Brief Summary

Insolvency — Sequestration — Requirements for final sequestration — Applicants sought final sequestration of the respondents' estates based on claims of R293 437,22 — Respondents had published notices of voluntary surrender of their estates, constituting acts of insolvency — Court satisfied that respondents were factually insolvent with liabilities exceeding assets by R1 095 443,00 — Court held that sequestration would be to the advantage of creditors, as there was a reasonable belief that a significant dividend would be available — Final sequestration order granted.

Comprehensive Summary

Summary of Judgment

Introduction

These were two applications for final sequestration of the estates of spouses who were married out of community of property, heard together for convenience. The proceedings followed on provisional sequestration orders and the issuing of rules nisi calling upon the respondents and interested parties to show cause why the estates should not be finally sequestrated.

The applicants in both matters were Brian Lambert Kurz N.O. and Mark John Perrow N.O., acting in their capacities as trustees of the Ekuthuleni Trust. The respondents were Jennifer Ann van den Berg (case no. 10598/12) and Jan Albert Jacobus van den Berg (case no. 10600/12), referred to in the judgment as Ms and Mr van den Berg.

Procedurally, after the respondents had published notices of surrender of their respective estates, the court granted provisional sequestration on 22 March 2013 and issued rules nisi. The return date was extended at the respondents’ request. Argument on whether the rules nisi should be confirmed (final sequestration) or discharged (dismissal) was heard on 8 May 2013, with judgment delivered on 17 July 2013.

The dispute concerned whether the statutory requirements for final sequestration under the Insolvency Act 24 of 1936 had been met. The applicants relied principally on a taxed costs debt owed to the Trust, and on the respondents’ own conduct and disclosures (including notices of surrender and statements of affairs) to establish both insolvency/acts of insolvency and advantage to creditors. The respondents opposed final sequestration and pursued counter-applications containing wide-ranging relief.

Material Facts

The respondents, as spouses married out of community of property, each published a notice of surrender of their respective estates on 22 June 2012. These publications were relied upon by the court as objective conduct communicating an inability to pay debts.

The applicants (as trustees for the Ekuthuleni Trust) asserted that the respondents were jointly indebted to the Trust in the sum of R293 437,22, arising from allocaturs of taxed costs orders made in prior litigation between the parties. On the applicants’ formulation, this resulted in a claim of at least R146 718,61 against each respondent. The court treated the debt as a liquidated claim for purposes of sequestration.

Although the respondents indicated an intention to challenge the allocaturs, the court noted that in a lengthy answering affidavit the amount was not mentioned, nor was it suggested that the calculation was inaccurate. Further, the respondents’ own list of creditors reflected the Trust’s claim as slightly higher (about R293 518,00), and the debt had already been included in the respondents’ statement of affairs furnished in relation to the published notices of surrender.

In addition to the notices of surrender, the court relied on the fact that after service of a warrant of execution for payment of R200 803,59 plus costs, the respondents were unable to satisfy the judgment debt and were unable to identify disposable property sufficient to meet it. This fact was treated as further conduct evidencing inability to pay.

The respondents’ own statements of affairs, lodged with the Master as required for voluntary surrender, reflected that their collective liabilities exceeded their assets by R1 095 443,00. Mr van den Berg’s affidavits expressly stated that both estates “jointly and severally” had been rendered insolvent and quantified the shortfall at approximately that figure. The court treated these disclosures as material to the question of factual insolvency.

On advantage to creditors, the statements of affairs indicated the existence of an immovable property valued at approximately R1 375 000,00, mortgaged to Standard Bank, and unencumbered assets valued at R371 848,00, including the surrender value of an endowment policy. Concurrent creditors were reflected as being owed about R1 162 982,00. It was also not disputed that goods of substantial value (estimated by the respondents at about R189 310,00) had already been attached.

Legal Issues

The central legal questions were whether the applicants had satisfied the requirements for a final sequestration order under section 12 of the Insolvency Act 24 of 1936, namely whether the court was satisfied that the applicants had established: a qualifying liquidated claim; that each debtor had committed an act of insolvency or was insolvent; and that there was reason to believe sequestration would be to the advantage of creditors.

The dispute largely concerned the application of legal standards to facts rather than the resolution of sharply contested primary facts. The respondents’ opposition raised issues about the status of the costs claims (including a contention that review proceedings concerning taxation rendered sequestration premature) and broader complaints about the applicants’ litigation conduct. The court treated those broader contentions as not materially bearing on the statutory sequestration enquiry.

A further issue, arising in the context of opposition, was whether the respondents had advanced bona fide facts which, if proved at trial, would constitute a substantive defence to the applicants’ claim(s), sufficient to justify refusal of final sequestration.

Court’s Reasoning

The court approached the matter as governed at the final stage by section 12 of the Insolvency Act, requiring satisfaction on the three jurisdictional facts: a qualifying claim, insolvency (by act or fact), and advantage to creditors.

On the quantum and existence of a liquidated claim, the court accepted the applicants’ reliance on taxed costs allocaturs as constituting a liquidated debt, and considered it significant that the respondents’ papers did not meaningfully dispute the amount. The court further placed weight on the respondents’ own documentation (including their list of creditors and the statement of affairs filed for voluntary surrender) reflecting the Trust’s claim in approximately the same amount. On this basis, the court was satisfied on a balance of probabilities that each applicant had established a qualifying liquidated claim exceeding the statutory minimum.

On acts of insolvency, the court regarded the publication of notices of surrender as a clear act of insolvency. It reasoned that by publishing such notices in the Government Gazette and a newspaper, the respondents gave written notice to creditors that they were unable to pay their debts, satisfying the statutory conception of an act of insolvency under section 8(g). In interpreting the effect of the notices, the court adopted an objective approach consistent with the notion of how a reasonable reader (with the creditor’s knowledge attributed to that reader) would understand such a publication.

