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[2008] ZAWCHC 188
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Pudumo v Donson-Olsen (844/2008) [2008] ZAWCHC 188 (5 May 2008)
IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
CASE
NO:
844/2008
DATE:
5
MAY 2008
In
the matter between:
HARDLEY
MOTSHEMI PUDUMO
APPLICANT
and
JACQUELINE
DONSON-OLSEN
RESPONDENT
JUDGMENT
BOZALEK,
J
:
[1]
On 5 February 2008 applicant obtained a provisional order of
sequestration against the respondent which was extended a number
of
times,
inter
alia,
to
allow for the intervention for a creditor, Marie Francois Yankee
Liang. The creditor, represented by Ms E
Nel
,
filed affidavits opposing the granting of a final order.
[2]
On the latest return day, 29 April 2008, Mr
Benade
on behalf of applicant moved and argued for a final order whilst Ms
Nel
argued for the discharge of the provisional order. Applicant claims
to be a creditor of the respondent in the amount of R20 000
comprising two
unsecured
loans of R10 000 each which he made to respondent in December 2006
and which, despite demand, remain unpaid. Applicant
also relies on
the respondent's actuaf insolvency based on a list of her assets and
liabilities as furnished by her to him. This
act of co-operation
alone between respondent and applicant shows that this is a friendly
sequestration.
[3]
One of the questions which arises in this matter is whether this
friendliness amounts to collusion between creditor and debtor.
According to the respondents list her only assets are a residential
properly in Ravensmead sold to purchasers for R500 000 but
not yet
transferred, a loan account valued at R400 000 in a company called
Grey Trade and a vehicle valued at R110 000, whilst
her liabilities
consist of a bond over the property to the tune of R410 000 and
sundry creditors totaling R1.8 million. It would
appear that
respondent traded as Fantique Africa, assembling personal computer
circuit boards. According to applicant the sale
of the property for
R500 000 did not represent value and it should fetch at least R600
000. In this regard he furnishes a vafuation
of the property in the
amount of R700 000.
[4]
According to the applicant, respondent experienced difficulties in
her business and has not traded since October 2007. He contends
that
it would be to the benefit of creditors for respondent's estate to be
wound up so that a trustee can halt the sale of the
property, sell it
for value and distribute the proceeds of respondent's estate to all
creditors. A letter dated March 2006 from
a company called Lifestyle
Investments Ltd purports to confirm respondent's loan account of R400
000, but also says that R125 000
thereof would be repaid at the end
of that month.
[5]
Respondent also filed an affidavit in the application in which she
lays claim to the R400 000 loan account in the aforesaid
company but
provides no proof thereof, nor does she explain whether she received
the payment of R125 000. According to her calculations
her
liabilities of R1.8 million will exceed her assets by R600 000 and
she is not in a position to pay her creditors. The filing
of this
affidavit puts it beyond any doubt that respondent desires to be
sequestrated. That being the case, one wonders why she
did not simply
apply to surrender her estate. Respondent annexes a list of her 11
creditors, nine of whom, including two family
members, appear to have
loaned monies to her for undisclosed purposes in round sums.
[6]
A somewhat different picture of the respondent's financial affairs
emerges from the intervening creditor's papers. She firstly
details
how she invested R150 000 in respondent's business in September 2006
on the strength of a contract making provision for
a joint venture
agreement, the business of which was the assembly of personal
computer circuit boards for an entity known as Donna
Dey Trade.
According to the written agreement, within 45 days of payment of the
initial investment sum, the intervening creditor
would receive at
least R300 000. However, the intervening creditor never received a
cent. She sued the respondent and took default
judgment against her
in the Magistrate's Court and is accordingly a creditor of the
respondent in the amount of R300000. Strangely,
however, the
intervening creditor is nowhere reflected or acknowledged by the
respondent as one of her creditors.
[7]
The intervening creditor tells a tale of attaching goods in
execution, which subsequently disappeared, promises by respondent's
attorneys of payment and an application by her for respondent's
sequestration in 2007, which she ultimately abandoned. During
negotiations attendant upon the earlier sequestration proceedings,
respondent's legal representative advised of a lucrative contract
which respondent was about to conclude and also made reference to
payment of R8 million which had been collected from Donna Dey
Trade
on behalf of respondent.
[8]
The intervening creditor states she believes that some R22 million
could be received from Donna Dey Trade by respondent, an
allegation
which finds an echo in the applicant's allegation that respondent's
financial difficulties arise from the fact that
she concluded a
contract with the said entity to the value of R21 minion for the
manufacture of electronic equipment but could
not recover any monies
because that firm left the country and is now in the Democratic
Republic of Congo. No word emanates from
respondent regarding Donna
Dey Trade and there is nothing in the papers to substantiate the
existence of any such business or,
indeed, that respondent ever
conducted an electronic equipment business.
