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[2012] ZAKZPHC 66
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In the Ex Parte application of: Arntzen (2333/2012) [2012] ZAKZPHC 66; 2013 (1) SA 49 (KZP) (28 September 2012)
1
REPORTABLE
CASE NO: 2333/2012
IN THE KWAZULU-NATAL HIGH COURT, PIETERMARITZBURG
REPUBLIC OF SOUTH AFRICA
In the Ex Parte application of:
GLEN MURRAY ARNTZEN
..............................................................
Appellant
NEDBANK LIMITED
.........................................................
Intervening
Creditor
___________________________________________________________
JUDGMENT
___________________________________________________________
GORVEN J
This application is for an order sequestrating the
estate of the applicant by way of voluntary surrender in terms of
the provisions
of sections 3 to 6 of the Insolvency Act 24 of 1936
(the Act). It was brought on an
ex parte
basis. Nedbank
Limited (Nedbank) was granted leave to intervene as an interested
party, being the major creditor of the applicant.
It is not in issue
that s 4 of the Act was complied with, save that the Act
provides that the notice of surrender must be
posted to the South
African Revenue Service (SARS) whereas the application, including
the notice, was served at the offices of
SARS. This is a formal
defect as envisaged in s 157(1) of the Act. It was conceded
that there had been substantial compliance
and certainly no
substantial injustice resulted. Nothing further therefore need be
said on the matter.
The test for voluntary surrender applications is set
out in Section 6 (1) of the Act which, apart from requiring
compliance with
s 4, provides as follows:
‘
If the court is satisfied … that the
estate of the debtor in question is insolvent, that he owns
realisable property of a
sufficient value to defray all costs of the
sequestration which will in terms of this Act be payable out of the
free residue of
his estate and that it will be to the advantage of
creditors of the debtor if his estate is sequestrated, it may accept
the surrender
of the debtor's estate and make an order sequestrating
that estate.’
There is no dispute that the estate of the applicant is
insolvent. That leaves two issues for determination before the
discretion
granted by s 6(1) can be exercised. The first is to
determine whether the applicant owns realisable property sufficient
to defray all costs of the sequestration and the second is to
determine whether the sequestration of the applicant’s estate
will be to the advantage of creditors.
Both of these aspects require the court to be
satisfied. The applicant must discharge the onus to satisfy the
court on a balance
of probabilities. In particular, the test
relating to advantage to creditors is more strictly framed than that
for the provisional
sequestration of a debtor's estate which only
requires the court to be of the opinion that
prima
facie
there is reason to believe that it
will be to the advantage of creditors if the estate is
sequestrated.
1
It is also more strictly framed than that for the final
sequestration of a debtor's estate which only requires the court to
be
satisfied that there is reason to believe that it will be to the
advantage of creditors if the estate is sequestrated.
2
In s 6(1), the court must be satisfied that it
will be to the advantage of creditors if the debtor's estate is
sequestrated.
Courts have long required an applicant in voluntary
surrender applications to make a full and frank disclosure.
3
This arises at least in part from the stringent test
referred to above. It is quite clear that without a full and frank
disclosure,
the court cannot be ‘satisfied’ as to the
above two criteria in particular. The required high level of
disclosure
is also affected, in no small measure, by the fact that
the application is ordinarily brought on an
ex
parte
basis as is the present one. There is
ample authority that applications brought on that basis require the
utmost good faith.
4
The principles were succinctly stated by Le Roux J in
Schlesinger v Schlesinger
5
in a rescission application as follows:
‘
(1) in
ex
parte
applications all material facts
must be disclosed which
might
influence a Court in coming to a decision;
the non-disclosure or suppression of facts need not be wilful or
mala fide
to incur the penalty of rescission; and
the court, apprised of the true facts, has a discretion to set aside
the formal order or to preserve it.’
In voluntary surrender applications, the need for full
and frank disclosure is accentuated by the fact that, despite the
practice
of such applications being brought on an
ex
parte
basis, they do not fulfil the criteria
for true
ex parte
applications.
In true
ex parte
applications
the applicant is the only person who is interested in the relief
which is being claimed. In such applications, notice
only to the
registrar of the court is required.
