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[2014] ZAGPPHC 482
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S N.O. v M N.O. and Another (72201/2012) [2014] ZAGPPHC 482 (25 February 2014)
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IN THE HIGH COURT OF SOUTH AFRICA
/ES
(
GAUTENG
DIVISION, PRETORIA
)
CASE NO:
72201/2012
DATE:
25/2/2014
NOT REPORTABLE
NOT OF INTEREST
TO OTHER JUDGES
IN THE MATTER BETWEEN
K[…] S[…]
N.O
....................................................................................................................
APPLICANT
AND
B[…] M[…]
N.O
........................................................................................................
1
ST
RESPONDENT
G[…] D[…]
M[…]
N.O
.............................................................................................
2
ND
RESPONDENT
JUDGMENT
PRINSLOO, J
[1] This matter came before
me as an opposed application for a final sequestration order of the
P[…] F[…]
trust, IT[…] ("the
trust").
[2] This court, also after
hearing argument on an opposed basis, granted the provisional order
on 5 June 2013. The return
date was then extended on a couple
of occasions until the matter came before me in the opposed motion
court for the week 10 to
14 February. I heard the
application on 11 February 2014 and extended the return date until
this judgment is delivered.
[3] It is common cause that
the trust is registered under the provisions of the Trust Property
Control Act, 1988 and that the first
and second respondents are the
joint trustees of the trust.
[4] It is common cause that
the applicant is a judgment creditor of the trust.
[5] The events leading to
the applicant procuring a judgment against the trust can be briefly
summarised as follows: on 21 September
2006 the applicant's late
husband and the trust entered into a written agreement of sale in
terms whereof the applicant's husband
sold to the trust an immovable
property known as Erf […] W[…] R[…]
Extension 6, better known as 43 R[…]
E[…] W[…] 101,
107 J[...] R[…] Drive, W[…] Pretoria ("the
property").
The terms of the sale
agreement included provision for a purchase price of R4 million,
that the sale would be subject to a
condition that a loan be secured,
that the sale was subject to the successful sale and transfer of
another immovable property owned
by the trust and that occupation of
the property would be given to the trust on 1 November 2006 and
from that date the trust
was to become liable for occupational
rental.
[6] 0n 27 February 2007 the
trust and the applicant's late husband entered into a written
addendum agreement. This amended
the terms relating to how the
purchase price for the property would be paid by the trust in the
sense that the addendum allowed
for transfer of the property to the
trust without the payment of the full purchase price.
R3 million would be paid in
the form of a banker's guarantee
issued in favour of the seller upon signature of the addendum and the
balance of R1 million
would be paid by no later than forty five
days from date of transfer. Transfer was registered in the name
of the trust on
6 March 2009.
[7] It is common cause that
the trust never paid the outstanding balance.
[8] When the husband passed
away on 1 November 2009, the applicant was appointed executrix.
[9] In 2010 the trust
instituted an action against the applicant and claimed the amount of
R1 972 500,00 based on an alleged
breach of contract.
The applicant, as defendant, instituted a counter-claim for the
outstanding balance on the purchase price.
0n 20 March 2012 this
court handed down a written judgment dismissing the claim and
upholding the counter-claim which had been reduced,
by agreement, to
R850 000,00 to set off an alleged liability towards the trust to
secure a proper electrical system for the
property. The
quantum
of this electrical expense was agreed to amount to R150 000,00.
The judgment granted in favour of the applicant was
therefore in an
amount of R850 000,00 plus interest at the rate of 15,9% per
annum calculated from 21 April 2009 to date
of payment.
In an affidavit dated 0ctober 2013, the applicant alleges that
the judgment debt, with interest, by then
would have amounted to some
R1,5 million. This is in line with superficial
calculations I made myself.
