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[2018] ZAFSHC 131
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Eksteen v Van der Merwe (2710/2018) [2018] ZAFSHC 131 (2 August 2018)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
number: 2710/2018
In
the matter between:
ZELDA
EKSTEEN
Applicant
and
BERNIDENE VAN DER
MERWE
Respondent
JUDGMENT
BY:
DAFFUE,
J
HEARD
ON:
2
AUGUST 2018
REASONS
I
INTRODUCTION
[1]
This is a typical friendly sequestration application where one
relative tries his/her level best to rescue another from the
jaws of
creditors. In the process the court is more often than not
provided with incorrect, if not false, and/or unreliable
evidence.
This is a typical example.
II
THE
PARTIES
[2]
Applicant is Mrs Zelda Eksteen, a major female person residing in
Three Rivers, Gauteng. She is the mother of the respondent,
Mrs
Bernidene van der Merwe who is resident and employed in Sasolburg,
Free State Province. Respondent is married out of
community of
property with Mr Barend Jacobus van der Merwe which marriage was
concluded on 5 September 2015. Respondent is
under debt review
in accordance with the National Credit Act, 34 of 2005 (“the
NCA”).
III
THE
RELIEF CLAIMED
[3]
A provisional sequestration order was granted on 14 June 2018 with
return date 12 July 2018. On the return date the matter
came
before Molitsoane J in the unopposed motion court. I believe
that, having considered the helpful Assistant Master’s
report
to which I shall return, the learned judge postponed the application
to 2 August 2018 with leave to supplement the papers.
On the
extended return date I became seized with the matter. Counsel,
submitting that the papers were duly amplified, sought
a final
sequestration order.
IV
THE
ORDER OF 2 AUGUST 2018
[4]
I refused counsel’s request to grant a final order of
sequestration and consequently dismissed the application and
discharged
the rule nisi. I indicated that my reasons would
follow in due course. These are my reasons.
V
SECTION
12
OF THE
INSOLVENCY ACT, 24 OF 1936
[5]
Section 12 of the Insolvency Act, 24 of 1936 (“the Act”)
reads as follows:
“
12.
Final
sequestration or dismissal of petition for sequestration
(1)
If at the hearing pursuant to the aforesaid rule nisi the Court is
satisfied that -
(a)
the petitioning creditor has established against the debtor a claim
such as is mentioned in sub-section (1) of section nine;
and
(b)
the debtor has committed an act of insolvency or is insolvent; and
(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
sequestrate the estate of the debtor.
(2)
If at such hearing the Court is not so satisfied, it shall dismiss
the petition for the sequestration of the estate of the debtor
and
set aside the order of provisional sequestration or require further
proof of the matters set forth in the petition and postpone
the
hearing for any reasonable period but not sine die.”
(emphasis
added)
[6]
It is common cause that even if all three requirements of s 12(1)
have been met, the court still has an overriding discretion
which may
be exercised in favour of or against the applicant for
sequestration. See: Bertelsmann
et al, Mars: The Law of
Insolvency in South Africa,
9
th
ed at p 141 and
further together with authorities relied upon. In friendly
sequestrations it is often accepted that the respondent
is clearly
insolvent and/or has committed an act of insolvency, usually by way
of a letter to the applicant in accordance with
the provisions of s
8(g) of the Act, indicating his/her inability to pay his/her debts.
The third requirement – the
advantage to creditors - then
becomes the focal point in order to ascertain whether a proper case
has been made out for sequestration.
See:
Botha v
Botha
4457/2016
[2016] ZAFSHC 194
(17 November 2016) and the
numerous judgments referred to.
VI
EVALUATION OF APPLICANT’S APPLICATION
Applicant’s
locus standi as creditor
[7]
In most cases our courts accept the version of the applicant that
he/she is indeed a creditor of the respondent in an amount
in excess
of R100,00. In the past several courts have frowned upon bald
statements of indebtedness without actual proof of
a loan being
granted. I had my doubts about the veracity of applicant’s
version when reading the founding affidavit
in
casu
and
those doubts have been fortified by the evidential material relied
upon and attached to the supplementary affidavit. I
deal with
this
infra.
