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[2014] ZAGPPHC 434
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ABSA Bank v Lochenberg and Another (61888/13) [2014] ZAGPPHC 434 (16 May 2014)
IN
THE
GA
UTENG
HIGH COURT. PRETORIA
(
REPUBLIC
OF SOUTH AFRICA
)
Case No.: 61888/13
Date: 16 May 2014
Not reportable
Not of interest to
other judges
In the matter
between:
ABSA
BANK
.......................................................................................................................
Intervening
Creditor
and
LEON
RUDOLPH
LOCHENBERG
......................................................................................
First
Respondent
PATRICIA
LOCHENBERG
..............................................................................................
Second
Respondent
In re:
The
exparte
application
of:
LEON
RUDOLPH
LOCHENBERG
.........................................................................................
First
Applicant
PATRICIA
LOCHENBERG
.................................................................................................
Second
Applicant
with
ABSA
BANK
LIMITED
....................................................................................................
Intervening
Creditor
JUDGMENT
KEIGHTLEY AJ
INTRODUCTION AND
ISSUES
[1] This is an
application for the voluntary surrender of the joint estate of the
applicants, who are married to each other in community
of property.
[2] In terms of
section 6(1) of the Insolvency Act, 34 of 1936 (“the Act”),
a court may accept the surrender of an estate
and make an order of
sequestration if the court is satisfied that:
[2.1] The procedural
requirements laid down in section 4 of the Act have been complied
with;
[2.2] The estate of
the debtor is insolvent;
[2.3] The debtor has
realisable property of sufficient value to defray the costs of the
administration of the sequestration to be
paid from the free residue;
[2.4] It will be to
the advantage of the creditors if the estate is sequestrated.
[3] By consent
between the parties, Absa Bank (“the bank”) was admitted
as an intervening party in these proceedings.
The bank is a creditor
of the applicants. It holds two mortgage bonds in respect of two
immovable properties owned by the applicants.
[4] The bank opposes
the voluntary surrender of the applicants’ estate. Initially
the bank indicated that it would oppose
the surrender of the estate
on the basis that none of the requirements listed above had been
satisfied. However, at the hearing
of the matter counsel for the bank
indicated that the issues placed in dispute had become significantly
narrowed. The matter was
argued before me on the basis that the bank
contests only the following issues:
[4.1] First, the
issue of whether the applicants are in fact insolvent.
[4.2] Second,
whether the surrender of the estate would be to the advantage of the
applicants’ creditors.
[5] Originally, one
of the key contested issues was the true value of the larger of the
two properties (“the disputed property”)
held by the
applicants. The applicants obtained a valuation of the disputed
property from a valuator and used this in support of
their
application. This valuation pegged the forced sale value of the
disputed property at R2,2 million, and the market value at
R2,4
million. The bank disputed this valuation. It alleged in its opposing
affidavit that the bank’s valuator had placed
a value of only
R2 million on the property. On the basis of what the bank contended
was the true value of the disputed property,
the dividend payable to
concurrent creditors would amount to only 16c in the Rand, which is
below the 20c in the Rand limit accepted
in this Division, meaning
that it would not be to the advantage of creditors to sequestrate the
applicant’s estate.
[6]
As matters transpired, however, the bank did not persist in its
contentions in this regard. This was because the bank conceded
that
the "valuation” it sought to rely on was not a valuation
in the form required for admission by the court as evidence
of the
value of immovable property for purposes of proceedings of this
nature. It was no more than a
“
property
inspection report’
,
which was stated specifically
"not
(to be) an estimate of value and is only meant to determine the
existence and exterior condition of the property.”
It
was not a valuation made under oath, and was not based on a
comparable sales basis. In the circumstances, the report did not
comply with the requirements laid down by this court for the expert
evidence of valuators in
Ex
Parte Ogunlaja
,
1
In the circumstances, in my view, the bank correctly conceded that it
could not rely on its report to dispute the valuation put
forward by
the applicants.
[7] Nonetheless, the
bank argued that the applicants’ valuation of the disputed
property did not assist them, as they could
not satisfy the court
that they were insolvent. The bank advanced two contentions in
support of this argument:
[7.1] It contended
that if the market value of the disputed property relied on by the
applicants was taken into consideration then
the value of the
applicants’ assets was in excess of R 3 million, whereas the
agreed value of the applicants’ liabilities
was R 2, 9 million.