[10] The trust was not
happy with the judgment, and asked for leave to appeal which was
refused. A petition to the Supreme
Court of Appeal met with the
same fate. 0n each occasion costs were granted against the
trust. The applicant now
has three costs orders against the
trust, in respect of the trial, and the two abortive efforts to
obtain leave to appeal and,
according to advice obtained by the
applicant as stated in an affidavit, these costs, although the bills
have not yet been taxed,
could amount to something in the order of
R500 000,00.
[11] In July 2012 the
applicant attempted to levy execution against the movable property of
the trust in an effort to obtain payment
of her claim. The
deputy sheriff issued a return of
nulla bona
but the
respondents, as trustees, declared that the trust does own immovable
property which is executable and worth R7 million.
[12] 0n the strength of the
nulla bona
return, and also alleging factual insolvency on the
part of the trust, the applicant lodged the sequestration
application.
The learned judge held that the applicant had
failed to prove that an act of insolvency had been committed in terms
of
section 8(b)
of the
Insolvency Act, 24 of 1936
, because the
reference to the immovable property could also be regarded as
disposable property for purposes of attachment.
Nevertheless,
the learned judge held that a
prima facie
case had been made
out for the factual insolvency of the trust, and, as I have
mentioned, the provisional sequestration order was
granted on 5 June
2013.
[13] Attached to the
trust's opposing affidavit, was what purported to be a valuation of
the property for an amount of R7 500 000,00
which was
unsigned and not accepted by the learned judge as representing proper
evidence in rebuttal of the applicant's case that
the trust was
factually insolvent.
[14] After the provisional
order had been granted, the first respondent, in his representative
capacity, deposed to an affidavit
to which a more comprehensive sworn
valuation was attached indicating that the reasonable market value of
the property was R7 900 000,00.
The first respondent,
in his affidavit, also recorded that it was "common cause
between the parties, at the initial hearing
of this application, that
the outstanding bond and indebtedness to Absa Bank Limited by the
trust is R4 million".
The applicant relied on the
perceived valuation of the property of R4 million, based on the
sale that was concluded, and,
given the admitted debt of R4 million
to the bank, argued that this illustrated factual insolvency because
the trust was clearly
unable to pay its other debts, including the
claim of the applicant.
[15] The applicant then
proceeded to file a report by the provisionally appointed trustees in
the insolvent estate, Joachim Hendrik
Botha and Nomvuyo Yvonne
Seriti. The report was in the form of an affidavit by trustee
Botha. He pointed out that as
provisionally appointed trustees,
they felt obliged to bring certain facts to the attention of the
court with the view to assisting
the court in deciding this
application. The trustee, in his affidavit, also referred to
the case of
Smith & Walton (SA) (Pty) Ltd v Holt
[1961] 4
All SA 115
(D) in which it was held that if a provisional trustee
obtains information that has a bearing upon the various matters
arising
for determination on the return date of a sequestration,
there can be no objection to that information being placed before the
court.
[16] In his affidavit,
trustee Botha states that after their appointment, the trustees
requested Mr Cloete Murray, co-director
of Mr Botha in
Sehaba Trust (Pty) Ltd to assist them with certain administrative
acts in the administration of the estate.
Mr Murray, as an
experienced administrator of both insolvent and deceased estates,
also assisted the applicant in the
administration of the estate of
her deceased husband although the applicant was at all relevant
stages the appointed executrix.
Mr Murray arranged a
meeting with the first respondent at the property for 28 June
2013. Murray arrived there accompanied
by the sheriff whom he
requested to take a full inventory of whatever movable property could
be found at the address. This
would be done in terms of
section
19
of the
Insolvency Act, 1936
. Immediately after the meeting
was arranged, the first respondent was also asked, in terms of a
letter dated 25 June 2013,
to provide the trustees with a list of
documents including the financial statements of the trust for the
past two financial years.
[17] During the meeting
with the first respondent, the following issues were discussed:
1.
Apart from a claim for occupational rent, the first respondent
confirmed that the trust has no other assets than the property.