[8]
As mentioned the court received a helpful report from the Assistant
Master dated 5 July 2018. I accept that Molitsoane
J postponed
the matter with leave to supplement based on the contents of this
report. I criticised the local Master’s
Office two years
ago in
Botha
v Botha
supra
at paras [7] and [8] in the following words:
“
[7]
The most critical requirement that is often not met is the advantage
of creditors, it being the third requirement quoted
supra.
The Master’s reports are not helpful at all in the vast
majority of cases. It is time that the allegations of
applicants
in friendly sequestrations and voluntary surrender
applications are considered carefully, specifically in respect of the
calculations
to show what dividends might be paid to concurrent
creditors. The personnel of the Master’s office are
au
fait
with
administration and sequestration costs as they on a daily basis have
to consider liquidation and distribution accounts in insolvent
estates presented to them for approval. They know what fees may
be charged by trustees of insolvent estates, what the standard
costs
of auctioneers are, how Master’s fees and premiums on security
bonds are calculated and generally, what are the costs
of
advertising, bank costs, sequestration costs and other expenses.
[8]
I shall make calculations
infra
of the
dividends that might have been payable
in
casu,
based on my own experience, but it should be expected of the Master
to assist the courts in each and every application for sequestration
(especially friendly sequestrations) and voluntary surrender
applications.
Section 9(4)
of the
Insolvency Act stipulates
that before an application for a provisional sequestration order is
presented to court the Master “may report to the court
any
facts ascertained by him which would appear to him to justify the
court in postponing the hearing or in dismissing the petition.”
Clearly, the word “may” is not indicative of a peremptory
provision, but our courts have always insisted on a Master’s
report, at least before a final order is granted.
Section 4(4)
,
dealing with voluntary surrender applications, empowers the Master to
direct the applicant to cause his property to be valued
by a sworn
appraiser and although
s 4
is quiet about the filing of a report, the
Master always files reports in these applications.”
[9]
I noticed that more detailed and helpful Master’s reports have
been forthcoming since the
Botha
judgment
.
This is
appreciated. Unlike in
Botha
the concern
in
casu
is
proof of the first and not the third requirement of
s 12
,
i.e.
whether
applicant has proven that she is a creditor as defined in s 9(1) of
the Act. I shall in detail deal with the first requirement
contained
in s 12 herein. Thereafter the second and third requirements will be
considered briefly
.
[10]
The Assistant Master submitted that applicant failed to comply with s
12(1)(a) insofar as no documentary evidence of the loan
was placed
before the court. She referred to several judgments in support
of that submission. I can do no better than
to quote from these
judgments. Conradie J stated the following in
Craggs v
Dedekind and other cases
1996 (1) SA 935
(CPD) at 937E after
indicating the characteristics which friendly sequestrations share:
“
He
(the
applicant)
should,
I believe, present sufficiently detailed evidence to satisfy a
sceptical Court that he indeed has a claim against the respondent.”
In
Dunlop
Tyres (Pty) Ltd v Brewitt
1999
(2) SA 580
(WLD) Leveson J remarked as follows at 582D-E:
“
A
reading of papers in these applications inevitably leads the Court to
the conclusion that the averments constitute a series of
fictions……
Friendly sequestrations, he said,
(this
is a reference to a
dictum
by
Nicholas J as he then was)
must
be closely scrutinised by the Court for it must be satisfied that
this form of sequestration has not been resorted to by design
and as
a device simply to bypass creditors and prevent them from enforcing
their rights.
The
Court therefore refuses to countenance a friendly sequestration
unless it is fully satisfied that there is a valid and subsisting
indebtedness; that there was an underlying transaction; that the
indebtedness remains and that there is clear and unequivocal proof
of
advantage to creditors.”
In
Mthimkhulu
v Rampersad and another (BOE Bank Ltd intervening)
[2000]
3 All SA 512
(N) Combrinck J required compliance with seven
requisites before a friendly sequestration order should be granted.
