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[2017] ZASCA 28
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Body Corporate of Empire Gardens v Sithole and Another (240/2016) [2017] ZASCA 28; 2017 (4) SA 161 (SCA) (27 March 2017)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 240/2016
In the matter between:
THE
BODY CORPORATE OF EMPIRE GARDENS
APPELLANT
And
NOBUHLE
GLORIA SITHOLE
FIRST RESPONDENT
NEDBANK
LIMITED
SECOND RESPONDENT
Neutral
citation:
Body
Corporate v Sithole & another
(240/2016)
[2017] ZASCA 28
(27 March 2017)
Coram:
Tshiqi,
Wallis, Petse and Mbha JJA and Nicholls AJA
Heard:
6 March 2017
Delivered:
27 March 2017
Summary:
Application
for compulsory sequestration : advantage to creditors as contemplated
in s 10
(c)
of the
Insolvency Act, 24 of 1936
not proven : no basis to find that
a body corporate of a sectional title development need not prove
pecuniary benefit to the general
body of creditors.
ORDER
On
appeal from:
The
High Court Gauteng Division, Pretoria (De Klerk AJ sitting as court
of first instance):
a)
The
appeal is dismissed.
JUDGMENT
Tshiqi
JA (Wallis, Petse and Mbha JJA and Nicholls AJA concurring):
[1]
The
issue in this appeal is whether in an application for compulsory
sequestration, a body corporate of a sectional title development
is
required to prove that the order of sequestration sought will be to
the advantage of the whole body of creditors as contemplated
in s
10
(c)
of the Insolvency Act 24 of 1936 (Insolvency Act).
[1]
[2]
The
appellant, the body corporate of Empire Gardens (the E G Body
Corporate) was established in accordance with s 36 of the Sectional
Titles Act, 95 of 1986 (the
Sectional Titles Act). The
first
respondent, Ms Nobuhle Sithole, is the joint registered owner of unit
12 of the sectional title scheme of the E G Body Corporate
and is
accordingly, in terms of
s 36(1)
of the
Sectional Titles Act, one
of
the members of the E G Body Corporate. The other registered owner of
the unit is the first respondent’s sister, Ms Cynthia
Sithole,
but she was not cited as a party in these proceedings. Any reference
to Ms Sithole in this judgment will thus be a reference
to Ms Nobuhle
Sithole.
[3]
Section
37(1)
(a)
of
the
Sectional Titles Act, provides
that a body corporate is obliged
to:
‘
.
. . establish for administrative expenses a fund sufficient in the
opinion of the body corporate for the repair, upkeep, control,
management and administration of the common property (including
reasonable provision for future maintenance and repairs), for the
payment of rates and taxes and other local authority charges for the
supply of electric current, gas, water, fuel and sanitary
and other
services to the building or buildings and land, and any premiums of
insurance, and for the discharge of any duty or fulfilment
of any
other obligation of the body corporate;’
In
terms of
s 37(1)
(b)
it must require the owners of the units, who, in terms of
s 36(1)
,
are also members of the body corporate, to make contributions, where
necessary, to the fund established in terms of
s 37(1)
(a)
,
for the purposes of satisfying any claims against the body corporate.
It must determine from time to time amounts to be raised
from each
member and must raise the amounts by levying contributions on the
owners in proportion to the quotas of their respective
sections (s
37(1)
(c)
and
(d))
.
[4]
The
Sithole sisters, as joint owners of the unit were obliged to pay
their proportionate share of the levies, but they defaulted
and two
default judgments in the amounts of R13, 385.70 and R99, 298.80 were
granted against them respectively. In order to satisfy
the judgments,
their movable assets were attached and sold at an auction, but it
only realised an amount of R3, 237. The Sheriff
first appropriated
the money towards the payment of his fees and costs and declared a
shortfall of R147.23 in respect of his fees
and costs. The
consequence was that the E G Body Corporate received nothing from the
proceeds.
[5]
In
a further attempt to satisfy the judgments, the E G Body Corporate
obtained a warrant of execution against their immovable property
and
the unit was attached and sold at an auction, but the sale had to be
abandoned because the second respondent, (Nedbank) which
had a
mortgage bond registered in its favour in respect of the unit, did
not accept the selling price of R170 000. The E G
Body Corporate
then launched an application for Ms Sithole’s sequestration. It
alleged that Ms Sithole appeared to be factually
insolvent in view of
the fact that she had not paid for her levies, and because her
movable assets had only realised a meagre amount
of R3,237. It also
referred to a judgment in the amount of R31 008 in favour of an
entity known as Amazing Properties CC, which
it alleged had been
granted against her but remained unsatisfied.