This, argued the bank, demonstrated that the applicants were not
insolvent.
[7.2] Furthermore,
the bank contended that it was common cause that the applicants had
overstated their indebtedness to the bank
in their statement of
debtors’ affairs. The bank pointed out that the overstatements
in question were substantial. The bank
submitted that there may well
be other creditors in respect of whom the applicants similarly had
overstated their indebtedness.
In the circumstances, the bank argued
that on the information placed before this court by the applicants it
is not possible for
the court to determine their true state of
insolvency or solvency.
[8] As regards the
issue of the advantage to creditors, the bank submitted that if this
court could not find that the applicants
were insolvent, it followed
that the surrender of the applicants’ estate would not be to
the advantage of the creditors.
[9] The fundamental
question for me to consider is whether the applicants have shown that
they are insolvent. If they have not,
then their application for the
surrender of their estate must fail. On the other hand, if I am
satisfied that they have established
that they are insolvent, then it
must follow that I should grant their application for surrender. This
is because, on the basis
of the now uncontested value of the disputed
property, the dividend payable to the applicant’s creditors
will be 27c in the
Rand, which is within the level required in this
division.
HAVE THE
APPLICANT’S ESTABLISHED THAT THEY ARE INSOLVENT?
[10] On the issue of
whether the applicants have shown that they are insolvent, counsel
for the bank submitted that the court should
have regard to the
market value of the immovable properties, and not the forced sale
values. On this basis, as I indicated earlier,
the bank contended
that the value of the applicants’ assets was in excess of R3
million, and their liabilities were only
R2, 9 million.
[11]
In response, counsel for the applicants submitted that it is
incorrect to have regard to the market value of the applicants’
assets for purposes of determining the applicants’ insolvency.
He submitted that the court instead should have regard to
the forced
sale value of the assets. In this regard, he referred to the
unreported judgment in this division of the learned Mr
Acting Justice
du Plessis, in the case of
First
Rand Bank Ltd v Engelbrecht.
In
this case the learned judge held as follows:
“
...
I
could find no authority for the proposition that the market value of
the property should be taken into account for purposes ol
determining
solvency. In fact, it seems as if the only relevant value is the
forced sale value of the immovable property."
2
[12] If the forced
sales values of the properties are taken into account the parties are
agreed that the applicants’ liabilities
exceed the value of
their assets.
[13]
I can find no reason to justify a departure from the finding on this
issue by this court in the
First
Rand Bank v Engelbrecht
case.
On the basis of the forced sale values of the properties, the dispute
regarding the applicants’ insolvency falls away.
[14] In any event,
it seems to me that in order to satisfy myself on the question of the
applicants’ insolvency I should properly
have regard to picture
that is painted when all of the facts are taken into consideration.
In this regard it is significant that
there is no dispute that the
applicants’ financial woes arose after their business was
forced to close as a result of the
decline in the economy. Since
then, both of the applicants have been unemployed. There is no
dispute that they are without incom~
and that they do not have the
means to meet their monthly expenses. These stand at a figure in
excess of R 10 000. 00 per month.
It is also undisputed on the papers
that the applicants are indebted to, not only the bank, but also a
range of other creditors,
including the South African Revenue
Services. The applicants state that some of the creditors have
threatened to institute legal
action against them in view of their
indebtedness. The applicants declared under oath that they are
insolvent. They further declared
that they are unable to make use of
the debt review process because they are unable to afford the monthly
payments required. It
is also common cause that the applicants’
indebtedness continues to escalate month by month in view of the
interest attaching
to their debts.
[15] The bank does
not dispute any of these averments, nor does it seek to impute any
ulterior motive on the part of the applicants
in seeking the
surrender of their estate.
[16]In the
circumstances, and taking into account all of the facts included in
the applicants application. I am satisfied that they
have
demonstrated that they are insolvent. It is one thing to point to the
probable value of immovable properties held by the applicants
~>nd
to question whether this value is equal to or more then the value of
their liabilities. However, it is patently clear from
a full
conspectus of the facts before this court the applicants find
themselves in insolvent circumstances.
