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[2016] ZAFSHC 194
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Botha v Botha (4457/2016) [2016] ZAFSHC 194 (17 November 2016)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE STATE
DIVISION, BLOEMFONTEIN
Reportable:
YES
Of
Interest to other Judges: YES
Circulate
to Magistrates: NO
Case
number: 4457/2016
In the
matter between:
JOHANNES
BOTHA
Applicant
and
MARIUS
BOTHA
Respondent
JUDGMENT
BY:
DAFFUE, J
HEARD ON:
17 NOVEMBER 2016
REASONS
I
INTRODUCTION
[1]
This is the typical friendly sequestration where one relative tries
his/her level best to rescue another from the jaws of creditors
and
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 Mr Johannes Botha, a major male person residing in
Ficksburg in the Free State Province. He is the father
of the
respondent, Mr Marius Botha who is resident and employed in
Ladybrand, Free State Province. Respondent is married
out of
community of property.
III
THE
RELIEF CLAIMED
[3] A
provisional sequestration order was granted on 29 September 2016 with
return date 17 November 2016. The matter came
before me in the
unopposed motion court on Thursday 17 November 2016 when I was
requested by counsel to grant a final order of
sequestration.
IV
THE
ORDER OF 17 NOVEMBER 2016
[4]
I dismissed the application and discharged the rule
nisi
,
indicating that my reasons would follow. These are my reasons.
V
SECTION
12
OF THE
INSOLVENCY ACT, 24 OF 1936
[5]
Section 12
of Act 24 of 1936 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.”
[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. 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
Insolvency Act,
indicating
that he/she is unable to pay his/her debts. 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
although several courts have frowned in the past upon such a bald
statement without actual proof of a loan being granted. I
have my doubts about the veracity of applicant’s statement
in
casu,
but
I shall afford him the benefit of doubt.
[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 shall deal with the third requirement contained in
s 12
herein and
accept for purposes hereof that the first two requirements have been
met.
VI
RECENT
JUDGMENTS
[10]
I wish to refer from the onset to the
dictum
of
Daffue, J in
ex
parte
Snooke
2014 (5) 426 (FB) at para [25]:
“
[25]
Bertelsmann et al,
Mars,
The Law of Insolvency in South Africa,
9th ed at 64 are of the view that it is a lacuna in our present
legislation that no provision is made for judicial oversight of
the
actual results of the liquidation process. Judges are not informed
whether the dividend that was held up to creditors in the
application
was in fact realised. I decided some time ago, when having to
consider rehabilitation applications, to arrange
for perusal of the
applicable applications for voluntary surrender or sequestration to
obtain personal knowledge of the allegations
made under oath, and
have no hesitation to state that the averments under oath in
so-called friendly sequestration and voluntary
surrender applications
in order to prove advantage to creditors are far from the truth in
many instances. My own experience,
that sequestration in the
majority of cases eventually turns out not to be to the advantage of
creditors is no surprise at all.
This much is apparent from a
survey conducted more than three decades earlier. See: South
African Law Commission
Review
of the Law of Insolvency: Prerequisites for and Alternatives to
Sequestration
(Working Paper 29 Project 63 (1989) and
Hillhouse
v Stott
1990 (4) SA 580
(W). Information obtained from the Pretoria
office of the Master revealed that concurrent creditors received
dividends in
only 28.6% of the cases included in the survey, while
creditors were liable to pay contributions in 40.6% of the cases.
There
is no reason to believe that the position in the Free State is
remarkably different.”
[11]
I
shall indicate
infra
that notwithstanding an allegation under oath that a dividend of 30
cents in the Rand would be payable to concurrent creditors
in
casu
,
such allegation is outright wrong and unfounded. In
ex
parte
Lorraine Jordaan
case no 386/2014 and four other similar matters, an unreported
judgment of the Free State High Court by Daffue, J, delivered on
27
March 2014, the applicants’ applications for voluntary
surrender of their estates were dismissed. The abuse of process
by some practitioners/applicants was addressed from paragraph [15]
onwards with reference to several judgments of the High Court.
