Sangiorgio NO and Another v Duyn (9285/2002) [2004] ZAWCHC 11 (27 February 2004)

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[2004] ZAWCHC 11
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Sangiorgio NO and Another v Duyn (9285/2002) [2004] ZAWCHC 11 (27 February 2004)

IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
Case No: 9285/2002
In
the matter between:
HANNE MARGARETE
SANGIORGIO NO
First Applicant
DEON OLIVER
NO
Second Applicant
and
THEODOOR JACOB
DUYN
Respondent
JUDGMENT:
27 FEBRUARY 2004
VAN ZYL J:
INTRODUCTION
[1] This is the extended return day of a provisional order of
sequestration granted on 13 May 2003. The applicants seek a final
order
of sequestration, alternatively an order against the respondent
in terms of the
Vexatious Proceedings Act
3 of 1956. Mr
Vermaak appeared on behalf of the applicants and Mr Warner on behalf
of the respondent. The court wishes to express
its appreciation to
them for the competent manner in which they presented their
respective submissions.
[2] The
first applicant is a liquidator in the employ of James Lane Trustees
(Pty) Ltd t/a Republic Trustees and the second applicant
is a
liquidator practising as such under the name of Village Trustees,
Kuils River. On 2 November 2001 the applicants were duly appointed
as
co-liquidators of Shang Ming International (Pty) Ltd (“Shang
Ming”), a company placed under liquidation by this court on 5
June
2001.
[3] The respondent, a Cape Town businessman, was unsuccessful in an
action against Shang Ming regarding the rights to a consignment
of
roller skates imported from China and held in storage pending the
resolution of the dispute as to such rights. He was ordered
by Moosa
J to pay Shang Ming’s costs, which were duly taxed in the amount of
R49 002,76. He was likewise liable for the payment
of storage costs
which, according to the writ of execution subsequently issued against
him, amounted to R66 697,60. This included
the sum of R8 749,00
itemised as “additional charges”, bringing the total amount owing
to R115 700,36. For some unknown reason
thirty cents (R0,30) of this
amount fell by the wayside inasmuch as the liquidated claim relied
upon by the applicants for purposes
of the present application is
limited to R115 700,06, for which Shang Ming holds no security.
[4] The writ of execution was duly served on the respondent, who
failed to point out sufficient disposable assets to satisfy the
judgment debt. This gave rise to a
nulla bona
return
constituting an act of insolvency in terms of section 8(b) of the
Insolvency Act
24 of 1936 (“the Act”). The applicants rely
also on an act of insolvency in terms of section 8(c) of the Act in
that the respondent
allegedly disposed of a substantial quantity of
his assets to the prejudice of his creditors. Finally it is alleged
that the respondent
is in fact hopelessly insolvent in that his debts
are in excess of R5 million and his assets, wherever they may be, are
of a much
lower order. Nevertheless the applicants aver that it would
be to the advantage of creditors should the respondent be
sequestrated.
They rely in this regard on his interest and
shareholding in various companies and the prospect that many of his
concealed assets
will be recovered once a full-scale investigation is
set afoot. In addition the trustees will be empowered to set aside
dispositions
without value.
[5] The respondent opposes the granting of a final order of
sequestration on the basis that the
nulla bona
return is
founded on a defective writ of execution and can hence not constitute
an act of insolvency. He denies that he has disposed
of his property
to the prejudice of creditors and likewise denies being actually
insolvent. On the contrary he alleges that he has
merely experienced
inhibiting “cash flow” problems. In any event his sequestration
would not be to the advantage or benefit of
creditors.
[6] Since the granting of a provisional order of sequestration in
this matter the papers have accumulated enormously. Much of the
documentation appended, however, is totally irrelevant or
unnecessary. This may be attributable to the fact that the respondent
has
hitherto acted personally, without legal representation, on the
ground that he has been unable to afford an attorney and counsel.