[6]
Regarding
the advantage to creditors the E G Body Corporate stated in the
founding affidavit that:
‘
.
. .
a
Body Corporate need not show a pecuniary benefit when it applies for
the sequestration of its members. In this regard, it is important
to
point out that the Applicant is not a normal concurrent creditor in
insolvent estates. Because of the nature of a sectional
title
development, the Applicant enjoys a certain preference over other
creditors. Section 89 of the Insolvency Act, 24 of 1936
(as amended)
read with
Section 15B
of the
Sectional Titles Act, 95 of 1986
states
that the Applicant is a preferential creditor for any unpaid levies
or contributions. The position has been confirmed by
the Supreme
Court of Appeal in the decision of
Barnard
NO vs Regspersoon van Aminie en ‘n ander
2001
(3) SA 973
(SCA).
As
stated in 8.3 above, the concept of advantage to creditors where a
sectional title scheme is the Applicant has been the topic
of many
debates. The current position is that where a Body Corporate applies
to have a member sequestrated the guiding principle
should be the
removal of the defaulting member from the scheme in order to bring
the negative effect of her actions to an end.’
[7]
Ms
Sithole, who opposed the application as an unrepresented party in the
court a quo, did not meaningfully deal with the provisions
of the
Insolvency Act and
it is thus not helpful to unduly burden this
judgment with the contents of her affidavit. In this appeal Ms
Sithole was also unrepresented,
but Ms Nhlapho, counsel at the Free
State Society of Advocates made herself available, as an amicus, at
short notice. We are indebted
to her and the Free State Society of
Advocates for their assistance.
[8]
Nedbank,
which has a mortgage bond over the unit, obtained leave of the court
a quo to intervene in the sequestration proceedings.
It opposed the
application mainly on the basis that it was not proved that the
sequestration would be to the advantage of any creditor
other than
the E G Body Corporate. It said that its bond instalments were up to
date. It further criticised the fact that the application
was against
only one of the co-owners of the unit and highlighted the fact that
if an order of sequestration were granted in respect
of only one
co-owner, the trustee would face practical difficulties in dealing
with half of the value of the unit. The court a
quo accepted the
submission by Nedbank that a sequestration order would only benefit
the E G Body Corporate and it consequently
dismissed the application
and subsequently granted leave to this court.
[9]
The
purpose and effect of the sequestration process is ‘to bring
about a convergence of the claims in an insolvent estate
to ensure
that it is wound up in an orderly fashion and that the creditors are
treated equally’.
[2]
(See
Investec
Bank Ltd & another v Mutemeri & another
2009 ZAGPJHC 64;
2010 (1) SA 265
(GSJ) at 274-275.) It cannot
fittingly be described as a mechanism to be utilized by a creditor to
claim a debt due by the debtor
to one single creditor. (See
Collett
v Priest
1931
AD 290
at 299.) Once a sequestration order is made, a
concursus
creditorum
comes into being. This means that the rights of the creditors as a
group are preferred to the rights of the individual creditor.
[10]
The
phrase ‘advantage to creditors’ is not defined in the
Insolvency Act, but
if the principle of
concursus
creditorum
is taken into account, it means that there should be a reasonable
prospect of some pecuniary benefit to the general body of creditors
as a whole. (See
Lynn
and Main Inc. v Naidoo
&
another
2006 (1) SA 59
(N) paras 33-35;
Ex
Parte Bouwer and Similar Applications
2009 (6) SA 382
(GNP) para 13). This requirement is fulfilled where
it is established that there is reason to believe that there will be
advantage
to a ‘substantial proportion’ or the majority
of the creditors reckoned by value.
[3]
(See
Fesi
& another v Absa Bank Ltd
2000 (1) SA 499
(C) 505-506;
Trust
Wholesalers and Woolens (Pty) Ltd v Mackan
1954 (2) SA 109
(N);
Samsudin
v De Villiers Berrange NO
[2006] SCA 79 (RSA)). Although advantage to creditors is not a rigid
concept (
Stratford
v Investec Bank
2015 (3) SA 1
(CC) para 44) it requires proof of a tangible benefit
to the general body of creditors.