I quoted extensively from the judgment of Daffue, J in
ex
parte
Cloete
2013 JDR 0854 FB delivered on 5 April 2013, but deem it apposite to
again quote paragraphs [9] to [21] of the
Cloete
judgment:
“
[9]
Although section 4 of the Act requires a certain measure of notice to
creditors, an application for voluntary surrender
of an estate is in
essence an ex parte application and that being so, an applicant in
these applications should make full and frank
disclosure as the
utmost good faith is required. See Ex Parte Arentzen (Nedbank Limited
as intervening creditor)
2013 (1) SA 49
(KZP), para [5] with
reference to the old established principles and case law cited in
footnotes 3, 4 and 5.
[10]
It has become fashion to launch applications for acceptance of
surrender of debtors' estates, as is the case with
the so-called
"friendly sequestrations" with the main purpose to be to
the advantage of debtors, but with the unfortunate
disadvantage of
creditors. This could not be what the legislature had in mind. Holmes
J, (as he then was) stated many decades ago:
‘
The
machinery of voluntary surrender was primarily designed for the
benefit of creditors, and not for the relief of harassed debtors.’
See
Ex Parte Pillay; Mayet v Pillay
1955 (2) SA 309
(N) at 311 E.
[11]
I have encountered several similar applications in the unopposed
motion courts in the recent past. In several cases the attorneys
of
first instance were from outside the Free State and particularly from
Pretoria. In many cases the estates consisted of either
one fixed
property, or an asset such as a motor vehicle. Some of these
applications I dismissed and others have been postponed
at the
request of the legal representatives of the applicants in order to
supplement the papers, the eventual outcome of which
is unknown to me
as these were considered by my colleagues doing motion court duty at
the time.
[12]
In many of these cases the valuations of the assets were either
doubtful, or the sequestration costs and the administration
costs
pertaining to the liquidation and distribution of the estates were
incorrectly calculated, presenting a false picture of
the actual
costs and the probable dividends payable to concurrent creditors.
[13]
Several judgments from various High Courts in South Africa have
warned over the years against an abuse of process pertaining
to
friendly sequestrations as well as applications for voluntary
surrender. I believe that it is necessary for the Free State High
Court to add its voice to those voices in the other High Courts
trying to prevent debtors from abusing the system to the detriment
of
creditors and especially concurrent creditors who rely on the courts
to ensure that the requirements of the
Insolvency Act are
met without
the necessity of them intervening and opposing these kinds of
applications. It is not surprising that intervening creditors
are in
by far the majority of cases banks or other secured creditors.
Concurrent creditors and especially creditors with relatively
small
claims are not prepared to enter into a legal battle that may cost
them more than the amount of their claims.
[14]
Generally speaking parties resorted to "friendly sequestrations"
in this division in order to achieve the sequestration
of a debtor
and voluntary surrender procedure was seldom utilised. Recently I
have noted from personal experience an increase in
voluntary
surrender applications in this court. Apparently there is a much
greater concern in KwaZulu Natal and this caused Gorven
J to comment
as follows:
‘
[11]
Voluntary surrender applications have begun to proliferate in this
division. A fledgling cottage industry has reared
its head. As was
the situation with 'friendly' sequestrations in Mthimkhulu, many of
these take a standard form with almost identical
averments and are
drafted by a small set of attorneys who have chosen to specialise in
such applications. In most cases the estate
is small, as is the case
in the present application. In many of them, confronted by the
requirement that all the costs of sequestration
must be defrayed from
the estate and it must still be shown that sequestration would be to
the advantage of creditors, a formula
has arisen to reduce these
costs. The applicant states that a friend or relative has undertaken
to pay the costs of the applicant's
attorney and that the attorney
concerned will not look to the estate for his or her costs. Just such
an averment is made in the
present application.’
[15]
In these applications, "friendly sequestrations" included,
there is often doubt - an uneasiness - as to the relationship
between
the attorney and valuator or between the debtor and the valuator. In
casu the valuator's business is located in Simontown,
the attorney is
from Pretoria and the debtor is resident in between in the Goldfields
town of Virginia. Such factors should raise
the eyebrows, especially
where the valuator's fee is alleged to be R500,00 only and his report
is of no assistance to the court.