His
attempt to acquire legal aid failed, ostensibly because the Legal Aid
Board was not satisfied that he had good prospects of success
in the
present matter. I have taken all these factors into account in
considering the arguments put forward by his counsel, Mr Warner,
who
was appointed at a very late stage of the proceedings to argue
against the confirmation of the provisional order.
[7] The provisional trustees, Mr M J Lane and Mr T Giddey, who were
appointed by the Master of the High Court on 21 May 2003, have
not
been able to recover any assets allegedly concealed or illegally
disposed of by the respondent. They are unable to say whether
the
body of creditors will receive any pecuniary benefit in the form of a
dividend, but are nevertheless satisfied that there is
good cause to
sequestrate the respondent and that sufficient assets should be
recovered to render it beneficial to his creditors.
REQUIREMENTS
FOR A FINAL ORDER OF SEQUESTRATION
[8] In
terms of section 12(1) of the Act the applicants must satisfy this
court that: (a) they have established a liquidated claim
against the
respondent of not less than R100,00; (b) the respondent has committed
an act of insolvency or is in fact insolvent; and
(c) there is reason
to believe that it will be to the advantage of creditors if the
respondent’s estate should be sequestrated.
The applicants bear the
onus
of proof in respect of each of these requirements in
accordance with the legal principles set forth below.
ACTS
OF INSOLVENCY
Section
8(b): the Nulla Bona Return
[9] In
the present case it is common cause that there is indeed a liquidated
claim in excess of R100,00, namely an order as to costs
in the amount
of R115 700,06. It is in dispute, however, that the respondent has
committed an act of insolvency in terms of section
8(b) of the Act in
that, Mr Warner submitted, the sheriff’s
nulla bona
return
of service was invalid because the writ of execution, on which it was
based, was not in strict conformity with the said order
as to costs.
Reliance was placed in this regard on the
dictum
of Hill AJ in
Sachs v Katz
1955 (1) SA 67
(T) at 72D-E, namely that “a
writ must be in strict conformity with the Court’s order which
warrants its issue”.
[10] There is no merit in this argument. The relevant order of court
required Shang Ming and the respondent to pay the costs of suit
of
the applicants in that matter, including the costs of translations,
costs of postponements and storage costs. It appears from
the
affidavit of the first applicant in the present matter that the costs
of suit were taxed in the amount of R49 002,76 and that
the storage
costs amounted to R66 697,60. This included “additional charges”
of R8 749,00 which, Mr Warner argued, were attributable
to neither
costs of suit or storage costs. He was unable, however, to suggest
what the nature of these costs might have been and
this court must
accept that they formed part of the storage costs as deposed to under
oath by the first applicant. The fact that
the writ has omitted the
amount of R0,30 (par 3 above) is of no consequence in view of the
maxim
de minimis non curat lex
and may, for present purposes,
be ignored. It follows that I am satisfied that the applicants have
proved an act of insolvency in
terms of section 8(b) of the Act.
Section
8(c): Disposal of Assets
[11] In regard to the act of insolvency raised by the applicants in
terms of section 8(c) of the Act, there are strong indications
that
the respondent has indeed disposed of, or attempted to dispose of, a
substantial proportion of his assets, thereby causing his
creditors
serious prejudice. In this regard the respondent averred that all the
assets on premises situated at 70 Bree Street, Cape
Town, and housing
a guest-house, offices and staff quarters, were the property of
Carevest 17 CC (“Carevest”), a close corporation
of which he was
the sole member. In terms of a deed of cession dated 18 March 1998 he
authorised Carevest to transfer such assets
to an offshore company on
the British Virgin Islands named Hawk Investments International Ltd
(“Hawk Investments”). The cession
was ostensibly to operate as
“continuing security” to Hawk Investments for Carevest’s
indebtedness to it in the amount of US
$550 104 (elsewhere indicated
as $650 000), but was subject to the respondent’s retaining the
full use and enjoyment thereof. On
the same day, in his personal
capacity and in his capacity as director, shareholder and member of a
number of companies and a close
corporation, he ceded all “right
title and interest in and to all and any debtors, both present and
future”, pertaining to himself
and to the said companies and close
corporation, to Hawk Investments as security for the repayment of the
said debt. It would appear
from this that he was, at all relevant
times, in full control of the said entities and their assets or
potential assets.