The learned
judge insisted at 517 that there must
inter
alia be
“…
sufficient
proof of the debt in the form of a paid cheque, documentation
evidencing withdrawal from a savings account or a deposit
into the
respondent’s account at or about the time the respondent is
said to have received the money”
and
“
(r)easons
must be given for the fact that the applicant has no security for the
debt. A Court is naturally suspicious of an
unsecured loan
being made to a debtor at a time when he was obviously in dire
financial straits.”
[11]
As mentioned, applicant is the respondent’s mother.
According to her, respondent’s financial position is
well-known
to her. She lent R10 000,00 to her in October 2017, but
quite surprisingly decided to call up the loan a
few months later,
causing respondent to write the letter dated 12 March 2018 relied
upon for purposes of s 8(g). No doubt, the
foundation was laid for
friendly sequestration procedure to be instigated. The letter was
written to allow the parties to embark
upon a scheme to obtain
financial relief for respondent to the detriment of creditors.
A parent who is prepared to lend money
to his/her child who is in
serious financial trouble would rather write off the debt instead of
claiming it when the child is finding
him or herself in even more
dire financial straits. Notwithstanding this comment, the
Act provides for such measures
to be taken which are all too
frequently found in friendly sequestrations. The authorities
are clear: courts should closely
scrutinise friendly sequestrations
to prevent an abuse of the process of court and creditors from
enforcing their rights.
I have noticed from adjudicating
numerous rehabilitation applications that concurrent creditors often
fail to lodge claims.
In many cases it is just not a worthwhile
exercise. I explain this
infra.
[12]
Notwithstanding respondent’s financial predicament and the fact
that she apparently was in more serious financial trouble
than a few
months earlier, her mother and alleged creditor in the amount of
R10 000,00 decided to demand payment of the loan,
but went
further and paid an amount of R67 000,00 into the trust account
of her Bloemfontein attorneys to be utilised for
the benefit of
creditors
only
in the event of sequestration. (The word “only” is
underlined as this is in line with applicant’s emphatic
instruction.) This was done in order to prove an advantage to
creditors as respondent has no assets, save for a few pieces of
furniture with no commercial value. This Division’s
Practice Directive 9.1 stipulates that all cash amounts paid by
or on
behalf of a respondent must be paid into the Guardian Fund and the
Master has to confirm this in his/her report. The court
was also
alerted to this non-compliance by the Assistant Master.
[13]
The allegation in the s 8(g) letter pertaining to the date of the
loan is wrong. There is no proof that R10 000,00
was lent
to respondent in October 2017. Applicant stated under oath in
her founding affidavit that the loan was granted in
October 2017, but
admitted in her supplementary affidavit that a
“
mistake”
had
been made pertaining to the date. One might have accepted that
a
bona
fide
mistake
had been made if applicant had presented proper proof of payment to
respondent in August 2017 as alleged in the supplementary
affidavit.
Notwithstanding an opportunity being given, she failed to prove her
case. When I requested applicant’s
counsel to indicate
that applicant had provided proof of the loan to respondent in August
2017 – her latest version –
he referred me to applicant’s
Nedbank Moneytrader bank statement attached to the supplementary
affidavit. This is a
statement of an investment account.
According to the statement three amounts of R10 000,00 each were
transferred on
1 July 2017, 19 July 2017 and 19 August 2017
respectively from the investment account to applicant’s current
account.
Unlike counsel wanted the court to believe, there is
no proof whatsoever of a loan, save for the say-so of the parties
which is
doubtful to the extreme. The document is proof only
that applicant transferred money from her one account to the other.
There is no proof that an amount was actually paid to respondent.
[14]
I reiterated in several judgments, relying on those judgments
referred to by the Master quoted
supra
and many others, that abuse of process is rife in applications for
voluntary surrender and friendly sequestration applications.
See
inter
alia
ex parte
Cloete
[2013] ZAFSHC 45
at paras [9] – [21],
ex
parte Jordaan
and similar applications, an unreported judgment of this Division
delivered on 27 March 2014 at paras [15] and [16] and
ex
parte Snooke
2014
(5) 426 (FB) at paras [16] – [19]. More recently further
judgments on the subject were reported, to wit
ex
parte Erasmus
2015 (1) SA 540
(GP) and
ex
parte Concato and similar cases
2016 (3) SA 549
(WCC) at paras [7] – [43].
