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[2014] ZAFSHC 96
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Ex parte: John William Snooke (752/2014) [2014] ZAFSHC 96; 2014 (5) SA 426 (FB) (27 June 2014)
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IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 752/2014
In
the ex parte application of
JOHN
WILLIAM
SNOOKE
.....................................................................................................
Applicant
ID
NO: […]
JUDGMENT
BY:
DAFFUE, J
HEARD
ON:
24 APRIL 2014
DELIVERED
ON:
27 JUNE 2014
I.
INTRODUCTION
[1]
The applicant, John William Snooke, married out of community of
property, applies for rehabilitation of his estate, but this
is
clearly wrong: an estate is sequestrated, but an insolvent person is
rehabilitated. In reality he seeks his rehabilitation
in
accordance with s 124(3) of the Insolvency Act, 24 of 1936 (“the
Act”).
[2]
This is an unopposed application. Both the Master and the
remaining trustee have no objection to granting of relief.
When
the matter came before me initially on 13 March 2014 I raised certain
concerns which have now been addressed although not
to my
satisfaction.
II.
APPLICANT’S INSOLVENCY
[3]
On 2 December 2010 applicant’s application for the voluntary
surrender of his estate was accepted.
[4]
On 15 December 2010 Ms E M van Wyk consented in writing to taxation
of the bill of costs of applicant’s attorney in her
absence.
[5]
Taxation of the bill of costs took place on the same day whereafter
the Taxing Master affixed his
allocatur
to the bill. The total amount of the taxed bill is R40 229.99.
Not a single sent has been taxed off. I refer
to this issue
later again.
[6]
In a first report in the present application the assistant Master
reported that the Master had appointed Ms Van Wyk and Mr T
J H
Potgieter as provisional trustees on 28 December 2010. They
were eventually finally appointed as trustees on 11 April
2011.
If this information is correct, Ms Van Wyk consented to taxation of
the bill of costs prior to her appointment as provisional
trustee.
Nothing turns around this, save that I have serious concerns about
the amount of costs taxed out to which I shall
return later. In my
view Ms Van Wyk would have frowned upon the excessive fees charged if
she took the trouble to scrutinise the
bill of costs, which she in
all probabilities failed to do.
[7]
There is no indication which creditors nominated Ms Van Wyk and Mr
Potgieter for appointment as provisional trustees, if they
were
indeed nominated. What is apparent is that they were finally
appointed by the Master after the first meeting of creditors
where no
voting took place as no claims were proved.
[8]
No creditors lodged any claims against the insolvent estate and
consequently no claims were proved. Therefore this application
is
brought in accordance with the provisions of s 124(3) of the Act.
III.
SECTION 124(3)
OF THE
INSOLVENCY
ACT 24 OF 1936
[9]
By far the majority of rehabilitation applications are brought in
terms s 124(2)(a) of the Act in that claims were proved against
the
insolvent estates of the applicants and in circumstances where
creditors were not paid in full. Such applicants have
not been
sequestrated previously and have not committed any of the offences
stipulated in s 124(2)(c) of the Act. Such applications
may be
brought once a period of four years from date of sequestration has
lapsed on condition that a period of twelve months since
approval of
the first and final liquidation and distribution account has lapsed.
[10]
As mentioned,
in
casu
no
claims have been proved against the insolvent estate and consequently
s 124(3) applies which subsection reads as follows:
“
(3)
After the expiration of a period of six months as from the
sequestration of an estate, the insolvent concerned may apply to
the
court for his rehabilitation-
(a) if he has, not
less than six weeks before making the application, given to the
Master and to the trustee, if any, of his estate
notice in writing,
and published in the Gazette a notice of his intention to make the
application; and
(b) if, at the time
of making the application, no claim has been proved against his
estate; and
(c) if he has not
been convicted of an offence mentioned in paragraph (c) of subsection
(2); and
(d) if his estate
was not sequestrated under any law prior to the sequestration which
he desires to end.”
IV.
THE
FACTUAL MATRIX
[11] It is common
cause that applicant complied with the formalities prescribed by s
124(3) in that:
11.1 A period of six
months has lapsed since 2 December 2010;
11.2 He has given 6
weeks written notice to the Master and trustee (Mr Potgieter passed
on in the meantime and notice was given
to Ms Van Wyk);
11.3 Notice of
intention to apply for rehabilitation was also published in the
Gazette not less than 6 weeks prior to hearing of
the application;
11.4 No claims have
been proved against the insolvent estate;
11.5 He has not been
convicted of any of the offences referred to in s 124(2)(c) of the
Act;
11.6
He was not sequestrated prior to the present sequestration.
[12]
In order to understand the difficulty I have in granting relief, it
is regarded apposite to consider the history of the matter
and I
shall deal with that in the following paragraphs.
[13]
As mentioned, the matter first came before me on 13 March 2014
whereupon it was postponed to 17 April 2014. I ordered
as
follows:
“
1.
Die aangeleentheid word uitgestel na 17 April 2014.
2. Mev Van Wyk, die
kurator, moet volledig verslag doen aan die hof en die Meester voor
31 Maart 2014 en haar kuratorsverslag destyds
aan skuldeisers gestuur
aanheg met haar aanbevelings oor die bewys van eise.