[16]
I am in full agreement with the dicta of Gorven J in Ex Parte
Arentzen loc cit at paras [12] and [13] to the effect that voluntary
surrender applications require an even higher level of disclosure
than "friendly sequestrations" and that it is appropriate
at the very least to require compliance with those guidelines set out
in Mthimkhulu v Rampersad (BOE Bank Ltd, Intervening Creditor)
[2000]
3 All SA 512
at 517b-h. Although the court in Mthimkhulu dealt with a
"friendly sequestration", the guidelines can be applied in
voluntary
surrender applications as well, but also bearing in mind
what is stated infra.
[17]
In Craggs v Dedekind and three similar applications,
1996 (1) SA 935
(C) at 936 H, Conradie J referred with approval to the following
remarks of Curlewis JP in Kerbel v Chames
1925 WLD 72
at 76-77:
‘…
and
one has a strong suspicion that in a very large number of
sequestrations in this court, these sequestration proceedings are
not
for the benefit of the creditors, but are entirely for the benefit of
the insolvent and are very often instituted by a friend
to help the
debtor out of his difficulties.’
Conradie
J went on at 936J to 937A to refer to the fact that courts have
warned over many years against neglecting the interests
of creditors,
but notwithstanding that, even then (in 1995) it was still a
legitimate concern which should continue to engage the
attention of
the courts. Although the court dealt with" friendly
sequestrations", the concerns pertaining to voluntary
surrender
applications are exactly the same.
[18]
In Ex Parte Anthony en 'n Ander en 6 soortelyke aansoeke
2000 (4) SA
116
(C) Blignaut J dealt with seven separate applications for
voluntary surrender. In all seven cases each estate consisted of one
mortgaged immovable property and a few movables. The court's main
concern was the advantage to creditors and Blignaut J, writing
for
the full bench, found that notwithstanding valuations obtained by the
applicants in each case, they failed to prove that the
valuations
would be achieved in the event of forced sales. The court relied on
the judgment of Leveson J in Nel v Lubbe
1999 (3) SA 109
(W) where
the learned Judge was also confronted with a valuation which was
nothing more but "a bold assertion of value".
[19]
In Nel v Lubbe loc cit, Leveson J made it clear that a court will
look to the guidance of an expert when it is satisfied that
it is
incapable of forming an opinion without it, but that the court is not
a rubber stamp for the acceptance of the expert’s
opinion.
It is important that evidence must be placed before the court of the
facts relied upon by the expert for his opinion
as well as the
reasons upon which it is based. The learned Judge went further:
‘
The
court will not blindly accept the assertion of the expert without
full explanation. If it does so its function will have
been
usurped.’
(at
111G)
The
manner in which expert evidence must be placed before the court is
nothing new. Wessels JA put it as follows in Coopers
(SA) (Pty)
Ltd v Deutsche Gesellschaft
1976 (3) SA 352
(A) at 371G-H:
‘
As
I see it, an expert’s opinion represents his reasoned
conclusion based on certain facts or data, which are either common
cause or established by his own evidence or that of some other
competent witness. Except possibly where it is not
controverted,
an expert’s bald statement of his opinion is not
of any real assistance. Proper evaluation of the opinion can
only
be undertaken if the process of reasoning which led to the
conclusion, including the premises from which the reasoning proceeds,
are disclosed by the expert.’
[20]
In Ex parta Ogunlaja and others
[2011] JOL 27029
(GNP),
Bertelsmann J endorsed the approach by Levenson J in Nel v Lubbe and
went further to explain the applicable
requirements regarding expert
testimony in paras [15] and [16]. It is apposite to emphasise
the following warnings in paras
[35] to [39]:
‘
[35]
It is necessary to add that the nature of the valuation report is
such that, in the absence of a reliable method of calculation
of the
value of the immovable properties, the court is left with the
uncomfortable impression that the valuator and the applicants,
or the
applicants’ legal representatives, are too close to one another
to allow the preparation of an independent expert’s
report.