The court also relied on the respondents’ inability, after service of a warrant of execution, to satisfy the judgment debt or to identify sufficient disposable property. It treated this conduct as an additional act of insolvency falling within the statutory framework discussed in the authorities cited.

In addition to acts of insolvency, the court held that the evidence supported factual insolvency. The court emphasised that the respondents themselves had presented statements of affairs in the voluntary surrender context, and those statements reflected liabilities exceeding assets by over R1 million. Mr van den Berg’s affidavits were understood as express admissions of insolvency and of the approximate deficit, reinforcing the conclusion that the respondents were in fact insolvent.

On advantage to creditors, the court applied the principle that a creditor need show only “reason to believe” that sequestration would benefit creditors, and that it is not necessary for the petitioning creditor to prove actual advantage. The court contrasted this with voluntary surrender, where the debtor bears a heavier burden to demonstrate actual advantage and sufficient realisable property to cover sequestration costs.

The court evaluated the respondents’ assets and liabilities as disclosed in their statements of affairs. It accepted that the respondents had unencumbered assets (including the endowment policy value) and considered the likely position of Standard Bank as a secured creditor in respect of the mortgaged immovable property. On the applicants’ calculations (allowing for sequestration costs in the region of R50 000), the court accepted that a dividend of approximately 26,6 cents in the rand to concurrent creditors would be available, which it regarded as a significant (not negligible) dividend justifying sequestration. The court further observed that the attached goods (valued at around R177 000 to R189 310) could increase the dividend substantially, although it held that even the lower dividend was sufficient.

The respondents’ contention that final sequestration was premature because review proceedings concerning the allocaturs were pending was rejected. The court applied the approach that to resist final sequestration a respondent must in good faith set out facts which, if proved, would constitute good defences to the claim(s). It emphasised that for the petitioning creditor it is sufficient to establish a single claim above the statutory minimum, and that even a substantial reduction in the taxed costs could not plausibly reduce the multiple costs orders below the minimum threshold. The court characterised the prematurity argument as an attempt to create a tenuous ground for delaying or refusing a final order.

Finally, the court noted that further affidavits filed after the provisional order did not demonstrate any relevant change since provisional sequestration, and it accepted the applicants’ submission that no new issues of fact or law had been raised. The court also recorded its disapproval of what it described as a malicious, vexatious, and unduly litigious stance in the respondents’ papers and counterclaims, but declined to impose punitive costs because such an order would prejudice the body of creditors. Given the tenor and content of the respondents’ annexures and correspondence, the court directed that a copy of the judgment be placed before the Judge President.

Outcome and Relief

The court granted final sequestration orders in both matters, placing each respondent’s estate under final sequestration in the hands of the Master of the High Court.

In each case, the court ordered that the costs of the sequestration application be costs in the sequestration. The respondents’ counter-applications were dismissed with costs.

The registrar was directed in both matters to ensure that a copy of the judgment was placed before the Judge President of the Division.

Cases Cited

FirstRand Bank v Evans 2011 (4) SA 597 (KZD).

Natalse Landboukooperasie Bpk v Moolman 1961 (3) SA 10 (N).

Helderberg Laboratories CC v Sola Technologies (Pty) Ltd 2008 (2) SA 627 (C).

Gungudoo and Another v Hannover Reinsurance Group Africa (Pty) Ltd and Another 2012 (6) SA 537 (SCA).

Legislation Cited

Insolvency Act 24 of 1936 (sections 4, 4(3), 6(1), 8(g), 9(1), and 12).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the applicants had proved the statutory requirements for final sequestration under section 12 of the Insolvency Act 24 of 1936. It found that the applicants had established a qualifying liquidated claim against each respondent, that the respondents had committed acts of insolvency (including by publishing notices of surrender and being unable to satisfy a warrant of execution), and that the respondents were in any event factually insolvent based on their own statements of affairs.

The court further held that there was reason to believe sequestration would be to the advantage of creditors, because the disclosed unencumbered assets and attached goods indicated a significant dividend for concurrent creditors after costs. It rejected the respondents’ prematurity argument based on a pending review of allocaturs and concluded that the opposition disclosed no bona fide defence sufficient to avoid final sequestration. Final sequestration was granted in both matters, the counter-applications were dismissed with costs, and the costs of the sequestration applications were made costs in the sequestration.

LEGAL PRINCIPLES

A court may grant final sequestration under section 12 of the Insolvency Act 24 of 1936 only if satisfied that the petitioning creditor has a qualifying claim, that the debtor has committed an act of insolvency or is insolvent, and that there is reason to believe sequestration will be to the advantage of creditors.

The publication of a notice of surrender constitutes an act of insolvency because it amounts to written notice to creditors of inability to pay debts, assessed objectively from the perspective of how a reasonable reader would understand the notice.

For the advantage to creditors requirement in compulsory sequestration, the applicant need not prove actual advantage; it suffices to establish reason to believe creditors will benefit, commonly demonstrated by the prospect of a not negligible dividend after sequestration costs.

In opposing final sequestration, a respondent is required in good faith to set out facts which, if proved, would constitute a substantive defence to the applicant’s claim(s). The existence of collateral challenges (such as intended or pending review proceedings concerning taxation) does not, without more, preclude sequestration where the statutory minimum claim requirement is clearly met and the debtor’s insolvency and advantage to creditors are established.

Kurz NO and Another v van den Berg, Kurz NO and Another v van den Berg (10598/12, 10600/12) [2013] ZAKZPHC 51 (17 July 2013)