3. Die Meester word
versoek om ‘n aanvullende verslag uit te bring na aanleiding
van die kuratorsverslag.
4.
Verlof word aan applikant verleen om sy stukke aan te vul.”
On
17 April 2014 the matter came before Ebrahim J who postponed it at
the request of applicant’s counsel to 24 April 2014
when the
matter was again considered by me. I considered the trustee and
Master’s supplementary reports, the application
papers as
amplified and counsel’s submissions whereupon I decided to
reserve judgment.
[14]
In order to achieve the acceptance of the surrender of his estate
applicant arranged for payment in the amount of R65 000.00
to be
made into the Guardians’ Fund at the Master’s office.
This cash amount was, as stated under oath, applicant’s
only
asset, notwithstanding the fact that he referred to himself as a
self-employed contractor who either worked for commission
or for his
own account. On his version he had no other assets. I
find it hard to believe that he did not even own a
wheelbarrow.
However this is water underneath the bridge as he was sequestrated.
[15]
In his statutory statement of affairs attached to his application for
voluntary surrender applicant stated under oath that
there were ten
creditors in his estate, five claims by Standard Bank in respect of
different accounts, one each by Absa, Nedbank,
Massmart (Game), RCS
debt collectors and a private person, Mr S Levin. The total
debts amounted to R448 339.18.
[16]
Everyone with knowledge of the rules of practice in the Free State
High Court would have no difficulty to understand what has
happened
here. This court has until May 2013 in terms of its rule 9(4)
approached provisional sequestration and voluntary
surrender
applications on the basis that the sequestration and administration
costs will amount to R20 000.00, unless proved
otherwise.
These costs include the taxed sequestration costs,
the trustee’s remuneration, Master’s
fees, security bond
premiums, advertisements costs to be incurred by the trustee and
ancillary costs. In order to show that
the sequestration would
be to the benefit of creditors proof is generally required in this
division that a dividend of 10c in the
Rand will be payable to
concurrent creditors.
[17]
Applicant stated under oath in his voluntary surrender application
that R65 000.00 less R20 000.00 equalled R45 000.00
and if this was divided by R448 339.18 (the total of the claims
of concurrent creditors as alleged) 10 cents in the Rand dividends
would be paid to concurrent creditors. He has been represented
in both applications for voluntarily surrender and rehabilitation
by
the same attorney, Mr JJM Coetzee of Bloemfontein. Obviously
the attorney made the calculations on behalf of his client
and he
also filed a confirmatory affidavit in support of applicant’s
founding affidavit. I have no doubt that Wright,
J, who granted
the voluntary surrender application, accepted the
bona
fides
of applicant and his attorney.
[18]
Although the applicant, corroborated by his attorney, stated under
oath on 24 November 2010 that the sequestration and administration
expenses could be taken to be R20 000.00, on 15 December 2010,
less than a month later, the bill of costs was taxed in an
amount of
R40 229.99 which is more than double the total amount of
sequestration and administration costs on which the calculations
were
made. The taxed costs eventually paid to the attorney amounted
to 62% of the total estate. All other costs pertaining
to the
administration of the insolvent estate still had to be added. I
am not concerned with a review of the taxation, but
need to reiterate
what I found in
Ex parte
Cloete
, application 1097/2013, a
judgment delivered on 5 April 2013. I mentioned in
Cloete
that information obtained from the Taxing Master indicated that bills
of costs in similar applications were taxed in the region
of between
R18 000.00 and R22 000.00. Immediately after that judgment
had been pronounced rule 9(4) referred to above
was amended in terms
whereof the amount of sequestration and administration costs was
increased from R20 000.00 to R30 000.00.
[19]
The reasons advanced in the supplementary affidavits in this
application to justify the excessive sequestration costs taxed
out in
the voluntary surrender application are unacceptable. At the
time when the affidavits in the voluntary surrender application
were
deposed to it must have been clear, if it was indeed the case, that
the costs would be enormous and much higher than usually
taxed out in
unopposed applications. The court was not informed accordingly
in 2010, but, instead, applicant’s
attorney relied
on the costs used as a benchmark as contained in rule 9(4) referred
to
supra,
being
R20 000.00. If Wright, J was informed of the excessive
amount that would be claimed as sequestration costs later,
he would
in all probability and bearing in mind the above practice not grant
the order for acceptance of applicant’s voluntary
surrender.
[20]
If applicant’s attorney really had to do all the work charged
for, the court should have been informed that the sequestration
and
administration costs would be much higher than usual in which event
the application might have been dismissed. I
do not
intend to consider each and every item in the bill of costs, but
shall concentrate on a few items by way of example.
Some items
do not have anything to do with the application, but with events
prior thereto. The attorney charged R2 556.00
for drafting
and finalising of the statement of affairs consisting of twelve pages
in addition to his consultation fee and fees
for perusal of detailed
information from the client and lists of creditors, R639.00 for
attendance
ad jurat
and
discussion of the statement of affairs and R516.00 for perusal of the
statement of affairs. The statement of affairs is
a printed
document also available as a soft copy on the internet and the only
information added thereto were the client’s
names and identity
number, cash of R65 000.00 (the asset), the names and addresses
of the ten creditors and the amounts of
their claims, the brief
reasons for insolvency and the client’s personal information
such as his wife’s names and his
marital status. Any
prudent typist could have inserted this information on the form
within fifteen minutes. The attorney
instructed counsel to
argue the application. Counsel’s fee is a moderate
R700.00. He also had to peruse the application
papers, but in
addition had to prepare for the hearing and await his turn in the
Motion Court. The attorney claimed R426.00
for consultation
with counsel to discuss the application before the hearing, but
strange as it may sound, counsel did not charge
anything.
