’s overall
exposure in respect of the accounts of Mr De Jongh and the companies
under his
control, but to decrease DJO’s indebtedness to one of
its creditors, Absa, without a similar or pro rata decreasing of its
indebtedness to its other creditors. Absa was preferred by
having received alternate security for the R 3,6 million from
a
company other than the insolvent company. The liquidator
however, does not seek to set aside the R 3,6 million preference
but
only claims recovery of the “nett” amount of the
disposition, being the R 1,9 million referred to in paragraph
6.3.13
above. The preference of Absa was therefore a mere ancillary
effect of the disposition in favour of Kilotech.
The
disposition of R1, 9 million was, however not to a creditor of DJO.
The disposition which the liquidator seeks to recover is
therefore
not impeachable in terms of
section 29(1)
of the
Insolvency Act.
>
6.4.2
Mr De Jongh’s contrivance of the
disposition of DJO’s claim for R 1,9 million in favour of
Kilotech was furthermore
not done with the intention of preferring
Absa as creditor, but merely to enable Mr De Jongh to discharge his
obligations to his
ex-wife in terms of oral amendments to their
divorce settlement. In my view, the disposition does not fall
within the category
of those dispositions contemplated in
section
30(1)
of the
Insolvency Act, which
has intent as a requirement.
6.4.3
Mr De Jongh, both in his evidence and
clearly in his e-mail of 3 June 2010 to Absa, was often oblivious of
the boundaries between
personal and corporate entities. The
lines were so blurred, that he considered himself, DJO and even
Kilotech as “me”
or “us”. He therefore
saw no problem in “transferring” a claim or even the
immovable property constituting
the means of payment of such a claim,
from one company to another. In all these dealings, he
represented either or both of
the corporate entities and even their
shareholders. The corporate entities must however, in law, be
seen as “other
persons” to each other. Considering
these circumstances and the facts of the case in relation to the
provisions of
section 31
of the insolvency Act, I find that a debtor
(DJO) had, before its liquidation, in collusion with “
another
person
” (Kilotech and Mr De
Jongh) “
disposed of property
”
(the R 5,5 million claim or at least the nett amount of R 1,9 million
thereof) belonging to it “…
in
a manner which had the effect of prejudicing his (DJO’s)
creditors
” (in the words of
section 31).
The nett result of Mr De Jongh’s collusion
on behalf of the respective corporate entities was that DJO was R 1,9
million
short at the end of the day (and Kilotech R 1,9 million
richer). The fact that there was R 1,9 million less in DJO’s
“kitty” at the time of liquidation, was to the prejudice
of its creditors. This clearly renders the disposition
impeachable in terms of
section 31
of the
Insolvency Act.
6.5
I
turn to two other aspects: the
first is the solvency of DJO at the relevant times and the second is
the issue of the Absa
valuation of the Sedgefield property:
6.5.1
The first aspect is DJO’s timing of
the disposition and DJO’s asset and liability position at the
time of commencement
of its winding up. Mr De Jongh estimated
that DJO was solvent by a large margin but the following aspects
point in the other
direction:
-
In his e-mail of 3 June 2010, DJO was
heavily indebted to Absa and sought to reduce its debt.
-
The liquidating creditor, Investec, clearly
had sufficient grounds to apply for, and obtain a liquidation order.
Mr De Jongh’s
only surprise was that Investec only had one bond
over property of DJO while Absa had many. No detail was
furnished as to
Nedbank’s position, but clearly, the granting
of the order and the successful sequestration proceedings against Mr
De Jongh
as surety, do not paint a picture of solvency.
-
The total value of the claims of creditors
reflected in the liquidation and distribution account was not
disputed and neither were
any of the values of the realised assets
disputed. These clearly indicate a factual insolvency. The ex
post facto limitation
by those creditors to the extent of the
proceeds their securities does not mean that at the time of winding
up, i.e. before they
exercised their discretion to limit their claims
during the subsequent winding-up process (for whatever reason), DJO
was solvent.
-
There is no evidence to indicate that the
insolvent position of DJO at the time of its liquidation, was any
better at the time of
the disposition.
-
In terms of
Section 26(1)(b)
, if the
disposition occurred less than two years prior to the liquidation (as
it did in this case), then, the onus is on the person
who benefitted
from the disposition, that is either Kilotech alone or Kilotech and
its shareholders, to prove that, immediately
after the disposition
was made, the assets of DJO exceeded its assets. Apart from Mr
De Jongh’s oral guestimate, no
other evidence was produced and
this onus was not, on a conspectus of the facts, discharged on a
balance of probabilities.