6
In voluntary surrender applications, on the other hand,
creditors, to name only one category of persons, have a very real
interest
in the outcome of the application. For them the outcome of
the application spells the difference between the prospect of
recovering
the applicant’s full indebtedness and the prospect
that recovery will be reduced by virtue of sequestration.
This is presumably why, in voluntary surrender
applications, notice to creditors is required. Unlike the situation
where the creditor
is cited as a respondent in an application,
however, service of the application papers is not required.
7
Neither do creditors have the same time available to
decide whether or not to oppose the application. Two forms of notice
are
given to creditors. First, the notice of surrender in the
statutory form which advises of the date of the application and the
date from which a statement of the applicant's affairs will lie for
inspection at the relevant office or offices must be published
in
the Government Gazette and a newspaper circulating in the district
in which the applicant resides. The publication must take
place not
more than 30 days and not less than 14 days from the date of the
application. Secondly the notice of surrender giving
the same
information must be delivered or posted to each creditor whose
address is known within 7 days of publication in the
Gazette.
Depending on when they receive the posted or delivered notice, and
depending on whether the applicant has published
only 14 days prior
to the application, creditors may only be left with a few days to
inspect the statement of the applicant's
affairs so as to decide
whether or not to intervene in the application.
From this, it is clear that in voluntary surrender
applications creditors are required to be more alert, proactive and
must respond
more quickly in assessing whether or not to intervene
than if they had been a party to the application. If they wish to
form
a clear view of the application, they need to inspect the
statement of affairs and, if this does not provide sufficient
detail,
to locate and inspect the application itself, all within a
limited time period. This contrasts with the position in a normal
application where the respondents receive service of the application
papers and all that they need to do is to read the papers
in order
to form the same view. It does not require great imagination to
realise that many, if not most, creditors do not have
the resources
to routinely and timeously follow up on notices of surrender sent to
them by post. Even if they follow up, they
may well decide that it
is not worth throwing good money after bad by intervening and
opposing the application. This may be particularly
so in relatively
small estates where their prospect of recovering legal costs, even
if they successfully oppose the application,
is remote. This renders
creditors peculiarly vulnerable to voluntary surrender applications
which, at a superficial level, make
out a case that sequestration is
inevitable. In such a case an overburdened court, confronted with an
unopposed application,
may not scrutinise the application as
carefully, and thus become aware of material non-disclosures, as it
would do if it were
opposed. A further reason for requiring a higher
level of disclosure in voluntary surrender applications, is that an
outright
order can be given on the first appearance in court
whereas, in most sequestration applications, a provisional order
precedes
a final order in a two stage process.
Just over a decade ago, the various divisions of the
High Court ‘cracked down’ or ‘tightened up’
on so-called
friendly sequestration applications which were
described as beginning to constitute a ‘cottage industry’.
8
In
Mthimkhulu
it
was said that, in many cases, there was ‘a very grave
suspicion of collusion’.
9
As a result, practice guidelines were laid down in this
division for such applications.
10
In essence what was required was full and frank
disclosure along with clear proof of the necessary facts. The proof
of the indebtedness
giving the applicant
locus
standi
generally required documentary proof.
In addition, a full and complete list of the assets of the
respondent was required, including
a valuation by a qualified person
containing cogent reasons for arriving at the valuation, both for
movable and immovable property.
As was commented at the time, the
claimed value of household furniture and effects and second hand
motor vehicles, which were
often relied upon to constitute an
advantage to creditors, often bore ‘no relationship to their
true value’.
11
Reference was made to the number of matters where a
final order was granted and ‘the friendly creditor makes no
effort to
have a trustee appointed or to prove his claim, no
creditor takes steps to prove a claim because of a fear of
contribution, the
debtor waits for the dust to settle and with his
old creditors off his back carries on business as normal’.
12
In situations such as this, the sequestration of the
debtor’s estate cannot be said to have been to the advantage
of creditors.
Such applications constitute an abuse of the process
of court and undermine the rights and interests of creditors. The
only person
who benefits is the debtor, often at the expense of
creditors.
Voluntary surrender applications have begun to
proliferate in this division. A fledgling cottage industry has
reared its head.