[21]
My second greatest concern relating to the sequestration costs is
that the attorney charged R1 704.00 for attending Court
–
two hours in total – when the application was heard.
There is no reason why he should have attended court all
that time
especially when he perused the court roll earlier as he said he did.
However my greatest concern is the fees and
expenses claimed in
respect of letters written and received. This was a simple
application for voluntary surrender with a
cash amount on hand and
ten claims by five creditors. Applicant was under debt review
prior to the application and the names
and addresses of all creditors
would surely be known to him, or could easily be obtained from the
Magistrates’ Court or from
the particular debt counsellors.
It is not as if creditors never send out letters of demand or
statements of account.
Debtors often play hide and seek with
their creditors, but the converse is not true. The attorney
claimed in items 54 to
60 that he wrote letters containing 29 pages,
received letters containing 17 pages, sent and received 38 pages of
faxes, sent and
received 79 pages of e-mails, made 80 telephone
calls, received 19 calls and sent and received 7 SMS messages.
I find this
unacceptable and improbable. The total amount of
his fees and expenses in respect of these items only is R12 626.25
of which telephone calls made amounted to R7 536.00.
[22]
I am concerned about the excessive legal fees charged. It
appears that the attorney is guilty of overreaching notwithstanding
the fact that the bill of costs has been taxed and approved.
The attorney has pulled wool over the court’s eyes.
An
abuse of the process of voluntary surrender has taken place.
Applicant received relief which would probably not have been
granted
if the true facts were placed before the court. The Law Society
of the Free State should investigate the matter.
The
explanations in the supplementary affidavits filed at my request in
this application did not impress me at all.
It is matters like
these that have the public at large and politicians up in arms and
why the legislature considers measures all
the time to curb legal
costs as is
inter alia
apparent
from the Legal Practice Bill. Initially the trustees paid an
amount of R20 000.00 to the attorney towards his
fees and
expenses and the balance was only paid after the second meeting of
creditors when it was evident that no claims had been
proved.
Ms Van Wyk did not explain this strange behaviour although she was
not requested to do so. I can only assume
that there was indeed
a concern that creditors might object to the extraordinary high costs
and once it became clear that no claims
had been proved, the full
bill was settled.
[23]
In my view the correct approach to follow is that
of the Gauteng North Division of the High Court. Southwood, J’s
judgment,
writing for the full bench in
Ex
parte
Kelly
2008 (4) SA 615
(T), is with respect laudable. In view of the
importance of the matter I quote extensively from paragraphs 7 to
13:
“[7] …..
The total
fees claimed amounted to R37 742,21 and the total expenses claimed
amounted to R30 987,21: grand total R68 729,42 (instead
of the R9550
alleged in the application). At the taxation the trustee appointed in
the insolvent estate objected to the amounts
claimed in the two bills
of costs on the ground that they exceeded the amount of the legal
costs stated in the application for
surrender. The attorneys
contended that the figures alleged in the application merely provided
an indication of the legal costs.
After hearing argument the taxing
master allowed the amount alleged in the application together with
VAT: ie R10 887. This decision
gave rise to this review of taxation.
[8]
The applicant's notice of review in terms of rule 48 requests the
taxing master to prepare a stated case relating to the two
bills of
costs. The notice alleges that the taxing master erred -
(a)
By not taxing the bills but simply fixing a global amount for both
accounts; and
(b)
by not taxing the accounts in the normal course.
[9]
On 10 March 2006 the taxing master provided his stated case in which
he concedes that he erred in not taxing the bills and only
allowing
the fixed amount. He states that the bills of costs should be subject
to normal taxation in terms of rule 70 of the Uniform
Rules of Court.
Understandably, the applicant agrees.
[10]
In his report in terms of rule 48(5)(b) the taxing master expands on
his stated case. He refers to the principal contentions
of the
parties at the taxation which have been referred to. His view now is
that the correct approach is that the taxing master
must consider
each item of the bill presented to him and decide whether the amount
claimed is reasonable subject to an order by
the court limiting the
fees which the attorney can claim from the insolvent estate. Even in
that case the taxing master will consider
the individual items in the
bill. If the total of the fees and expenses is less than those
alleged in the application then that
is what the taxing master will
allow. If the total is greater than the fees and expenses alleged in
the application then only the
amounts alleged will be allowed.
[11]
Where the applicant's attorney presents to the court an
application for voluntary surrender or sequestration in which
allegations
are made that the costs of the sequestration will amount
to a stated figure, and the court grants that application, it does so
in the belief that those figures are correct and that the
dividend will be paid. Even though the court does not make an order
that the attorneys' fees and expenses are to be limited that is the
clear assumption on which the order is made.
It is therefore
essential that all funds received by the attorney from the applicant
and all funds held by the attorney on behalf
of the applicant and all
expenses incurred in connection with the application must be
disclosed.