The thought is difficult to dismiss in these applications, and in
many others the court has seen over the past two
to three years, that
the valuator is fully aware of the value that needs to be certified
for assets in every individual insolvent
estate to ensure that the
papers reflect the conclusion that an advantage to creditors is
assured if the surrender is accepted
…
[36]
If this impression is correct, it is clear that the process of
voluntary surrenders is being abused. …
[37]
If the suggestion is allowed to take hold that certain valuators
manipulate the true value of assets upward to persuade
the court to
accept applications such as the matters under consideration, the
result must be a deep suspicion on the part of the
court of any
valuation report prepared by the valuators concerned.
[38]
To prevent such an uncomfortable situation from arising, valuators
should certify under oath that they prepared every
valuation without
any knowledge of the facts of the relevant application. In
addition, proof of physical inspections of immovable
properties ought
to be provided by way of photographs and a detailed description of
the physical condition in which each property
was found, as well as
the effect that the physical appearance of the property has upon the
valuation thereof.
[39]
The applicants themselves and the attorney acting for them should
likewise confirm that the valuator was not made privy
to the value
that the assets in the estate must realise in order to constitute an
advantage to creditors.’
Although
the learned Judge referred to valuation of immovable properties only,
I am of the view that photographs and a detailed
description of the
physical condition of movable property and motor vehicles in
particular, property that are used on a daily basis,
should be
obtained as well.
[21]
In Smit v Absa Bank Ltd
[2011] JOL 27973
(GNP), Southwood, J also
found that the applicants’ valuation was completely defective
as it did not comply with the requirements
laid down in the case
law. In para [7] the court also frowned upon the allegation
that the applicants’ estate consisted
of one immovable property
only and mentioned the following:
‘
It
is also difficult to believe that the applicants own no other
assets. The overall impression is that the applicants have
not
taken the court into their confidence.’
Southwood,
J in Ex Parte Mattysen ed uxor
2003 (2) SA 308
(T) adjudicated
upon an application for voluntary surrender and made two relevant
observations, one pertaining to the valuation
of the immovable
property and the other pertaining to the failure to make full
disclosure pertaining to the sale of that property.
Regarding
the valuation the court found at p 316A that the affidavit of the
valuator did not contain relevant facts or reasons,
did not assist
the court in any way and was nothing but “an exercise in
futility”. With reference to the failure
to make full
disclosure the court stated the following at 316E:
‘
Here
it appears that there has been a deliberate misrepresentation of the
facts. The probability is overwhelming that this
was done with
the assistance of the applicants’ attorney. By the time
the applicants’ affidavit was made on 3
July the applicants
would have been served with the summons, the warrant of
execution/notice of attachment would have been served
on them and the
notice of sale in execution would have been published. Without
an explanation it is highly improbable that
they would not have known
about this and informed their attorney accordingly.’”
[12]
The requirements for the voluntary surrender of an estate and
sequestration differ, but the principles referred to in the lengthy
quotation apply
mutatis
mutandis
to voluntary surrender applications and sequestration applications.
[13]
In
ex
parte
Erasmus & Another
2015 (1) SA 540
GP Bertelsmann, J stated the following in an
application for voluntary surrender of an estate in respect of the
valuation of assets
by valuers who failed to inspect the assets:
“
[10]
It is self-evident that this 'valuation' is completely unacceptable.
[11]
It lacks, in the first instance, any semblance of an independent
confirmation that the assets do in fact exist. No professional
assessment of the assets' alleged value has taken place. It has been
emphasised over and over again that a valuator's contribution
to an
application for voluntary surrender — and indeed to any
forensic exercise — depends for its admissibility as
opinion
evidence upon the indisputable independence of the expert. Whatever
information the so-called 'expert' valuator used to
perform his
function was neither obtained nor assessed or analysed by the
witness. The applicant who purportedly provided the list
of the
assets and other information is no expert and hardly able to provide
information regarding the age and condition of the
assets for
purposes of valuation thereof. Photos can easily be misleading and
are in any event capable of being manipulated electronically,
a fact
of which a court can take judicial notice. There is, in addition, no
affidavit by the applicant to confirm or to explain
his role in this
'valuation'.”