[15]
I conclude by repeating that applicant failed to prove that she is a
creditor of the respondent as defined in s 9(1) of the
Act. Therefore
the application was dismissed and the rule
nisi
discharged.
I stated that I would also deal briefly with the last two
requirements of s 12.
An
act of insolvency in terms of s 8(g)
[16]
I reiterate what I said
supra.
When applicant allegedly
called up the loan, respondent wrote the letter dated 12 March 2018
relied upon for purposes of s 8(g).
The letter is obviously in line
with the provisions of s 8(g) and therefore the foundation was laid
for friendly sequestration
procedure to be instigated. It
should be approached with caution, bearing in mind the fact that
friendly sequestrations are
more often than not to the advantage of
debtors and all those involved in the process of sequestration, but
to the disadvantage
of especially concurrent creditors. As time
went by the veracity of respondent’s written acknowledgement
has evaporated
like mist before the morning sun in light of the lack
of evidence referred to
supra
.
Advantage
to creditors
[17]
In order to prove to the court that sequestration would be to the
advantage of creditors, applicant, probably assisted by her
attorney,
calculated that a dividend of 20 cents in the Rand would be payable
to concurrent creditors once provision has been made
for
administration costs in the amount of R30 000,00. The
reference to R30 000,00 emanates from the Free State
Practice
Directives and particularly Directive 9.4.1 stating that all
“
applications
for provisional sequestration and voluntary surrender will be
approached by this Court on the basis that the costs
of sequestration
and administration will amount to R30 000,00”
(which
amount may be adjusted from time to time.)
[18]
In her attempt to calculate the dividend of 20 cents in the Rand
payable to concurrent creditors, applicant deducted R30 000,00
from R67 000,00 and divided the balance of R37 000,00 by
R182 257,78 (the total claims). I am well aware
of
the aforesaid Practice Directives and wish to submit that it is time
for Directive 9.4.1 to be amended. Experience has
taught me
that taxed sequestration costs in this Division are consistently
higher than R30 000,00, even when the services
of only one firm
of attorneys are utilised. In order to obtain more certainty I
requested the Registrar and Taxing Master,
Mrs Naude, to provide me
with recent information in this regard. According to the last
five bills of costs taxed in 2017
in unopposed sequestration matters
the allocated amounts varied between R36 013,51 and
R119 813,03. In four of
the five instances the fees and
expenses were that of one firm of attorneys only. The taxed
fees and expenses of the local
attorney in the last matter (November
2017) was R25 157,01 and the correspondent’s fees and
expenses were taxed in the
amount of R62 363,09. I
requested the file in
Nedbank
Ltd v LT Hancke
,
case no 5830/2016 as I could not believe that the bill of costs of
one firm of attorneys in an unopposed matter could be as high
as the
amount of R119 813,03 mentioned
supra.
I
granted the provisional sequestration order in that matter and wish
to emphasise that it was not a friendly sequestration, although
unopposed. Counsel’s fees, which included fees for
consultation and drafting of the papers – generally a function
of the attorney - were about R12 000,00 and the valuation fees
amounted to about R54 000,00. The attorneys’ total
fees,
including those for drawing the bill of costs, attending taxation and
VAT amounted to R45 420.35. Although I accept
that this
application was more extensive than the normal friendly
sequestration, the figures do not lie. Ironically, the
same
attorney from the same firm is also the attorney of record
in
casu.
I
have also been told that there was an approximate 10% increase in
fees effectively from November 2017 and that a further increase
was
expected soon. In my view one can safely accept a figure of
R45 000,00 as a reasonable average for one firm of attorneys’
sequestration costs in an unopposed sequestration application.
[19]
The applicant and respondent signed their documents in Sasolburg and
I have reason to believe that two firms of attorneys feature
in this
application. If that is so, the sequestration costs will be
much higher than R45 000,00. The trustee’s
remuneration, Master’s fees, premium on security bond,
advertising costs, bank costs and other smaller expenses such as
postages and petties must be added to arrive at the total
sequestration and administration costs. If this is done the
total
costs might well be in excess of R50 000,00. At best
for applicant and on the basis of costs in the amount of R50 000,00,
the free residue would be R17 000,00 and the dividend a mere
9,3%.