[12]
In the light of the allegations in the application regarding the
attorneys' costs, and the necessity for limiting these costs to
arrive at the dividend alleged, the order must be understood to
contain such a limitation
- see Firestone South Africa (Pty) Ltd
v Genticuro AG
1977 (4) SA 298
(A) at 304D - H; Administrator, Cape,
and Another v Ntshwaqela and Others1990 (1) SA 705 (A) at 715F - I.
In addition the application must be understood to contain an
undertaking by the attorney to limit his fees and expenses to those
stated in the application. The attorney makes a representation to the
court that his fees and expenses in the application will
be limited
to those alleged. On the strength of that representation the court
grants the order. It would make a mockery of the
whole procedure if
the attorney could then claim other fees and expenses far exceeding
those alleged.
The present case is a good example. The two
attorneys now claim, as the costs of sequestration, almost seven
times the fees and
expenses alleged in the application. The trustee
points out that if the full amount of the bills of costs is allowed
concurrent
creditors will not receive any dividend and may have to
pay a contribution.
It also seems to be unprofessional conduct on
the part of the attorney to do this.
However it is not necessary
for present purposes to make a final finding in this regard.
[13]
Obviously it will lend certainty if the court granting a
sequestration order where the attorneys' fees are stated to be a
fixed figure orders that they be so limited for purposes of taxation.
But that does not detract from the finding that even in the
absence
of such an order they are to be limited as set out in the
application.
[14]
The application to review the taxation of the bill of costs is
dismissed and the allocatur is confirmed in the figure of R10
887.”
(emphasis added.)
[24]
Bertelsmann, J, in relying on the
Kelly
judgment
supra
severely
criticised the approach of legal representatives in voluntary
surrender and sequestration applications of relying on an
estimate of
costs to be taxed in future and suggested that it was unacceptable
and should no longer be allowed. See:
Ex
parte
Ogunlaja
[2011] JOL 27029
(GNP). The learned judge continued as follows
at paragraph 42 and 43 with which
dicta
I agree fully:
“
[42]
By making provision for a later taxation, the attorney introduces an
element of uncertainty into the process of calculating
the advantage
to creditors.
Empirical studies
have shown that bills of costs are presented for taxation that
reflect a multiple of the amount that was provided
for in the
application under oath
, and that was
factored into the calculation of the existence of an advantage to
creditors. This represents another
abuse
of the process of voluntary surrenders and unopposed sequestration
applications
.
Attorneys
who prepare applications of this nature
are
bound by the estimate presented in the papers as a realistic
expectation of the costs
involved in
the process, subject of course to the court’s power to limit
the legal representative’s costs to a lower
figure in order to
ensure a true advantage to creditors. [43] If the
procedure laid down in
Kelly
,
supra,
is
ignored in future, the court may be compelled to issue punitive costs
orders.” (emphasis added.)
[25]
Bertelsmann
et al,
Mars,
The Law of Insolvency in South Africa
,
9
th
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.
[26]
No trustee shall in future consent to taxation of an attorney’s
bill of costs in these kind of applications if it appears
that the
costs to be taxed would be more than the costs relied upon in the
particular application and the Taxing Master’s
attention is
particularly drawn to the full bench decision in
Kelly
supra.
The
Master and his personnel are expected to ascertain in each case when
a liquidation and distribution account is presented for
approval
whether there was indeed compliance with the prescripts set out
herein. This judgment should be brought to the attention
of all
Free State attorneys, members of the local Society of Advocates, the
Master and his personnel as well as all practitioners
that are being
appointed as trustees from time to time in this division. It is
untenable that misrepresentations are made
to judges, especially in
unopposed and
ex parte
matters,
thereby persuading them to grant orders which should never have been
granted. See:
Schlesinger v
Schlesinger
1979 (4) SA 343(W)
at
348E – 350C.
[27]
The applicant did not attend the first meeting of creditors although
he apologised for his absence. No claims were proved
at this
meeting. The Master decided to finally appoint the trustees in
the circumstances.
[28]
The second meeting of creditors was advertised to be held on 8 June
2011.
Ex facie
the
Master’s supplementary report, the trustees sent their report
to creditors on 27 May 2011 and less than the prescribed
period of at
least 14 days prior to this second meeting. Mr Potgieter who
apparently handled the day-to-day administration
of the estate
therefore caused the notices to creditors to be sent out of time.
The applicant failed to attend the second
meeting and did not tender
an apology.
[29]
The trustees’ report technically complied with s 81 of the Act,
but in my view they did nothing to appeal to creditors
to lodge
claims. Creditors were not informed that there was no
possibility of any contributions being payable should they
file
claims. Ms Van Wyk indicated in her supplementary report that
the position of the insolvent estate pertaining to assets
and
liabilities were set out fully in their trustees’ report.
These were the cash on hand in the amount of R65 000.00
and the
total amount of concurrent creditors in the amount of R448 393.18
I referred to above. However, there is no
indication in the
report as to the approximate sequestration and administration costs
and it would be impossible for any concurrent
creditor to ascertain
whether there would be a free residue and that dividends would be
payable. I would have expected the
trustees to report that
there was no fear of any contribution bearing in mind the costs known
to them at that stage. This
is a small estate and they should
have stated that at least R15 000.00 to R17 000.00 would be
available for payment of
dividends to those creditors that might
prove claims. The standard type of report, merely regurgitating
the wording of the
Act, was not in the interest of creditors.