[14]
In
ex
parte Concato
and similar cases
2016 (3) SA 549
(WCC) Bozalek, J had to deal with multiple
applications for voluntary surrender. Before considering
several judgments on
the topic he stated as follows in paragraph [7]:
“
It
is, of course, open to any debtor to seek escape from financial
difficulties via the route of voluntary surrender, provided that
he
or she is able to make a proper and bona fide case in compliance with
the provisions of the
Insolvency Act. Our
courts have, over the
decades, been wary of the potential for abuse in so-called 'friendly'
sequestrations. It is increasingly
recognised, however, that there is
a great, or even greater, risk of abuse and the undermining of the
interests of creditors in
voluntary-surrender applications.”
The
learned judge also made the following comment in paragraph [38] and
in my view the same applies to friendly sequestrations:
“
In
these circumstances it seems to be that the interests served by such
voluntary-surrender orders are those of professional persons
involved, namely the attorneys, the valuator and the trustee,
besides, of course, those of the insolvent him- or herself.”
[15]
Numerous problems and/or defects appear from the papers
in
casu
.
According to the founding affidavit respondent is the owner of
immovable property consisting of a dwelling house in Ladybrand
described as portion 2 of erf 213, also known as 49B Loop Street,
Ladybrand, valued by C & D Thompson Auctioneers in the amount
of
R1 100 000,00 and a 2015 double cab Mazda LDW valued by the
same auctioneers in the amount of R219 980,00.
The
inventory prepared by the sheriff in terms of
s 19
of the
Insolvency
Act refers
to these two properties as well as a Honda Quad Bike to
the value of R10 000,00. No valuation was obtained of this
item
and there is no evidence that it is in working condition.
Apparently respondent does not have any further assets.
[16]
As mentioned, applicant is the respondent’s father.
According to him his son’s financial position is well-known
to
him. He lent R60 000,00 to his son in December 2015 just
after respondent had lost his employment as operational
manager in
Lesotho. He earned R40 000,00 per month in that capacity.
Respondent obtained new employment
in January 2016, but
his initial salary of R22 000,00 per month was decreased to
R15 000,00 from 1 October 2016.
[17]
Notwithstanding respondent’s financial predicament and the fact
that he is in much more serious financial trouble than
a year ago,
his father and creditor in the amount of R60 000,00 has now
decided to demand payment of the loan. In order
to adhere to
the scheme embarked upon to obtain financial relief respondent wrote
the customary letter to his father indicating
that he was not in a
position to settle his debts, thereby committing a deed of insolvency
in accordance with
s 8(g)
of the
Insolvency Act. I
would have
expected the converse to happen. A father who is prepared to
lend money to his son when he is in serious financial
trouble would
rather write off the debt instead of claiming it when his son is
finding himself in such dire financial straits.
However,
and notwithstanding this comment, the
Insolvency Act provides
for
such measures to be taken. This kind of action is all too
frequently experienced in friendly sequestrations.
[18]
The valuations of the immovable property and the Mazda LDW were done
by a Mr AM Thompson in his capacity as candidate valuer.
His
valuation reports were co-signed by his principal and registered
valuer, Mr D de Hart. The business premises of C &
D
Thompson Auctioneers are situated in Bothaville
ex
facie
their letterhead. This town is situated in the north-west of
the Free State Province whilst Ladybrand is situated in the
eastern
Free State, a substantial distance away from Bothaville. Both
valuations were
“
allegedly”
carried
out on 14 September 2016. I say this insofar as I have not been
placed in possession of the original valuation reports
and original
photographs and/or certified copies of supporting documents attached
thereto. Furthermore, no confirmatory affidavits
of these two
persons have been attached to the application papers. Strictly
speaking this evidence is in any event inadmissible.
[19]
According to Mr Thompson he inspected the Mazda LDV on 14 September
2016, but strangely enough, the immovable property was
never
inspected at all although the valuations were both
“
allegedly”
undertaken
on 14 September 2016. I initially thought that a typing error
could have crept in, but the words
“
no
inspection was done”
appear
twice in the report. Notwithstanding this, the following
allegation is made at the bottom of page 10:
“
The
property is overall in a very good condition”
.