[12] There is no indication that a single cent of the money owing to
Hawk Investments has been repaid, not to speak of any interest
due
thereon and, not surprisingly, Hawk Investments has at no stage
attempted to recover the alleged debt or any part of it. Strangely
enough the respondent’s daughter, in an affidavit dated 18 May
2003, subsequently indicated that she was in fact “a 50% member”
of Carevest which was indeed indebted to Hawk Investments in an
amount in excess of R6 million. Even more strangely a substantial
number of assets allegedly ceded to Hawk Investments were sold
thereafter, raising a large question mark as to the genuineness of
the cession. It also appears incomprehensible how the respondent’s
daughter could acquire, or be given, a 50% share in Carevest
at a
time when it was so heavily in debt to Hawk Investments.
[13] It is difficult to escape the conclusion that that the
respondent has been anything but forthright in his allegations to
this
court. There are a vast number of other unsatisfactory aspects
raised in his various affidavits which can simply not be true or
which
indicate that he is concealing assets on a large scale. For
present purposes it is not necessary to deal with them. It is
likewise
not necessary to deal with the unsubstantiated averment that
the provisional trustee, Mr Lane, is not independent and has allied
himself with the applicants. Although I agree with Mr Warner that Mr
Lane’s report as provisional trustee should not have been
couched
in the form of a replying affidavit, there is no basis for the
allegation that he has taken sides in the matter. The respondent
has
clearly not given the co-operation required for purposes of
identifying and uncovering his assets and liabilities. Mr Lane was
also perfectly justified in criticising the respondent’s attempt to
produce new evidence in opposition to the application for
sequestration.
Suffice it to say that I am quite satisfied that the
respondent has also committed one or more acts of insolvency in terms
of section
8(c) of the Act.
Actual Insolvency
[14] Although there are strong indications that the respondent is in
fact hopelessly insolvent with liabilities far in excess of
R5
million, he has consistently averred that he is not insolvent but has
merely been experiencing “cash flow problems”. I have
grave
doubts as to the accuracy or veracity of this averment. For present
purposes, however, it is not required of me to make any
finding in
this regard. If the respondent is indeed in solvent circumstances, as
alleged by him, he will have all opportunity to
demonstrate this fact
in the near future.
Advantage
to Creditors
[15] The
only remaining issue is whether it is to the advantage of creditors
for this court to grant a final order of sequestration.
The first
applicant initially indicated that creditors could expect a dividend
of between four and five cents in the rand after payment
of the
administration costs. The provisional trustees (par 7 above) are not
quite as optimistic, but nevertheless believe that it
would be to the
advantage of creditors should a final order be granted. In this
regard Mr Vermaak argued that the respondent was
either the owner of,
or shareholder in, a number of companies and other entities involving
substantial assets and which have yielded
him a more than
satisfactory income over a period of some years. If the respondent
was indeed not insolvent, as consistently averred
by him, then he
must have managed to conceal any number of assets in various ways. In
addition the respondent’s biggest creditor,
Fedbond Participation
Bonds, with a claim of R3,6 million, has pledged its full support for
the present application.
[16] In considering whether there is advantage to creditors the court
must, of course, have regard to the facts and circumstances
placed
before it in the sequestration application. Only if it is satisfied,
on a balance of probabilities, that there is a reasonable
prospect
that creditors will receive some financial benefit, will it consider
granting a final order of sequestration. See
Meskin & Co v
Friedman
1948 (2) SA 555
(W) at 559, where Roper J stated:
The right of investigation is given, as it seems to me, not as an
advantage in itself, but as a possible means of securing ultimate
material benefit for the creditors in the form, for example, of the
recovery of property disposed of by the insolvent or the disallowance
of doubtful or collusive claims. In my opinion, the facts put before
the Court must satisfy it that there is a reasonable prospect
– not
necessarily a likelihood, but a prospect which is not too remote –
that some pecuniary benefit will result to creditors.