It was reported that the insolvent did not keep any books or records.
I
find it astonishing that this was not investigated any
further and reported to creditors as the insolvent’s failure
might
even be a transgression of s 134 or even s 132 of the Act.
[30]
Ms Van Wyk became aware of a creditor, Mr S Levin, with a claim of
R76 967.02 who intended to prove his claim. In
her
supplementary report she stated that she informed the creditor that
he had to pay for the costs of a special meeting and ancillary
costs. Surely that would have discouraged any creditor to
request a special meeting insofar as there was no indication as
to
what the costs of the special meeting entailed and whether or not it
would be worthwhile for that meeting to be arranged and
a claim to be
proved. If detailed facts were provided Mr Levin would probably
have proved his claim and received a dividend
in excess of 20c in the
Rand if no other creditors proved claims.
[31]
R17 905.15 has been paid into the Guardians’ Fund, being
the amount available after deduction of all sequestration
and
administration costs. If applicant’s application for
rehabilitation is successful, this amount shall be paid to
him in
accordance with the provisions of s 116 of the Act. That being
the case, the only people that would have benefitted
from the
sequestration of his estate would be his attorney, the trustees and
applicant in particular. Such outcome is not
what the
legislature had in mind as it is no doubt so that sequestration must
primarily be to the benefit of creditors and not
insolvent persons.
V.
FURTHER STATUTORY PROVISIONS AND
LEGAL PRINCIPLES
[32]
I have already dealt with the provisions of s 124(3) of the Act and
shall in the next paragraphs deal with certain other provisions
and
legal principles laid down in the authorities. Section 129(1)
of the Act stipulates the consequences of rehabilitation
of an
insolvent person to be the following, i.e. (a) to put an end to his
sequestration or put otherwise, to eliminate his status
as insolvent,
(b) to relieve him of every disability resulting from the
sequestration and (c) most importantly, to discharge all
debts which
were due or the cause of which had arisen before sequestration and
which did not arise out of any fraud on his part.
Section
129(2) states that if a person is rehabilitated based on the
provisions of s 124(3) of the Act, such order shall have the
effect
of reinvesting the insolvent with his estate, the effect being,
in
casu,
that the amount of R17 905.15
in the Guardians’ Fund shall be paid out to applicant in
accordance with the provisions
of s 116 of the Act if his application
succeeds.
[33]
An insolvent has no right to be rehabilitated and the court’s
powers in this regard are clearly discretionary.
It may refuse
the application, postpone it or grant it, either unconditionally or
subject to certain conditions. See: s 127(2)
of the Act and
inter alia
Ex
parte
Fourie
[2008] 4 ALL SA 340
(D &CLD) at paras [22] to [25] and
Ex
parte
Le Roux
1996 (2) SA 419
(C) at 423 & 424. The essential enquiry is
whether in the light of all the relevant facts, i.e. the applicant’s
interests, the interests of creditors, whether or not they have
proved claims, and the commercial public at large, applicant is
a fit
and proper person to participate in commercial life free of any
constraints and disabilities. The onus is on the applicant
to
show that the discretion should be exercised in his favour.
[34]
Although our courts have over the decades accepted that certain
procedural defects in rehabilitation applications should be
regarded
as formal defects in terms of s 157(1) of the Act, the authorities
are clear that non-compliance with s 125 of the Act
is fatal.
In terms of this section an applicant must not less than three weeks
before applying to the court for his rehabilitation
furnish the
Registrar of the particular court with security in the amount of
R500.00 for the payment of the costs of any person
who may oppose the
rehabilitation and be awarded costs by the court. I refer to
the following authorities, although several
other judgments have been
reported in the law reports over the years:
Ex
parte
Van der Walt (1)
1964 (1) SA 234
(O) at 235B;
Ex
parte
Niedziella
1948 (2) SA 1024
(W) at 1025;
Ex
parte
Lewis
1990 (1) SA 480
(C) at 483B in particular;
Ex
parte
Elliot
1997 (4) SA 292
(W) at 294G and
Ex
parte
Van der Merwe
1963 (1) SA 268
(O) at 271. The section presents a requirement
totally independent of the other requirements applicable to
rehabilitation
applications in s 124(1), (2), (3) or (5) of the Act.
Thus, even when all proven claims have been paid in full (s 124(5),
or when no claims have been proved (s 124(3), security must be
furnished. In
Van der Walt
,
supra
,
Smit JP found that a postponement of the application for
rehabilitation to allow the period of three weeks to lapse “
…
will, however, not purge the default.”
In that case the application was brought in terms of s 124(5) of the
Act insofar
as creditors who had proved claims had been paid in
full. Although notice of the application to creditors was not
even a
requirement in such instance, as is the case today as well,
the court held that compliance with s 125 remained peremptory.
[35]
In
Ex parte
Mason
1981 (4) SA 648
(D&CLD)
Didcott J (as he then was) accepted that he was bound by the judgment
of the full bench of that province to the effect
that the requirement
of s 125 was peremptory and non-compliance therewith could not be
excused as a mere formal defect in terms
of s 157(1) of the Act.
He discussed the differences in approach as to whether the
application for rehabilitation should
merely be dismissed in such a
case, or rather be postponed in order to allow the three weeks period
to run its course. He
opted for the second option and adjourned
the application instead of dismissing it. I deal with the
learned judge’s
reasons
infra.