How such a remark could be made by an expert in the particular
circumstances escapes all logic.
[20]
Mr Thompson tried to establish the market value of the immovable
property by referring to two comparable properties situated
in
Ladybrand. There is no indication that he inspected any of these two
properties and there would be no reason for him to do so
bearing in
mind that he did not even take the trouble to inspect the subject
property. Any comparison is meaningless and
should be ignored.
[21]
The two valuers conducted a futile exercise and no value can be
attached to any of the two valuations. However, I shall
accept
for purposes of the calculations to be made
infra
that it might be convenient to consider the forced sale values of the
properties as indicated by Mr Thompson. The forced
sale value
of the immovable property is, contrary to the alleged market value of
R1,1 million, only R850 000,00. The
forced sale value of
the Mazda LDV is, contrary to the alleged market value of
R290 980,00, 70% thereof, to wit R153 986,00.
Bearing
in mind the definition of forced sale value provided by the valuer,
there can be little doubt that the liquidation of assets
during
insolvency falls within the definition of forced sales. The
trustee must liquidate as soon as possible and does not
have the
luxury of keeping property in the market for three to six months and
making use of several estate agents who are all of
them too willing
to advertise the property to the best of their ability.
[22]
It is in my view unacceptable that applicant did not employ the
services of a valuer in Ladybrand or if such person was not
available, an experienced estate agent residing and practising as
such in the town of Ladybrand. Such person’s evidence,
given under oath, referring to comparable sales, providing the court
with detailed information pertaining to the property market
in
Ladybrand at the time and his/her reasons for arriving at a valuation
would be much more meaningful than the information placed
before the
court. A court looks to the guidance of an expert when it is
satisfied that it is incapable of forming an opinion
on its own, but
it must always be remembered that the court is not a rubber stamp for
the acceptance of an expert’s opinion.
In
casu
there is just no expert opinion at all, bearing in mind what I have
stated
supra
.
I wish to reiterate the
dicta
in
Coopers
SA (Pty) Ltd v
Deutsche
Gesellschaft
,
Smit
v Absa Bank Limited
and
ex
parte Mattysen
et
uxor
supra
.
[23]
It appears from the valuation report of the immovable property that
the outstanding rates and taxes at that stage amounted
to R5 554,00.
The municipality is obviously a preferent creditor and the claim has
to be paid in preference to concurrent
creditors. Applicant did
not take this into consideration at all. In order to prove to
the court that sequestration
would be to the advantage of creditors,
applicant, probably assisted by his attorney, calculated that a
dividend of 30 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
rule 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.)
[24]
In his attempt to calculate the dividend of 30 cents in the Rand
payable to concurrent creditors, applicant (or his attorney)
must
have assumed as follows. The immovable property will fetch R1,1
million, being its value from which is to be deducted
R950 000,00,
being the amount due to Standard Bank on mortgage bond, leaving a
balance of R150 000,00. Once R30 000,00
administration costs are deducted, R120 000,00 will be available
for distribution amongst concurrent creditors in the total
amount of
R403 520,00. When I made the calculation based on these
assumptions I arrived at a dividend of 29.7%.
[25]
Major errors were committed in arriving at the dividend of 30 cents
in the Rand. Whether this was done intentionally,
negligently
or due to incompetence does not have to be decided. I shall
make appropriate calculations
infra
.
[26]
Before I proceed to calculate whether any dividend would be payable
to concurrent creditors, the following remarks are apposite.
The respondent’s debts to commercial creditors are stated in
round figures,
inter
alia
R405 000,00 owing to Wesbank (for the Mazda LDV), R70 000,00
to Standard Bank on an overdraft account, R55 000,00
to Standard
Bank in respect of a personal loan, R25 000,00 to Absa on a
credit card account and R950 000,00 to Standard
Bank on the
mortgage bond. There is no indication on what date these round
figures were obtained. It is highly unlikely
that these are
recent and/or materially correct figures, including interest to date
of the founding affidavit. The monthly
instalment on a loan of
R950 000,00 based on a nominal interest rate of 10% per annum is
about R7 900,00 per month.