[9]
The intervening creditor states in her affidavit that she opposes the
sequestration application because she believes that respondent
will
receive substantial monies from Donna Dey Trade and that the
sequestration application is not
bona
fide
and
is rather an attempt by respondent to rid herself of her creditors.
[10]
In substantiation hereof she questions the validity of respondent's
alleged loan account credit; her valuation of the property,
respondent's account of the sale of the property and whether
respondent has in fact ceased business. In regard to these aspects
the intervening creditor raises pertinent concerns based on
investigations which her legal representative has done, or on the
basis of information which she has and which she details in her
papers. Neither the applicant nor the respondent, who is clearly
co-operating with applicant tn bringing the application, answers to
attempts to deal with any of these questions or this information.
[11]
The result is that this Court is left in doubt (1) whether the
respondent has any loan account credit; (2) whether the residential
property will fetch anything more than R500 000; (3) if this be the
case, whether there will be any surplus for the general body
of
creditors after the mortgagor's claim has been settled; (4) whether
the respondent is still trading; (5) whether respondent
may indeed
receive monies, even substantial monies, from Donna Dey Trade.
[12)
What is clear is that, more realistically, albeit roughly assessed,
respondent's declared net assets are no more than approximately
R220
000 made up as follows: R40 000 equity in the vehicle R40 000 equity
in her residential property R140 000 being the value
of the remainder
of the loan account discounted by 50% If the loan account credit
turns out to be a fiction or to have been repaid
to respondent and
already utilised by her, her assets could be as little as R80 000.
[13]
Respondent's creditors, excluding the bank/mortgagee and the vehicle
financer accounted for above, amount to R1.6 million being
respondent's own list of creditors plus the intervening creditor's
claim. Allowing for the costs of administration and legal fees
in an
amount of approximately R75 000, the dividend to creditors could
range from nil to ten cents in the rand. Given the doubt
about the
extent of respondent's assets and liabilities, this exercise which I
have set out is itself somewhat speculative. I might
add that,
notwithstanding that respondent and applicant have co-operated in
bringing the application, neither has assisted the
Court by providing
figures or estimates showing what dividend or tangible benefit there
might be to creditors upon sequestration.
[14]
In terms of section 12 of the Insolvency Act, if at the hearing
pursuant to the granting of the rule
nisi,
a
court is satisfied that the petitioning creditor has established a
claim against the debtor as is mentioned in section 9(1) of
the Act,
and the debtor has committed an act of insolvency or is insolvent and
there is room to believe that it wiM be to the advantage
of creditors
of the debtor if his or her estate is sequestrated, it may
sequestrate the estate of the debtor.
[15]
In my view, because of the paucity of reliable information, the
conflicting claims and the failure of the applicant or respondent
to
respond to the intervening creditor's allegations as made in her
opposing affidavit, applicant has not satisfied the Court that
respondent is insolvent. However, as Mr
Benade
pointed out, even on the intervening creditor's version of events,
the respondent has committed a number of acts of insolvency
and thus
section 12's second requirement is met.
[16]
The remaining questions are firstly, whether the petitioner has
established a valid claim against the respondent and, secondly,
whether the applicant has established that a final order will be to
the advantage of creditors.
[17]
Before dealing with these questions, I should add that Ms
Nef
also opposed the relief sought on behalf of the intervening creditor
on the grounds that certain of the formal requirements of
section 9
of the Act had not been met. By the time of argument, however, the
only information outstanding was the date of birth
and identity
number of respondent's husband, to whom she is married out of
community of property. Having regard to the provisions
of section 157
of the Act, I considered that this omission, although unsatisfactory,
is not such that the application must be refused
on this ground
alone.
[18]
The intervening creditor's other criticisms in regard to satisfying
the requirements of section 9, namely that there is insufficient
information concerning applicant's claim and respondent's insolvency
or active insolvency, shall be dealt with in considering whether
the
requirements of section 12 of the Act have been met.
[19]
Turning to the requirements of section 12(1)(a) I have grave doubt
whether the applicant has established a proper claim against
the
respondent. The two loans of R10 000 each are substantiated by
pro
forma
"investment
contracts" set out in the briefest of terms on respondent's
letterhead. These homemade contracts stand in
sharp contrast to the
detailed contract concluded between the intervening creditor and
respondent in September 2006 when the former
similarly invested R150
000 with respondent.
[20]
To have concluded contracts such as those relied on by the applicant
one would have to be trusting indeed given their lack
of detail and
their un-businesslike appearance. The alleged debts also bear many of
the hallmarks of the debts found by
Satchwell.
J
in
Esterhuizen
v Swanepoel & 16 Others
2004(4) 89 (W) at 92E-95A to be a feature of collusive "friendly"
sequestration applications, namely a relatively small
loan no
r
or in this case, a brief and enigmatic description of the background
reason for and purposes of the loan, little information regarding
the
source of the funds which would be indicative of the ability to make
the loan was disclosed, compounded in this case by applicant's
failure to set out his relationship to the respondent.