As was the situation with ‘friendly’
sequestrations in
Mthimkhulu
, many of these take a standard
form with almost identical averments and are drafted by a small set
of attorneys who have chosen
to specialise in such applications. In
most cases the estate is small, as is the case in the present
application. In many of
them, confronted by the requirement that all
the costs of sequestration must be defrayed from the estate and it
must still be
shown that sequestration would be to the advantage of
creditors, a formula has arisen to reduce these costs. The applicant
states
that a friend or relative has undertaken to pay the costs of
the applicant’s attorney and that the attorney concerned will
not look to the estate for his or her costs. Just such an averment
is made in the present application.
I take the view that there is an even greater risk of
abuse and a risk that the interests of creditors will be undermined
in voluntary
surrender applications than in ‘friendly’
sequestration applications. Therefore the need for full and frank
disclosure
and well founded evidence concerning the debtor’s
estate is even more pronounced. There are a number of reasons for
this,
some of which have been foreshadowed in the discussion above.
I shall mention only some. First, the applicant tends to focus on
the formal requirements of s 4 of the Act and does not seem to
appreciate the need to satisfy a more rigorous test than
for
sequestration applications at both provisional and final stages as
regards advantage to creditors. Secondly the court must
perforce, in
most instances, rely on the founding papers. This brings into play
the peculiar characteristics mentioned above
of voluntary surrenders
being brought as
ex parte
applications. Thirdly, no collusion
between friendly creditor and debtor is necessary since it is the
debtor who is the applicant
and has a more direct interest in the
application succeeding and understanding of the genuine position
than the friendliest of
creditors. Voluntary surrender applications
therefore require an even higher level of disclosure than do
‘friendly’
sequestrations if the court is to be placed
in a position where it can arrive at the findings and exercise the
discretion set
out in s 6(1) of the Act.
It is therefore appropriate, at the very least, to
require compliance with those guidelines set out in
Mthimkhulu
13
which can be applied to voluntary surrender
applications. Where documents are available to support the averments
made, these should
be put up. Courts should require admissible
evidence in support of these applications rather than bare averments
by the applicant
or pieces of paper supposedly supplied by persons
who express opinions on the value of assets unsupported by
affidavits, cogent
reasoning or relevant qualifications. Adapting
what was said in relation to ‘friendly’ sequestration
applications
by Conradie J,
14
‘
a Court should be forgiven for requiring rather
more…[in making out a case]…than it might otherwise
do’. An
applicant ‘should present sufficiently detailed
evidence to satisfy a sceptical Court’
15
that he has satisfied the requirements of s 6(1)
of the Act and that the discretion of the court should be exercised
in favour
of the applicant. As was said by Holmes J, ‘The
machinery of voluntary surrender was primarily designed for the
benefit
of creditors, and not for the relief of harassed debtors.’
16
In the founding affidavit, the simple case is made out
that the applicant has two assets; an immovable property and a motor
cycle.
He says their values are R650 000 and R33 500
respectively, giving total assets of R683 500. Against this he
states
that his total indebtedness is R828 888.85. Nedbank is
owed R746 584.88 from 4 accounts, of which R524 535.32 is
secured by a mortgage bond and the rest of his creditors are
together owed R82 303.97. He states the costs of sequestration
to be R45 495. He therefore calculates that, after the secured
debt is satisfied and the costs of sequestration deducted,
a sum of
R113 469.68 will remain to meet concurrent creditors’
claims of R304 353.53, giving a dividend of just
over 37 cents
in the rand. Nedbank gives a different picture. It puts up a sworn,
fully motivated, valuation for the immovable
property by a
professional valuer registered as such under the Valuers’ Act
23 of 1982 stating that, on a forced sale basis,
the property would
fetch a maximum of R600 000. Nedbank also states that the
actual amount outstanding for the secured debt
as at 1 May 2012 is
not R524 535.32 but R536 631.37, along with interest from that
date at 7.5% per annum. It says the costs
of realising the immovable
property and the motor cycle on insolvency are R92 505 and
R8 021.45 respectively. In addition,
the costs of the
applicant’s attorneys of R22 500 and costs of
advertisements and 2 postponements should be added.
It calculates,
as a result, that, after all the costs of sequestration were paid,
an amount of R640.78 would be available for
distribution to the
concurrent creditors giving a dividend of substantially less than 1
cent in the rand. Depending on what is
in fact realised, it says,
there is a danger of a contribution if the intervening creditor
proves a claim.