The
issue of the alleged occupational rent is, to put it mildly, a vague
affair: the first respondent told Murray that the trust
had entered
into a lease agreement with a company known as Trac Props for
occupational rent, which was not paid though, but debited
to a loan
account in favour of the trust. It is common cause that the
trustees have been occupying the property at all relevant
times and
still do so, without paying any occupational rental to the trustees
or anyone else.
The
occupational rental was for a meagre R10 000,00 whereas the
parties already agreed, at the time of the trial, that a market
related rental for the property would be some R25 000,00.
This
also inspired the applicant to rely on the provisions of
section 8(c)
of the
Insolvency Act as
a further ground in support of the
sequestration application. This is another act of insolvency
which could not be relied
upon initially, let alone mentioned in the
founding affidavit, because the existence of this alleged agreement
in respect of occupational
rental only came to the knowledge of the
trustees long after the event.
Section 8(c)
reads as follows:
"A
debtor commits an act of insolvency (c) if he makes or attempts to
make any disposition of any of his property which has
or would have
the effect of prejudicing his creditors or of preferring one creditor
above another."
The
applicant argues that this action of the trustees of the trust, to
ostensibly let the property for an amount far below the agreed
market
related rental and, to boot, not collecting the rental, amounts to an
unlawful disposition of the property and to prejudicing
the creditors
by preferring one creditor above the others. During the
meeting, Mr Murray also explained to the first
respondent that
whatever arrangement existed earlier concerning the payment of
occupational rental is no longer of force and effect
and for as long
as the trust occupies the property, the trust will have to pay the
trustees, in terms of the
Insolvency Act, occupational
rental.
In spite of demand afterwards in writing, the trust has failed to
make any payment in respect of occupational rental
to the provisional
trustees.
Mr
Murray also requested the first respondent to provide him with a copy
of the lease agreement between the company Trac Props and
the trust
in respect of the alleged occupational rental as well as a full
reconciliation of all rentals received for the previous
twenty four
months. The first respondent undertook to provide this
information but has failed to do so.
2.
As far as debts are concerned, the first respondent disclosed the
existence of at least three creditors of the trust to Murray:
2.1
Absa Bank Ltd for an amount of approximately R6,5 million plus
further interest thereon from March 2012 to date of final
payment.
It
is common cause that Absa Bank already issued summons against the
trust in March 2012 for payment of an amount of R4 650 260,84
being the outstanding balance on the bond plus interest at the rate
of 9% per annum from 3 March 2012 to date of payment.
The
arrears at the time when the trust was sent a demand in terms of
section 129
of the
National Credit Act, 34 of 2005
, already came to
some R460 044,30. I was informed from the Bar that
this action was presumably being held in obeyance
pending the outcome
of the sequestration application.
The
first respondent, in an affidavit commenting on the provisional
trustees' report, offered a strange "denial" to the
trustees' allegation about this debt by saying that "I deny
that I disclosed the identity of at least three creditors
to Murray.
I did disclose to Murray that the respondents are involved in
defended actions, in this honourable court."
The other two
creditors referred to, are the applicant and the Home 0wners
Association levies imposed by the Home 0wners Association
of which
the trust is a member, by virtue of its ownership of the property.
I will revert to these two debts.
As
far as the Absa claim is concerned the first respondent states in his
affidavit that litigation is pending between the trust
and Absa and
"it is denied that Absa has a claim against the respondents".
I find this so far fetched
that I am of the view that the
allegation can safely be rejected on the papers. The first
respondent offers no details of
the merits of his purported defence
against the claim of Absa. If the debt, already in March
2012, amounted to more
than R4,6 million, it can now, with
interest, according to a basic calculation which I made, amount
to at least R5,5 million.
2.2
The unassailable judgment debt which the trust owes the applicant.
As I pointed out, where the learned judge granted
interest on
the amount of R850 000,00 at 15,5% per annum from 21 April
2009 (almost five years ago) to date of payment,
the applicant
calculates the present liability to be in excess of R1,5 million.
