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[2004] ZAWCHC 52
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Sangiorgio NO and Another v Duyn (9285/2002) [2004] ZAWCHC 52 (27 February 2004)
IN THE HIGH COURT OF
SOUTH AFRICA
(CAPE OF GOOD HOPE
PROVINCIAL DIVISION)
Case No: 9285/2002
DATE: 27 FEBRUARY 2004
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:
1. The provisional order of
sequestration granted on 13 May 2003 is confirmed.
2. Costs will be costs in the
sequestration.
D H VAN ZYL
Judge of the High Court of South
Africa