Even ignoring the obvious disputes reflected above, the
present application simply fails to pass muster.
17
I need mention only a few unsatisfactory aspects. In
the first place, the value placed on the immovable property in the
founding
affidavit is based on a letter unsupported by any affidavit
from the person concerned. The letter is addressed by an estate
agent
‘To Whom it May Concern’. The letter states that
the value is ‘based on the present Comparative Market Analysis
of property sales in Richmond’ and that the agent has been
marketing houses in the area since 2006 and has lived in the
area
for 37 years. No mention is made of comparable sales, no description
at all is given of the improvements to the property
and it does not
state whether this is a market value or one based on a forced sale.
It was only after the intervening creditor
challenged all of this
that the estate agent deposed to an affidavit in reply which sets
out some of the relevant factors needed
to arrive at a valuation and
says that the value she attaches ‘reflects the amounts (sic)
that would be realised from a
sale through insolvency, or at least
an amount very close to this’. Since the applicant’s
case should be made out
in a founding affidavit, especially in an
ex
parte
application, and since even the reply
does not deal with a forced sale value, this approach comes nowhere
close to what is required.
There are additional problems. One of these relates to
the value the applicant attaches to the motorcycle. Once again, a
document
is put up in support of this without the author deposing to
an affidavit, without indicating why the author qualifies to give
the expert opinion relied upon and without any reasons being
furnished for arriving at that value. The document also says it is
a
‘fair market value’ for a ‘voetstoots’ sale.
Further, bare averments are made as to the costs of sequestration,
including an ‘Attorney’s taxed bill of costs’ for
R22 500 without any basis being laid for such averments
or any
bill of costs being put up. As for the bill of costs having been
taxed, this cannot have been taxed for the present application
and
the relevance is therefore not at all clear. After Nedbank
challenged this and other aspects of the founding affidavit, the
applicant in reply indicates that his attorney’s costs ‘have
been settled by a friend as a gift’ and will not
be claimed
from his estate.
The founding affidavit says that certain creditors have
issued demands for payment but does not say which ones have done so.
In
reply the applicant for the first time discloses that he has
pursued his rights for debt review under the National Credit Act No
34 of 2005 (the NCA). He does not say which debts are included or
excluded from this process when on the face of it, only one
of his
debts, for R7 814,93, may not fall within the ambit of the NCA.
He does not say what stage the debt review process
has reached,
whether any order has been made under s 87 of the NCA or
whether a debt counsellor has indicated that any of
his debts may
have resulted from reckless credit extension, thus potentially
relieving him of some of his indebtedness.
18
All that is stated is that Nedbank terminated the debt
review process and the notice from Nedbank doing so reflecting this
is
put up. The notice of termination deals with only two of the
accounts held with Nedbank; a loan account and his credit card, and
gives as a reason for termination that no payments had been
received. From a different annexure put up by Nedbank, it becomes
clear that the loan obligation which was terminated was what the
applicant refers to in his statement of affairs as a personal
loan.
This means that, if he applied for debt review in respect of all his
debts, the home loan and vehicle finance agreements
with Nedbank and
all the debts to his other creditors are still subject to the debt
review process and, if he maintains his obligations,
they cannot be
terminated by way of s 86(10) of the NCA.
19
As was stated in
Collett
,
20
one of the purposes of the NCA is that all responsible
consumer obligations which fall under the NCA are satisfied.
21
The status of the debt review process has an obvious
bearing on whether the remaining debt may be rearranged by agreement
or a
court order. The failure to deal with this fully constitutes
yet another serious lacuna in the application.
Even disregarding the debt review process, a factor as
to whether it can be said that there will be an advantage to
creditors
is whether, despite the applicant being insolvent, the
indebtedness is likely to be liquidated over time if the income of
the
applicant exceeds expenses. Such a situation would clearly
redound to the benefit of creditors since they would receive the
full
amount due to them. The disclosure concerning income and
expenditure is therefore highly relevant, particularly in small
estates
such as that of the applicant or those where there is a
relatively small difference in value between the assets and
liabilities.
It would also affect considerations of the advantage to
creditors if a trustee on insolvency would be able to utilise
s 23(5)
of the Act to apply any excess income to the settlement
of claims against the estate.