THE OVERSTATEMENT
OF INDEBTEDNESS
[17] As far as the
overstatement of the applicants’ indebtedness to the bank is
concerned, I am satisfied that this does not
prevent me from making a
sufficiently accurate assessment of the applicants’ financial
state. While it is correct that the
applicants initially overstated
their indebtedness to the bank, this has been corrected in light of
the certificates of balance
presented by the bank and in the
calculations presented to me. Furthermore, and despite the
applicants’ statement of affairs
lying for inspection for the
requisite period, no other creditors have come forward to complain
that the debts due to them were
overstated or to oppose the
application for surrender on any other grounds.
[18]
In addition, it is clear that the error on the part of the applicants
in this regard was bona
fide
and,
as I have already indicated, the bank does not suggest any ulterior
motive on the part of the applicants. In my view it is
appropriate
for me to take into account tl 3
fact
that the applicants are individuals without the benefit of a
financial department running their affairs. As such, and given
the
strained financial circumstances they find themselves in, it is
perhaps understandable that their initial estimate of their
indebtedness was inaccurate.
[19]
For this reason I cannot accept the submissions made by the bank to
the effect that this failure by the applicants to make
full and frank
disclosure of the indebtedness to the court is sufficient to nonsuit
them in light of the
ex
parte
nature
of these proceedings. As counsel for the applicants pointed out,
correctly in my view, although the application for the voluntary
surrender of an estate is instituted on n ex
parte
basis,
all of the applicants creditors were given notice of the application
and had the opportunity to intervene before the matter
came before
the court. This being the case, the court was not solely reliant on
the facts put before it by the applicants. In the
circumstances, it
seems to me that the inaccuracy in the applicants’ estimation
of their indebtedness is insufficient on
its own to nonsuit the
applicants. This is particularly so where, as in the present case,
the correct facts were placed before
the court on affidavit prior to
the hearing.
[20] I should
stress, however, that my finding in this regard should not be read as
detracting from the dut^ on debtors to make
every effort to place
accurate and full facts before the court when they seek a surrender
of their estates. Attorneys assisting
them should also make every
effort to ensure that as far as possible, accurate assessments are
made regarding the value of the
debtors’ liabilities. A failure
to do so could lead to the dismissal of an application under section
6 of the Act in the
appropriate case.
[21] As I have
indicated, it is common cause that taking into account the
applicants’ corrected amounts of indebtedness to
the bank, the
applicants concurrent creditors will receive a t.,vidend of 29c in
the Rand. This is an acceptable level in terms
of the practice in
this division.
[22] For all of
these reasons I am satisfied that the applicants have established
that they are insolvent. It is not disputed that
there is sufficient
free residue to cover the costs of the surrender of their estate. It
is also not disputed that the applicants
have complied with the
procedural requirements laid down in section 4 of the Insolvency act.
ADVANTAGE OF
CREDITORS
[23]
The only remaining question is whether the surrender of the
applicants’ estate will be to the advantage of the creditors.
Clearly, there will be a financial advantage to creditors from the
surrender of the applicants' estate. In addition, the surrender
will
establish a
concursus
creditorum
for
the benefit of the collective body of creditors. If the application
is refused, on the other hand, it is likely that a number
of
concurrent creditors may receive nothing. I am satisfied, therefore,
that there are reasonable prospects that sufficient pecuniary
benefit
will result to creditors and that, in addition, the creditors will
benefit from the indirect advantages associated with
the surrender of
the estate.
[24] I am satisfied
that the applicants have met all of the requirements prescribed in
the Act for the surrende
r
of their estate and that it is
appropriate in this case for me to the to exercise my discretion in
favour of the applicants.
[25] I accordingly
make the following order:
[25.1]The surrender
of the estate of the applicants as insolvent is accepted and their
estate is placed under sequestration in the
hands of the Master of
the High Court.
[25.2] The costs of
this application shall be costs in the administration of the estate.
R M KEIGHTLEY
ACTING JUDGE OF THE
HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
DATE OF HEARING:8
MAY 2014
DATE OF JUDGMENT:16
MAY 2014
APPLICANT’S
COUNSEL:B LEE
INSTRUCTED BY:
MICHAELSENEKALATTORNEYS
INTERVENING CREDITOR
COUNSEL : C SPANGENBERG
INSTRUCTED BY:HACK
STUPEL EN ROSS
ATTORNEYS
1
[2011]
JOL 27029
(GNP)
2
Case
no: 3084/13, judgment dated 10 May 2013