[21]
The basis for applicant's confidence that the loan would be repaid
together with a handsome commission are likewise undisclosed.
In this
latter regard the further factor may be added, the unlikelihood of
the return on the investment which, in effect, calculated
on an
annual basis would amount to 360% per year. Other factors are the
applicant's apparent lack of concern as to the respondent's
ability
to repay the loan or investment, the compete absence of any paper
trait which would substantiate the payment of R20 000
by applicant to
respondent and the absence of any independent professional taking a
hand in recording the loan of what, for most
people, would be a
comparatively large sum or the consequences of non-repayment.
[22]
As in the
Esterhuizen
case, the applicant appears to have done nothing to recover his
"investments" for more than a year before suddenly
embarking
on the most drastic remedy to attempt to recover what could
only be a small portion of the monies allegedly owing, i.e. by way of
a sequestration application. Similarly the applicant seems
unconcerned that only a limited portion of his claim may be recovered
or that legal and administrative costs may devour a large portion of
the respondent's limited assets.
[23]
Co-operation between debtor and creditor is considered acceptable,
collusive behaviour is not. A court should be on its guard
against
collusion. When the signs are there the Court requires more from the
applicant in order to establish his claim than it
might otherwise do.
The friendly petitioner should present sufficiently detailed evidence
to satisfy a sceptical court of the veracity
of his claim against the
respondent. The petitioner must also give sufficient details of the
assets of the respondent, for example
how he arrived at the estimated
value so that the Court can ascertain whether the sequestration would
be to the advantage of the
creditors. (See as authority for these
propositions
Craqgs
v Dedekind
;
Baartman
v Baartman & Another
;
Van
Jaarsveld v Roebuck
;
Van
Aard v Borrett
1996(1) SA 935 (C) at 937)
[24]
Taking all these factors into account I consider that the applicant
has failed to establish a valid claim against respondent
to the
extent that is required of him in a friendly application as is
required by section 12(1)(a) of the Act. The requirements
of section
12{1)(b) have been satisfied in that, at the least, acts of
insolvency on the part of the respondent have been established
to the
satisfaction of the Court.
[25]
There remains the final requirement for a final order, namely that
there is reason to believe that sequestration of the respondent's
estate will be to the advantage of creditors. I have already
indicated that the evidence proffered by the applicant concerning
the
value of the residential property and the merits, if possible, of
setting aside the existing sale and attempting to re-sell
it for more
than R500 000 is at odds with that put up by the intervening
creditor. In this regard, the remarks of
Leveson,
J
in
Dunlop
Tyres (Ptv) Ltd v Brewitt
1999(2) SA 580 (W) at 582-3 concerning the realities of forced sales
are entirely apposite.
[26]
In the present softening residential property market i am left
unpersuaded that a possible re-sale will bring an advantage
to
creditors. There are other instances of apparent non-disclosure by
respondent through applicant relating to her financial position,
for
example whether she is due any monies from Donna Dey Trade and the
extent of her claims, if any, against that entity, the present
state
of her loan account claim against Grey Trade and the failure to list
applicant as one of her creditors and therefore possibly
others.
[27]
With regard to the value of the property, the intervening creditor
filed a sworn valuation of the property in the amount of
R600 000 and
indicated furthermore that the sale of the property in May 2007 for
R500 000 represented a realistic price. Furthermore,
she filed
documents emanating from the respondent's legal representatives which
indicate that in November 2007 at a sale price
of R500 000 the
anticipated surplus after meeting all charges and levies was in the
region of R30 000. That small surplus is likely
to have been
extinguished with the lapse of almost a further six months in the
intervening period.
[28]
In my view, the information relating to respondent's financial
affairs is both partial and apparently unreliable. I have already
indicated that on one scenario the dividend to creditors could range
from nil to 10 cents in the rand. That scenario seems to be
a more
realistic one than any others which can be sketched on the papers.
[29]
In my view there is simply not enough reliable factual material for a
finding that the applicant has established that there
is reason to
believe that a sequestration of the respondent's estate will bring an
advantage to the body of creditors. Even if
I am wrong in my
findings that the requirements of neither section 12(1)(a) nor
12(1)(c) of the Act have been met, I am left with
the discretion as
to whether to
grant
a
final order or not.
[30]
In the circumstances of this matter and also taking into account that
a major creditor of the respondent opposes the sequestration
and that
but one friendly, if not collusive creditor, seeks the order, I would
exercise my discretion against the granting of the
order.
[31]
In the result the following order is made:
1.
The
provisional order of sequestration is set aside and the petition for
sequestration is dismissed.
2,
The
intervening creditor is awarded her costs in opposing the
application.
BOZALEK, J