Unfortunately the level of disclosure of his monthly
income and expenses also falls well short of what is required. It is
riddled
with a lack of clarity and at least apparent contradictions
which cry out for full and candid explanations. He states, in the
founding affidavit, that he is employed as a utility services
auditor and annexes a copy of what he terms his last salary advice
which, he says, shows income of R21 000. He annexes a schedule
of monthly income and expenditure (the schedule) which shows
his
average income to be R21 000 and his expenditure to be R21 014,
excluding sundries. These averments and documents
give rise to a
number of difficulties. In the first place, what is put up as his
salary advice reflects the applicant as a commission
agent earning a
commission and not a salary. Commissions earned will vary from month
to month as the applicant himself states
in the reasons for
insolvency set out in his statement of affairs. Only one commission
statement is put up and no information
is given as to what he earned
over a more extended period of time so as to support the averment as
to his average income.
Secondly, whereas, in the schedule he reflects his
gross income as R21 000 from which he deducts R5 570.45 as
PAYE,
R265 as UIF and a vehicle instalment including insurance of
R6 000, the commission statement reflects his gross income as
R27 110. Thirdly, the commission statement shows deductions of
R1 000 as a ‘Bakkie instalment repayment’
and tax
of R4 635 to arrive at a nett amount of R21 475.53. Tax
has therefore already been deducted and should not
be reflected as
an additional expense in the schedule. Fourthly, his claimed expense
for PAYE of R5 570.45 on a gross income
of R21 000 in the
schedule is higher than the tax actually deducted in the commission
statement based on a gross income
of R27 110.53. Fifthly, as
regards the vehicle instalment of R6 000 reflected as an
expense in the schedule, R1 000
has been deducted from his
commissions. He does not explain whether the R6 000 is an
additional instalment he is obliged
to pay or a duplicated expense.
On the face of it, he will have available the amount for PAYE of
R5 570.45 and the additional
R1 000 deducted for a vehicle
instalment, thus having just more than R6 500 each month to
liquidate his indebtedness.
The difficulty does not end there. In his statement of
affairs, attested on 13 March 2012, he states that his vehicle was
hijacked
at the end of January 2012 and, as a result, he has been
unable to work since then. This is not dealt with or updated in his
founding affidavit deposed to 13 days later or indeed in his
replying affidavit. In addition, the commission statement put up is
for the month of February 2012. There is no indication that the
commissions in question were earned in any month other than
February. He does not explain how he earned commission in February
if he was unable to work. If he earned commission in February
after
his vehicle was stolen and his ability to earn commission was
impaired by the loss of his vehicle, it begs the question
whether
his commissions in the preceding months were substantially higher
giving a higher average income which could be applied
to liquidate
his indebtedness. If he had put up a number of recent commission
statements, it would have assisted in resolving
this issue. In
addition, the commission statement reflects that, as from 23
December 2011, he has had a new bank account with
ABSA Bank Limited.
This account is not reflected in his statement of affairs or any
affidavit as an asset or as a liability.
It is not mentioned at all
and, as a result, there appears to have been a non-disclosure since
the probable inference to draw
is that his commission is deposited
into this account each month. It is therefore not possible to
establish whether the applicant
will be able to trade himself out of
his debt.
As a result of all of the above, I am not satisfied
that the applicant owns realisable property of sufficient value to
defray
all costs of the sequestration which will, in terms of the
Act, be payable out of the free residue of his estate. I am also not
satisfied that it will be to the advantage of his creditors if his
estate is sequestrated. Since neither of these findings can
be made,
the question of the exercise of my discretion does not arise since
findings in favour of the applicant on these issues
are necessary
precursors to the exercise of any discretion.
22
It will be apparent from this that I am of the view
that the applicant has failed to make out a case for the voluntary
surrender
of his estate.
In the result, the application is dismissed and the
applicant is directed to pay the costs occasioned by the
intervention of the
intervening creditor.
DATE OF HEARING: 13 September 2012
DATE OF JUDGMENT: 28 September 2012
FOR THE APPLICANT: JM White, instructed by MORNET
ATTORNEYS
FOR THE INTERVENING
CREDITOR: LE Combrink, instructed by VAN HULSTEYNS
ATTORNEYS, locally represented by ER BROWNE INC.