[11]
In
this appeal counsel for the E G Body Corporate urged this Court to
deviate from the trite principle of
concursus
creditorum
and conclude that it is not necessary for bodies corporate to prove
actual or prospective pecuniary benefit to the general body
of
creditors. He submitted that a body corporate only needs to establish
that it has exhausted all reasonable execution remedies
in respect of
the movable assets and immovable properties of one of its members.
According to him this distinction is necessary,
because bodies
corporate are not merely acting to protect their own financial
interests, but have a statutory obligation to protect
the interests
of all the members who are prejudiced when a single member fails to
pay their arrear levies. Counsel confirmed that
he was not asking
this Court to develop the common law and agreed that no such case was
made out in the papers. He was also constrained
to concede that the
Insolvency and the Sectional Titles Acts, do not provide for the
distinction sought.
[12]
The
fundamental problem with the proposition is that the difficulty
experienced by bodies corporate in collecting arrear levies
is not a
novel one. It is part of a ‘socio-economic problem’. (See
Body
Corporate of Geovy Villa v Sheriff Pretoria Central Magistrate’s
Court, & another
2003
(1) SA 69
(T) at 73 paras 6-7;
Barnard
NO v Regspersoon van Aminie
2001
(3) SA 973
(SCA) at 981 D-F; South African Law Journal.
[4]
)
Since 1986 the legislature has effected several amendments to the
Sectional Titles Act,
[5
]
but has
not deemed it fit to accord bodies corporate any other preferential
treatment beyond that provided through the provisions
of
s 15B
(3)
(a)
(i)
(aa)
of
the
Sectional Titles Act and
s 89(1)
of the
Insolvency Act. Section
15B(3)
(a)
(i)
(aa)
provides
that a sectional title unit cannot be transferred to the name of a
new owner unless a clearance certificate is obtained
from the body
corporate and, provision is made for the payment of all arrear
contributions. In terms of
s 89(1)
of the
Insolvency Act, outstanding
levies due to the body corporate are treated as being part of the
cost of realisation. (See
Nel
NO v Body Corporate of the Seaways Building & another
[1995] ZASCA 83
;
1996 (1) SA 131
at 140 A-D;
First
Rand Bank Limited v Body Corporate of Geovy Villa
2004 (3) SA 362
(SCA) at para 27).
[13]
This
Court cannot usurp the functions of the legislature and grant the
immunity from the
Insolvency Act now being
sought. There is thus no
basis to make the distinction between bodies corporate and other
creditors.
[14]
The
other fundamental problem that the E G Body Corporate is facing, is
the fact that the debt allegedly owed to Amazing Properties
CC has
not been proved and Nedbank, which is both a major and preferential
creditor has objected to the application on the basis
that its
monthly instalments are paid regularly. It is not clear on the papers
how Ms Sithole is able to pay for the mortgage bond,
but there is no
basis to conclude that a sequestration order would be to Nedbank’s
advantage, and hence to the general body
of creditors. Simply put the
E G Body Corporate is seeking to obtain a preference that neither the
Sectional Titles Act, nor the
Insolvency Act confers
upon it. That
would require an amendment of these statutes, which is a matter for
Parliament, not this Court.
[15]
I
therefore make the following order:
(a)
The appeal is dismissed.
___________________
Z L L Tshiqi
Judge
of Appeal
APPEARANCES
For
the Appellant:
J Vorster and W J Botha
Instructed
by:
Christo Sutherland Attorneys, Pretoria
Francois
Van der Berg Van Vuuren Attorneys
Bloemfontein
For
the First Respondent:
In person
Amicus
Curiae:
K Nhlapo
[1]
[1]
Section 10
(c)
of the
Insolvency Act 24 of 1936
provides:
‘
If
the court to which the petition for the sequestration of the estate
of a debtor has been presented is of the opinion that
prima
facie
(a)
. . .
(b)
. . .
(c)
there
is reason to believe that it will be to the advantage of creditors
of the debtor if his estate is sequestrated,
it
may make an order sequestrating the estate of the debtor
provisionally.’
[2]
P M Meskin
Insolvency
Law and its Operation in Winding Up
Service Issue 47 (December 2016) at 2 – 1, para 2.1.
[3]
Ibid at 2 – 20 – 2 – 24 para
2.1.4.
[4]
N Segal ‘Any cure for the body corporate
blues?’ (2004) 121
SALJ
at 552 – 555.
[5]
1991;1992;1993;1997;1999;2002;2003;2005;2006;2010;2011
and 2013.