Even if there
are none at all, but there are reasons for thinking that as a result
of the enquiry under the Act some may be revealed
or recovered for
the benefit of creditors, that is sufficient …
See
also
London Estates (Pty) Ltd v Nair
1957 (3) SA 591(D)
at
593C-D;
Braithwaite v Gilbert (Volkskas Bpk Intervening)
1984
(4) SA 717
(W) at B-C.
[17] In
Dunlop Tyres (Pty) Ltd v Brewitt
1999 (2) SA 580
(W),
Leveson J referred to the judgment of Nicholas J in
Klemrock (Pty)
Ltd v De Klerk and Another
1973 (3) SA 925
(W) and to the
dictum
of Roper J in the
Meskin
case (
supra
) and said (at
583F-G):
Taking that passage as my starting point, it will be seen that in the
case of an arm’s length transaction a sequestrating creditor
does
not have to set out in its founding affidavits the detail and
intensity of averments required when the nature of the claim is
under
scrutiny as required by Nicholas J in the
Klemrock
case,
although a proper case should always be made out. It will be
sufficient if the creditor in an overall view on the papers can
show,
for example, that there is reasonable ground for coming to the
conclusion that upon a proper investigation by way of an enquiry
under s 65 of the Act a trustee may be able to unearth assets which
might then be attached, sold and the proceeds disposed of for
distribution amongst creditors.
[18] If a case has been made out that there is a reasonable prospect
that the sequestration of the debtor’s estate will result
in some
advantage or benefit to creditors a court will, in general, be
satisfied, in terms of section 12(1)(c) of the Act, that that
there
is “reason to believe that it will be to the advantage of creditors
of the debtor if his estate is sequestrated”. As pointed
out by
Roper J in the
Meskin
case (
supra
at 558) this does not
mean that the court must be satisfied that sequestration will in fact
be to the financial benefit of creditors.
It need merely be satisfied
that “there is reason to believe that it will be so”. See also
Hillhouse v Stott; Freban Investments (Pty) Ltd v Itzkin; Botha v
Botha
1990 (4) SA 580
(W) at 585C-D (
per
Leveson J):
To return to the proposition made by Roper J in the
Meskin
case
supra
, the Court need not be satisfied that there will be
advantage to creditors, only that there is reason to believe that
that will be
so. That in turn, in my opinion, leads to the conclusion
that the expression ‘reason to believe’ means ‘good reason to
believe’.
The belief must be rational or reasonable and, in my
opinion, to come to such a belief, the Court must be furnished with
sufficient
facts to support it.
[19] When
these principles are applied to the facts and circumstances set forth
above, I have no hesitation in finding that there
is eminently good
reason to believe that sequestration of the respondent will indeed be
to the advantage of creditors. There is no
doubt that the respondent
is still in control of or otherwise has access to substantial and
considerable assets. The trustees of
his estate should be given the
opportunity to pierce the corporate veil surrounding his multifaceted
interests in a large number
of companies, close corporations and
other entities, wherever they may be situated or doing business. More
particularly the role
and function of Carevest and Hawk Investments
must be meticulously investigated for purposes of ascertaining
whether these entities
have simply been used as vehicles to spirit
away large sums of money and other assets belonging to the
respondent. A full-scale investigation
and concomitant interrogation
by the trustees in accordance with their powers in terms of the Act
will, in all likelihood, bring
considerable assets to the fore.
[20] In view of these findings it will not be necessary to consider
the alternative relief sought by the applicants in terms of the
Vexatious Proceedings Act
3 of 1965. In the event I make the
following order:
The
provisional order of sequestration granted on 13 May 2003 is
confirmed.
Costs
will be costs in the sequestration.
D H
VAN ZYL
Judge
of the High Court of South Africa