[20]
Contrary to the calculations made by applicant and/or her attorney,
an insignificant dividend of less than 10% cannot be to
the advantage
of creditors. The expensive machinery of the Act should not be
used to sequestrate respondent in order for
concurrent creditors to
be satisfied with an insignificant dividend. Respondent’s
creditors would be much better off
if the R67 000,00 was
tendered to the body of creditors in full and final settlement
instead of wasting the money on legal
expenses. Obviously, I
cannot speak for creditors and they might not have accepted such a
settlement offer, but it was at
least an avenue to be explored.
If not accepted, the debt review process could be proceeded with.
[21]
I am not satisfied that there is reason to believe that it would be
to the advantage of creditors if respondent’s estate
is
sequestrated. Respondent holds a responsible position as
conveyancing typist at an established law firm. The NCA
must be
adhered to. She is under debt review and that process should be
allowed to proceed in the interests of creditors.
Discretion
in terms of s 12
[22]
I mentioned that respondent is under debt review in accordance with
the provisions of the NCA, but the court was not informed
as to the
total claims forming part of the debt review, respondent’s
monthly income and expenditure, when the order for debt
review was
made, how much has been paid ever since the order and especially why
debt review is not regarded as a solution.
[23]
The NCA has been promulgated for the benefit of
inter
alia
over-indebted
debtors and/or persons to whom reckless credit was provided.
Part D of Chapter 4 of the NCA – i.e. ss
78 to 88 – sets
out in detail the steps to be taken to assist these debtors.
This is a typical case for respondent
to pursue her right to debt
review as she has indeed done. It is not explained why this
process should not be continued with,
particularly as the debt falls
within the ambit of the NCA. In terms of the NCA a debtor is
allowed an opportunity to pay
his/her debts to creditors in
instalments in an organised matter through the applicable debt review
and court processes. In
Cloete
supra
I
made the point at para [24] that all debtors, especially those with
small and medium-sized estates, should as a starting point
embrace
the protection of the NCA and should avoid utilising the expensive
machinery of the
Insolvency Act in
order to get rid of their
creditors. It remains my viewpoint. See also the judgment
of Bozalek J in
Concato
supra
at
paras [14] – [16].
[24]
Although I am not immune to the hardship and emotional stress caused
to debtors due to financial difficulties, especially in
the present
uncertain times, I am more so mindful of the fact that our insolvency
law should not be applied to the extent that
the rights of debtors
take precedence over that of creditors and especially concurrent
creditors. In most insolvency matters
concurrent creditors
suffer severely insofar as they often do not even lodge claims and
rather opt to write off their claims.
This was not intended by
the legislature when the
Insolvency Act was
promulgated.
Insignificant dividends are often paid out in respect of concurrent
claims, but more often than not concurrent
creditors who proved
claims are called upon to pay contributions towards costs.
[25]
Finally, and even if I could be persuaded that applicant has proven
all three requisites of
s 12
, I would still have refused to grant a
final sequestration order. The respondent’s debts have
accrued from her wedding
ceremony in September 2015 and consequent
wedding expenses
ex facie
para 7 of the founding affidavit.
Her father promised to pay for these wedding expenses from the
proceeds of a policy to be
paid out to him, but unfortunately he died
in May 2015 and could not fulfil his promise. Applicant
inherited her deceased
husband’s entire estate, including the
proceeds of all his policies. It is in my view quite logical, ethical
and reasonable
that applicant should have settled the wedding
expenses as her late husband promised to do. In any event, I
find it unreasonable
that respondent’s husband was also not
prepared to take responsibility for these expenses. People
should not be allowed
to live a lifestyle beyond their means by
incurring debts and then run to the courts to assist them in getting
rid of their creditors.
Respondent should learn to live within
her means and continue to settle her debts in terms of the provisions
of the NCA.
______________
J.
P. DAFFUE, J