1
The
relevant parts of s 10(1)(c) of the Act provide as follows: ‘
If the court… is of the opinion that
prima facie
…
there is reason to believe that it will be to the advantage of
creditors of the debtor if his estate is sequestrated…
it may
make an order sequestrating the estate of the debtor provisionally.’
2
The
relevant parts of s 12(1)(c) of the Act provide as follows:
‘If… the court is satisfied that… there
is
reason to believe that it will be to the advantage of creditors of
the debtor if his estate is sequestrated… it may
sequestrate
the estate of the debtor.’
3
Ex
parte Swart
1935 NPD 432
at 433;
Berrange NO v Hassan &
another
2009 (2) SA 339
(N) at 354A-B.
4
This
was said to be trite in
Phillips & others v National Director
of Public Prosecutions
2003 (6) SA 447
(SCA) at para 29.
5
1979
(4) SA 342
(W) at 349A-C (his emphases). This dictum has been
consistently approved and applied. See
United Enterprises
Corporation & another v STX Pan Ocean Company Ltd
[2008] ZASCA 21
;
[2008] 3
All SA 111
(SCA) at para 17,
National Director of Public
Prosecutions v Basson
2002 (1) SA 419
(SCA) at 428I-429B. An
order arising from a voluntary surrender application brought
ex
parte
has also been set aside where there were material
non-disclosures. See
Ex parte Mattysen et Uxor (First Rand Bank
Ltd Intervening)
2003 (2) SA 308
(T) at 316D-E.
6
Rule
6(2) of the Uniform Rules of Court.
7
Section
4(1)–(6) of the Act.
8
Mthimkhulu
v Rampersad & another (BOE Bank Ltd, Intervening Creditor)
[2000] 3 All SA 512
(N) 514
b-c
, 516
d-e
.
9
At
516
b-c
.
10
Mthimkhulu
at 517
b-h
.
11
Mthimkhulu
at 517
e-f.
12
Mthimkhulu
at 514
g-h
.
13
At
517
b-h
.
14
In
Craggs v Dedekind, Baartman v Baartman & another,
vanJaarsveld v Roebuck, van Aardt v Borrett
1996 (1) SA 935
(C)
at 937E-F.
15
Craggs
at 937F
16
In
Ex parte Pillay; Mayet v Pillay
1955 (2) SA 309
(N) at 311.
17
As
will appear from the balance of the judgment, in the view I take of
the matter, it is not necessary to resolve these factual
disputes.
18
In
Ex parte Ford & Two Similar Cases
2009 (3) SA 376
(WCC),
an adequate explanation was required why, when much of the debt fell
within the ambit of the NCA and it seemed that credit
had been
granted recklessly, the various applicants failed to avail
themselves of the remedies available under that Act.
19
Collett
v Firstrand Bank Ltd
2011 (4) SA 508
(SCA) at para 14.
20
At
para 10.
21
Based
on s 3(i) of the NCA.
22
I
have found no authority regarding the nature of the discretion to be
exercised in voluntary surrender applications. At the stage
of a
provisional order in an application for sequestration opposed by the
debtor, Wallis J conceived that the discretion granted
to the court
is one involving a power combined with a duty as was dealt with in
Schwartz v Schwartz
[1984] ZASCA 79
;
1984 (4) SA 467
(A) at 473H-474E and
approved in
South African Police Service v Public Servants’
Association
2007 (3) SA 521
(CC) at para 17. See
Firstrand
Bank Ltd v Evans
2011 (4) SA 597
(KZD) at para 27 where he said,
‘In other words, where the conditions prescribed for the grant
of a provisional order of
sequestration are satisfied, then, in the
absence of some special circumstances, the court should ordinarily
grant the order.
It is for the respondent to establish the special
or unusual circumstances that warrant the exercise of the court's
discretion
in his or her favour.’ It seems to me that, in
voluntary surrender applications, a different approach may need to
be considered,
not least because the debtor is the applicant rather
than the party opposing the application. In addition, a creditor
brings
sequestration applications and this indicates the attitude of
at least that creditor. It seems that a more general approach has
in
fact been applied by the courts but without any discussion as to the
nature of the discretion. See, eg,
Ex parte van den Berg
1950
(1) SA 816
(W) at 817-818;
Ex parte Ford & Two Similar Cases
fn 18 at paras 18-21.