Bearing in mind respondent’s
dire financial position over the last year, it is highly unlikely
that he would have been able
to settle his instalments as they fell
due.
[27]
In any event the claims of R5 554,00 in respect of rates and
taxes and R2 500,00 in respect of salary are to be paid
in
preference to concurrent creditors. It was also not considered
that portions of the secured creditors’ claims may
become part
of the concurrent claims as indicated in my calculations
infra.
[28]
Contrary to the calculations made by applicant and/or his attorney,
the sum should read as follows and for purposes hereof
I exclude
costs such as Master’s fees, premiums on security bonds,
advertising costs, bank costs and other smaller expenses
such as
postages and petties.
Immovable
property @
forced
sale
value
850 000,00
Less
3% trustee’s fees
plus
14% VAT thereon
29 070,00
Less
6% auctioneer’s fees
plus
14% VAT thereon
58 140,00
87 210,00
Payable
to Standard Bank as the
Mortgagee
and secured creditor
R 762 790,00
Balance
of claim, i.e. R950 000,00 – R762 790,00 =
R187 210,00 to be regarded as a concurrent claim, unless
the
secured creditor is prepared to rely on its security only.
Mazda
LDV at forced sale value
R153 986,00
Less
3% trustee’s fees
plus
14% VAT thereon if
the
vehicle is handed back to the
creditor
8 777,00
Allocated
to Wesbank
R145 209,00
The
balance of the claim in the amount
of
R259 791,00 is to be regarded as a
concurrent
claim, unless Wesbank is prepared
to
rely on its security only.
Free
residue:
Assets
10 000,00
Liabilities:
Administration
& sequestration costs
30 000,00
Available
for
distribution
Nil
Concurrent
creditors
671 055,00
Dividend
payable
Nil
[29]
Any concurrent creditor proving a claim against the insolvent estate
would be held liable for a contribution towards costs.
The
sequestration and administration costs of R30 000,00 mentioned
in the Practice Directive is payable out of the free residue,
i.e.
the proceeds of unencumbered assets. I have shown herein that
it is irresponsible to rely on administrative and sequestration
costs
of R30 000,00 in order to calculate concurrent dividends without
considering the fees of trustees and auctioneers that
may be
enormous. These costs would amount to about R100 000,00
in
casu
,
notwithstanding the fact that respondent’s estate is relatively
small.
[30]
This is the typical situation where the debtor should have sold his
immovable property by private treaty in order to settle
the
mortgagee’s claim, or if that was not possible due to no
interest from prospective, willing and able buyers, to arrange
with
the mortgagee to sell the property on his behalf. The same
applies to the Mazda LDV which should have been handed back
voluntarily to the secured creditor. The expensive machinery of
the
Insolvency Act should
not be applied in friendly sequestrations
where it is clear that concurrent creditors will not receive any
dividends at all, or
at best an insignificant dividend.
[31]
The National Credit Act, 34 of 2005 (“the NCA”) has been
promulgated to 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. sections
78 to 88 –
sets out in detail the steps to be taken to assist these debtors.
This is a typical case where respondent,
if he elected not to act as
mentioned in the previous paragraph, should have pursued his rights
of debt review under the NCA in
order to obtain a court order in
terms whereof his debts to commercial creditors be paid in
instalments in an organised matter
through the applicable debt review
and court processes. In such a case it might have been possible
to retain possession of
the LDV and the residential property by
extending the terms of repayment and have that made an order of
court.
[32]
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 creditors’ and especially concurrent
creditors’ rights. 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 is not
was intended by the legislature when the
Insolvency Act was
promulgated.
[33]
I conclude by repeating that applicant failed to prove that there was
reason to believe that it would be to the advantage of
creditors,
especially concurrent creditors, if respondent’s estate was
sequestrated. Therefore the application was
dismissed and the
rule
nisi
discharged.
[34]
The Registrar of this court is directed to send a copy of these
reasons to the Master of the Free State High Court, Bloemfontein
for
consideration of the contents of paragraphs [7], [8] and [15] to [19]
hereof and his obligation as stipulated in
s 9(4)
of the
Insolvency
Act, 24 of 1936
.
______________
J.
P. DAFFUE, J
/eb