-
The second aspect is the issue of the
valuation of R 4,8 million placed by Absa on the Sedgefield
property. On a reading of
the agreement (despite it being a
sham) and its addendum whereby Kilotech purported to “purchase”
the Sedgefield property
from Mr Sachs, the bank’s valuation was
merely an aspect with which Kilotech had to be “satisfied”.
Its
valuation did not amend the agreement nor the purchase price
payable. If it had, DJO would have claimed a payment of the
difference from Mr Sachs. This was not done and neither was the
agent’s commission recalculated or the transfer fees
reduced.
None of the particulars regarding a sale at a R 5,5 million price as
it later appeared in the Deeds office records,
were amended or
reduced. The R 4,8 million valuation, which “satisfied”
Mr De Jongh, resulted in Kilotech’s
ability to pass a bond over
the property in the amount of R 3, 6 million, which in turn,
fulfilled Mr De Jongh’s proposal
to his and DJO’s banker,
Absa. The actual value of the balance of the purchase price
remained unaltered by Absa’s
valuation and the disposition
therefore remained the difference between the R 5,5 million price as
agreed with Mr Sachs in respect
of the Knysna property sale and the R
3,6 million as already indicated in paragraphs 6.1.3 and 6.2 above.
[7]
Conclusions
7.1
I therefore find that DJO had made a
disposition of its property in the amount of R 1,9 million in
circumstances contemplated in
section 26(1)(b)
and /or
section 31(1)
of the
Insolvency Act and
that DJO’s liquidator is entitled to
the recovery of that amount from Kilotech. For purposes of
clarity and certainty
the full names of these parties shall be
included in the relevant part of the order.
7.2
The liquidator claims costs on the attorney
and client scale. One of the important factors in considering a
claim for such
higher scale of costs, is the nature of the cause of
action and the conduct of the partly who had caused it.
Kilotech was
a willing participant in the impeachable transaction
which resulted in the disposition. It colluded with DJO
(through the
shared directorship of Mr De Jongh) in effecting the
disposition. There is no reason why the insolvent company
should bear
the attorney and client portion of its costs and why the
other willing participant should not pay it. This was no arm’s
length transaction, it was one whereby an insolvent estate with a
body of creditors was prejudiced at the time (irrespective of
how the
subsequent winding-up process enfolded). In the exercise of any
discretion, costs should be awarded at higher scale.
7.3
In view of the above, in the exercise of my
discretion further, no order in respect of costs needs to be granted
in favour of or
against the Trust who had been cited as second
defendant as Kilotech’s shareholder.
[8]
Order
1.
The disposition by De Jongh Ontwikkelings
(Pty) Ltd in favour of Kilotech Investments (Pty) Ltd in the amount
of R 1,9 million is
hereby set aside.
2.
The first defendant is ordered to pay the
aforesaid amount of R 1,9 million together with interest thereon at
the prescribed rate
of interest as amended from time to time in terms
of the
Prescribed Rate of Interest Act, 55 of 1975
, calculated from
11 September 2010 to date of payment, to the second plaintiff in her
capacity as the liquidator of De Jongh Ontwikkelings
(Pty) Ltd.
3.
The first defendant is ordered to pay the
plaintiffs’ costs of suit on the scale as between attorney and
client.
4.
No order is made against or in favour of
the second defendant.
N
DAVIS
Judge
of the High Court
Gauteng
Division, Pretoria
Date
of Hearing: 01, 02 and 03 February 2021
Judgment
delivered: 25 March 2021
APPEARANCES:
For
the Plaintiff:
Adv
GW Amm
Attorney
for Plaintiff:
Lowndes Dlamini Attorneys, Pretoria
For
the Defendants:
Adv PJ Greyling
Attorney for
Defendants: Schabort Inc, Pretoria
[1]
“
Ons
wens soos volg te bevestig: Die Knysna huis word verkoop vir ʼn
bedrag van R 8 550 000.000 en die Sedgefield
huis gekoop
vir ʼn bedrag van R 5 500 000.00. Die bedrag
kontant beskibaar is dus R 3 050 000.00
welke bedrag as
volg angewend moet word: Die huidige Absa fasiliteit op die
Knysna eiendom is R 4, 8 miljoen welke bedrag
ten volle afgelos word
teen registrasie en vervang word met die R 3, 6 miljoen fasiliteit
op die Sedgefield huis. Met ander
woorde ʼn kapitale
delging van R 1, 2 miljoen ten einde die huidige fasiliteit van R4,
8 miljoen te kan aflos met registrasie.
Rekeningnommer …
se balans van R 477 087, 36 soos op 30/4/2010 word ook afgelos
tesame met rente tot op datum van
registrasie wat inhou dat die
blootstelling by Absa Bank verminder word met ʼn totale bedrag
van R 1 677 082, 36
tesame met rente”.