[36]
In
Muller v Vrystaat Ko-operasie Bpk
1967 (1) SA 334
(O) the applicant applied for rehabilitation and an
order declaring that certain immovable property, which he inherited
during
his insolvency, vested in him. Vrystaat Koöperasie
Bpk, by far the biggest creditor in the insolvent estate, failed to
lodge a claim against the insolvent estate, but opposed the
application for rehabilitation and the declaratory order. The
court found at 336A that the creditor failed to prove a claim against
the insolvent estate, that its claim had become prescribed
and that
it could not lodge any further claim against the estate.
Therefore it did not have a legal right to object to the
relief
sought as it was not entitled to share in the proceeds of the
inheritance. In
Ex parte
Grobbelaar
1977 (4) SA 584
(O) the above conclusion was criticised by two judges
of this division who declined to follow the judgment. The court
found
that all creditors, whether or not their claims were proved,
and also those creditors whose claims had become prescribed, were
entitled to be heard and to oppose the application for rehabilitation
and a declaratory order relating to vesting of assets in the
applicant.
[37]
In
Ex parte
Curry
1965 (1) SA 392
(C)
Watermeyer J was prepared to condone short notice of the application
for the rehabilitation as a formal defect and stated as
follows at
393B:
“
The
publication of notice in the Gazette is required for the information
of creditors. In this case no order is asked for vesting
any assets
in the applicant, so it would only be proved creditors who would be
interested in the application. But, as I have said,
no creditor
proved a claim in this estate, so it would seem that the object of
the section would not be defeated by the fact that
short notice was
given in the Gazette. It seems to me, therefore, that, in the special
circumstances of this case, I can regard
this as a formal defect, and
the rehabilitation will be granted.”
[38]
If it was really the intention of the legislature to assist creditors
in opposing applications for rehabilitation, it should
have been
mindful of the high costs of litigation and the fees generated by
attorneys and counsel in the High Court. Pretorius,
AJ, a former senior attorney with decades of experience of High Court
litigation, stated the following in
Ex
parte Theron
1999 (4) SA 136
(O) at
146F:
“
Dit
kan aanvaar word dat, inaggenome die bestaande Hooggeregshof tarief,
hierdie bedrag (the R500.00 security) beswaarlik ‘n
druppel in
die emmer sal wees.”
[39]
As stated a court has a discretion in accordance with the provisions
of s 127(2) of the Act to either dismiss an application,
or postpone
it or to grant the application unconditionally or subject to certain
conditions. In
Ex parte
Vermeulen
1934 WPD 178 the court
ordered that a further dividend be paid to a creditor who failed to
prove his claim, although the claim
had already become prescribed.
See also
Ex parte Matthee
1975 (3) SA 804
(O) at 810.
[40]
Section 44(1) of the Act may not appear to be relevant at this stage,
but bearing in mind the order that I have in mind, it
is quoted.
It reads as follows:
“
44
Proof of liquidated claims against estate
(1)
Any person or the representative of any
person who has a liquidated claim against an insolvent estate, the
cause of which arose
before the sequestration of that estate, may, at
any time before the final distribution of that estate in terms of
section one
hundred and thirteen, but subject to the provisions of
section one hundred and four, prove that claim in the manner
hereinafter
provided: Provided that no claim shall be proved against
an estate after the expiration of a period of three months as from
the
conclusion of the second meeting of creditors of the estate,
except with leave of the Court or the Master, and on payment of such
sum to cover the cost or any part thereof, occasioned by the late
proof of the claim, as the Court or Master may direct.”
VI.
EVALUATION OF THE APPLICANT’S
APPLICATION
[41]
I doubt whether applicant is a suitable candidate to be
rehabilitated, but I might have been prepared to, subject to what is
stated
infra,
grant an order of rehabilitation if the free residue of his estate
had been distributed amongst creditors, even if they received
as
little as five or ten cents in the Rand each. As it turned out
no one proved a claim against the insolvent estate.
It is not
the trustees’ obligation to lodge claims on behalf of
creditors, in particular the unwilling, careless and/or stubborn.
I am not convinced that the creditors could be labelled as such
in
casu
for the reasons advanced in
paragraphs 23 to 25
supra
.
[42]
Although creditors, especially financial institutions, are often
prepared to write off debs instead of incurring further costs
by
proving claims in the hope that mere minimal dividends be paid to
them, it cannot be disregarded that
in
casu
creditors did not receive proper
notice of the second meeting of creditors as the assistant Master
confirmed in the supplementary
report. One can just imagine,
with the short notice received by especially financial institutions
with their head offices
in Johannesburg, and bearing in mind the
magnitude and volumes of accounts held by them, that by the time the
notices came to the
attention of the relevant personnel there would
be no time left to complete claim documents and send them to
Bloemfontein timeously.
There is at least one creditor, a
private individual, Mr S Levin, who showed an interest in proving a
claim. However he was
in all probabilities discouraged and/or
could not take an informed decision in this regard insofar as he was
told to take responsibility
for the costs to be incurred without
knowing the extent of such costs and the probable dividend that might
be payable to him.