My superficial calculations reveal an
amount of approximately
R1,7 million. If the estimated costs to flow from the
three costs orders, when taxed, of some
R500 000,00 is added,
the liability of the trust would be well in excess of R2 million.
2.3
According to a statement sent by Pretor Trust, on behalf of the Home
0wners Association, to the trust, dated 7 August 2013,
and
copied to the provisional trustees following the provisional
sequestration, the outstanding levies, as at August 2013, amounted
to
R158 082,42. Further outstanding levies, debt collection
commission and interest for the next six months, to the
present,
would probably extend the debt to beyond R200 000,00.
In
his affidavit,
supra
, commenting on the report of the trustee,
the first respondent also states rather bluntly "it is denied
that the Home 0wners
Association has a valid claim". He
states that he is involved in a defended action against the Home
0wners Association.
He chooses not to state on what basis the
claim is being defended. As is the case with the Absa claim,
I find this denial
also utterly unconvincing.
[18] The trustees of the
trust, have also, on their own admission, failed to compile any
financial records of the trust as they
were supposed to do in terms
of clause 8 of the deed of trust.
[19] Provisional trustee
Botha then says the following when concluding his affidavit:
"10.
The trustees can therefore report to the honourable court on the
liabilities of the Trust as follows:
10.1
the Trust is clearly in no position to make monthly payments in
respect of the bond or current levies as and when these payments
are
due and has not been making any such payments for a considerable
period of time, to the extent that:
1.10.1
the outstanding levies have increased monthly since December 2009;
1.10.2
the bond instalments have been outstanding since, according to the
Absa documents, 6 March 2012;
1.10.3
the judgment debt of the applicant remains unsatisfied to date.
10.2
The trust has no current income.
10.3
The only attachable asset that we could find, was the immovable
property belonging to the trust. Mr M[….]
could not
point out any other assets and he mentioned that the assets
inventoried in terms of
section 19
, of which the inventory is
attached as annexure A, belongs to his spouse, the second
respondent, This will be investigated
in due course."
(I add that in his later
affidavit, the second respondent states that the movables belong to
the company with which the alleged
agreement as to occupational
rental has been entered into.)
[20] The provisional
trustee Botha also says the following in his affidavit:
"11.
0ther issues
11.1
Mr M[…] could not provide the
Insolvency Act trustees
with any
financial book-keeping of whatever nature in respect of the trust and
we were furthermore not provided with any
lease agreement
between the trust and the above company, as alleged by Mr M[…]
and as requested by us;
11.2
Mr M[…] could not provide us with any flow of funds proving
that the trustees are presently receiving any rental from
any party;
11.3
But for the Absa Bank bond account, the trust has no current bank
account."
[21] Mr Raubenheimer, for
the trust, argued that part of provisional trustee Botha's affidavit
amounts to hearsay evidence because
his partner, Murray, attended the
meeting with Mr M[…] and not Botha himself.
I reject this argument.
Most of what Murray reported about
the meeting with Mouton is supported by the documentation referred
to,
inter alia
the Absa Bank documentation and the Home 0wners
Association documentation. The claim of the applicant is
undisputed.
Murray is Botha's partner and a respectable
insolvency practitioner. 0n the overwhelming probabilities,
there is no reason
whatsoever why Murray would have fabricated his
report to his partner Botha about what transpired at the meeting.
The sheriff's
inventory is also part of the papers. Inasmuch as
it may be necessary, I allow the evidence of Murray, to the
extent
that it may amount to hearsay evidence, in terms of the
discretion vested in me by,
inter alia
, the provisions of
Act 45 of 1988.
[22] I add that, in
response to the later valuation of the property offered by the
respondents, namely that the market value amounts
to some
R7,9 million, the applicant obtained a valuation and
confirmatory affidavit from Mr Grant McIntosh, a professional
valuator, who criticised the valuation submitted by the trust, by one
Mr Janse van Rensburg, and stated that it is "highly
unlikely that the market value of this particular property is
currently anything more than R5 500 000,00".