[43]
Although the trustees’ report to creditors complied strictly
speaking with the provisions of s 81(1) of the Act, I find
the
following disturbing and am of the view that the reasonable creditor
reading the report, which was circulated later than stipulated
in s
81(1) bis, would not be able to take an informed decision whether or
not to prove a claim:
43.1 It is
clearly stated that the amount due to preferent creditors was unknown
and therefore none of the concurrent creditors
would be in a position
to consider whether it would be worthwhile to prove a claim.
43.2 The
trustees failed to establish whether or not books and records were
kept by applicant. He was a contractor,
being paid commission
and apparently from time to time working for his own account,
although he was also unemployed at a stage
prior to his insolvency.
However in terms of the provisions of s 134 of the Act, he was most
probably a person that might
reasonably be expected to keep record of
his transactions. It must therefore be accepted that the
trustees failed to investigate
if commission and/or other amounts
were due to the insolvent at that stage.
43.3
The estate consisted of R65 000.00 cash only and was really one
of those that should never have been sequestrated if the
high legal
costs are considered. The sequestration and administration
costs were known or could reasonably have been ascertained
by the
trustees at the stage when the report to creditors was circulated.
It would be appropriate to inform creditors that
there was no fear of
a contribution being payable by those who proved claims, but this
they failed to do.
[44]
The applicant and his wife are still residing in the same dwelling,
to wit 19C Milner Road, Bayswater, Bloemfontein.
They live in
an upmarket neighbourhood. On his version he did not own any
assets, save for the cash amount of R65 000.00,
when his
application for voluntarily surrender was accepted. On his own
version he still owns no assets at all, save for
clothing to the
value of R2 000.00. He earns a gross monthly salary of
R30 000.00 and his wife has an income of
R1 200.00 per
month. It is apparent that they have children and that they can
afford a domestic servant. Applicant
is still a contractor as
was the case in 2010 when he was sequestrated.
[45]
There is no indication on the papers who is the owner of the
immovable property and household goods and furniture. When
applicant was sequestrated the property of his wife, with whom he is
married out of community of property, vested in the trustees
until
such time as it was released in accordance with the provisions of s
21 of the Act. There is no indication as to what
transpired
after sequestration and/or whether s 21 has been properly complied
with in the circumstances. It is not known
what the extent of
the wife’s separate estate was in 2010 and what it is today.
On all probabilities much of the debt
incurred by applicant was to
support his family and to purchase household goods and other movable
assets. Chances are that
his wife has accumulated a reasonable
estate to the detriment of applicant’s creditors. This
should have been investigated
by the trustees. Applicant is
directed to make a full and detailed disclosure in this regard.
The family’s monthly
fuel expenditure is R2 000.00, but
there is no word said about the mode of transport and/or ownership in
vehicles. I
find it hard to believe that applicant can carry
out his work as contractor without transport, or is it a case where
assets have
been acquired through a trust, company or close
corporation? The circumstances call out for answers.
[46]
It appears to me as if it is business as usual for applicant and his
wife. Nothing has changed insofar as their situation
is
concerned, except that the applicant got rid of debts close to half a
million Rand. I am not at this stage convinced that
applicant
has learnt the lessons of insolvency or that he has an appreciation
for the hardship his insolvency has caused creditors
and especially a
private individual such as Mr Levin. My attitude may change if
all available funds in the insolvent estate,
less costs to be
incurred, are distributed to creditors and if applicant is prepared
to supply more detail with reference
to what I mentioned
herein.
[47]
It is possible that applicant may argue and/or request his trustee to
object to the proving of claims by creditors at this
stage in that
their claims have become prescribed. He has a reversionary
right in the estate insofar as if no claims are
proved and he is
eventually rehabilitated, he would be entitled to the balance left in
the Guardians’ Fund. Whoever
of my colleagues might deal
with the application in future, will consider the application bearing
in mind the wide discretion with
whom he or she is clothed, but
speaking for myself, such action will not advance applicant’s
case.
[48]
No creditors proved any claims against the insolvent estate
in
casu
and I would be prepared to align
myself with the judgment in
Muller
,
supra
, but
I am bound by the
Grobbelaar
judgment. I am of the view that applicant’s creditors
have no right to oppose the application for rehabilitation and
it
would be non-sensical
in casu
to rely on strict compliance with s 125 of the Act based on the
aforesaid
dictum
of De Villiers J in
Muller
,
supra
.
However, as was the case with Didcott J, I am bound by the
stare
decisis
doctrine, but believe that this
issue should be reconsidered in the appropriate forum soon in an
endeavour to do away with an impractical
requirement. The
absence of any proved claims was the reason for condoning the defect
in
Ex parte
Curry
,
supra
.
In my view logic dictates that this reasoning should be applied to
non-compliance with s 125. I fail to understand
why
non-compliance with the requirement of s 125 can never be excused,
alternatively why an application may not be postponed to
allow the
three week period to expire.
[49]
Rule 70 of the Uniform Rules of Court stipulates that the prescribed
fee for taking of instructions by an attorney is R235.00
per 15
minutes or R940.00 per hour to which 14% VAT has to be added
amounting to R1 072.00 for an hour’s consultation.
On all probabilities no attorney will be prepared to become involved
in opposed litigation on behalf of a client in the High Court
based
on security of R500.00 provided for in s 125 without financial
backing or the payment of a substantial deposit. Few,
if any,
creditors will be prepared to take the chance of instructing an
attorney to oppose an application for rehabilitation on
their behalf
solely based on the possibility that they might be entitled to recoup
an amount as small as R500.00 if successful.