Mr McIntosh offers comprehensive comments in criticising the
valuation of Mr Janse van Rensburg. Later on, Mr Janse
van
Rensburg responded with a further affidavit standing by his original
valuation.
During his argument before
me, Mr Raubenheimer suggested that it may be appropriate to refer
this issue to evidence. I see
no merit in this proposal.
0n the facts of this case, as I have attempted to illustrate them, it
is clear, on the overwhelming
probabilities, that the trust is
factually insolvent and unable to pay its debts. Even on the
proposed valuation of R7,9 million,
the debts of the trust, as
I have outlined them, cumulatively probably amount to a figure
comparable therewith.
In this regard, Mr Van der
Merwe SC, for the applicant, referred me to the well-known case of
De Waard v Andrew & Thienhaus, Ltd
1907 TS 727
where
the learned Chief Justice INNES, CJ, says the following on p733:
"Speaking
for myself, I always look with great suspicion upon, and examine very
narrowly, the position of a debtor who says,
'I am sorry that I
cannot pay my creditor, but my assets far exceed my liabilities.'
To my mind the best proof
of solvency is that a man should pay
his debts; and therefore I always examine in a critical spirit the
case of a man who does
not pay what he owes."
In this case, Mr and Ms
M[…] have not made any effort whatsoever to reduce their
admitted debt towards the applicant over
a number of years.
They stay on the property without paying any rental.
[23] As provisional trustee
Botha pointed out in his affidavit, it is clear, on the overwhelming
probabilities, that the trust is
unable to pay its debts and is
factually insolvent. There is an evidentiary burden on the
trust to show that its assets have
a value exceeding the sum total of
its liabilities. See
Absa Bank Ltd v Rhebokskloof (Pty) Ltd
and 0thers
1993 4 SA 436
(CPD) at 443D G. In my
view, the respondents have failed dismally to discharge this
evidentiary burden.
[24] I am also of the view
that there is much to be said for the argument offered by Mr Van
der Merwe that the trust committed
an act of insolvency as intended
by the provisions of
section 8(c)
of the
Insolvency Act,
supra
,
for the reasons mentioned.
[25] Moreover, I am
satisfied, as this court also found when the provisional
sequestration order was granted, that a proper case
has been made out
to the effect that a sequestration will be to the advantage of the
creditors of the trust. Mr Van
der Merwe argued that the
property is the only asset of the trust (this is common cause) and
therefore the only source of money
for the creditors. Mr Mouton
stated, although ambiguously, that the movable assets attached belong
either to his wife
or to the company with which the alleged contract
(as yet unseen) with regard to occupational rental has been entered
into.
The creditors therefore have the option to either proceed
with an execution process or with the sequestration. If there
were to be a sale in execution of the property, the sheriff will be
obliged to accept the highest offer and will also not, in practice,
be in a position to properly market the property for sale. 0n
the other hand, the trustees will be in a position to launch
a proper
marketing exercise and will not be obliged to accept the highest
offer but will be able to negotiate a market related
purchase price.
0n all the evidence, I am satisfied that a sequestration of the
trust will be to the advantage of the
creditors.
[26] I make the following
order:
1.
A final sequestration order is granted in respect of the
P[…]
F[…]
trust, IT[…]
2.
The costs, which will include the costs of senior counsel acting for
the applicant, will be costs in the sequestration.
W R C PRINSLOO
JUDGE OF
THE GAUTENG DIVISION, PRETORIA
72201-2012
HEARD ON: 11 FEBRUARY 2014
FOR THE APPLICANT: M P VAN
DER MERWE SC
INSTRUCTED BY: ADAMS &
ADAMS
FOR THE RESPONDENTS: R
RAUBENHEIMER
INSTRUCTED BY: KMG &
ASSOCIATES INC