In
casu,
as is the case in most other
applications for rehabilitation, the applicant has still no assets
and a costs order against him would
be meaningless. Only those
creditors with the financial means and appetite to become embroiled
in opposed litigation in the
High Court, based on principle as the
saying goes, may decide to oppose rehabilitation applications. I
agree fully with the
remark of Didcott J in
Mason
,
supra
, at
648G that
“…
no
modern creditor seems likely to think much of the security demanded,
or to set great store by it when he makes up his mind whether
or not
to enter the lists.”
I
also endorse his approach at 651C, i.e.
“
The
creditor who is not a character from some fairy tale protects his
interests by keeping in touch with the application’s
progress
and, once his opposition to it is serious, by joining the fray.”
In
any event one very seldom comes across opposed rehabilitation
applications
per se
,
although applications for rehabilitation where vesting of assets in
the applicants are sought, are opposed from time to time.
[50]
Initially the Act provided for security to be given in the amount of
£25, or put otherwise, R50.00. In 1981 this
amount was
increased to R500.00. This is 33 years ago and the present day
value of R500.00 is R7 377.00 according to
the actuaries Human
and Morris quoted by Christo Potgieter in
The
Quantum of Damages in Bodily and Fatal Injury Cases
:
Quick Guide: Quantum Conversion
Tables and Medical Diagrams
, 2014
ed. at 202. If security in such amount was to be furnished, it
might be argued that s 125 deserved to be retained as
a requirement
and adhered to strictly. Presently it is meaningless and places
an unnecessary obstacle in the path of applicants
whose applications
for rehabilitation should rather be considered based on substance
instead of technicalities which is too often
the case. Even if
the section is to be retained, it is high time that the effect of
non-compliance therewith be reconsidered
on the basis that such
non-compliance might be condoned in terms of s 157(1), especially
where claims have been paid in full or
where no claims have been
proved against the insolvent estate.
[51]
In addition, it is surely not primarily the responsibility of
creditors to oppose applications for rehabilitation. If
the
trustee of an insolvent estate has properly complied with his
functions and reported fully to the Master and creditors in respect
of the administration of the insolvent estate, the trustee and/or the
Master would be in a much better position than any creditor
to place
relevant facts before the court without having to incur legal fees in
opposing the application in order for it to exercise
its discretion
judicially.
[52]
By the time this application was heard on the 24
th
April 2014 a further five weeks had expired since the initial
application date, to wit the 13
th
March 2014 on which earlier date a period of three clear weeks had
not lapsed since the filing of security. However by the
24
th
April 2014 the period of three weeks has expired. If
non-compliance with s 125 was my only concern on the 13
th
March 2014, I would have followed the course adopted by Didcott J in
Mason
,
supra
, as
I am convinced that his criticism of the leading judgment in this
division by Smit JP in
Van der Walt
,
supra
, is
valid. I am of the opinion, for the reasons advanced by Didcott
J in
Mason
,
supra
, at
650C-E and 651A-F, that
Van der Walt
has been decided incorrectly.
[53]
I am not prepared to grant applicant’s application for
rehabilitation and in the process being instrumental in him receiving
an amount of R17 905.15 which should in the first place have
been distributed to his creditors. However there is no
reason
to dismiss the application at this stage.
[54]
There is no application before the court for an order in terms of the
proviso
to
s 44(1) of the Act. Bearing in mind the wide discretion
afforded me, it appears to be appropriate to postpone the application
for rehabilitation for a certain period with instructions to the
trustee to hold a special meeting of creditors and timeously inform
all creditors of such meeting with an invitation to file their
claims. Creditors should in particular be informed that there
is no fear of a contribution being payable, that R17 905.15 less
the costs of holding the special meeting as well as redrafting
of the
liquidation and distribution account and ancillary costs, an estimate
of such costs to be provided, is available for distribution
as
dividends. This will enable creditors to make informed
decisions as to the amount of the free residue available for
distribution
as dividends. In particular, the creditor Mr Levin
should be contacted through his attorneys, Messrs Lovius Block.
The costs to be incurred by the trustee shall be paid from the
available funds kept in the Guardians’ Fund and creditors
should be advised accordingly.
VII.
ORDER
[55]
Wherefore the following orders are made:
1.
The application is postponed to 27 November 2014.
2.
The trustee is directed to forthwith convene a special meeting of
creditors in accordance with the directions set out in paragraph
54
of this judgment.
3.
The trustee and the Master are directed to file supplementary reports
before the next hearing of the application and leave is
granted to
applicant to supplement his papers.
4.
The Registrar is directed to forward a copy of this judgment to the
Chief Executive Officer of the Law Society of the Free State
to
enable the Society to investigate and to take appropriate action
against applicant’s attorney, if so required, particularly
in
respect of the comments in paragraphs 14 to 26 of the judgment.
5.
The Registrar is also directed to forward copies of this judgment to
the Master and the trustee, Ms EM van Wyk.
_____________
J.P.
DAFFUE, J
On
behalf of applicant: Adv JC Coetzer
Instructed
by:
JJM
Coetzee
Victor
Coetzee Inc
BLOEMFONTEIN