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[2024] ZAKZPHC 104
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Firstrand Bank Limited v Abdoola (12673/22P) [2024] ZAKZPHC 104 (14 June 2024)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
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SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE
NO: 12763/22P
In
the matter between:
FIRSTRAND
BANK LIMITED
(REGISTRATION
NUMBER: 1929/001225/06)
Applicant
and
MOHAMMED
RIAZ
ABDOOLA
Respondent
IDENTITY
NUMBER: 7[...]
DATE
OF BIRTH: 12 OCTOBER 1971
MARRIED
OUT OF COMMUNITY OF
PROPERTY
TO FEMIDA ABDOOLA
ORDER
The
following order is issued:
1.
The estate of the Respondent is placed in provisional sequestration
in terms
of the provisions of the
Insolvency Act, 24 of 1936
;
2.
The estate of the Respondent is provisionally sequestrated in the
hands of the
Master of the Kwa-Zulu Natal Division, Pietermaritzburg
(“the Master”);
3.
A
rule nisi
is issued calling upon all persons interested to
show cause, if any, to this court on the 22
nd
day of
August 2024 at 09h30 or so soon thereafter as the matter may be
heard, why the estate of the Respondent should not be finally
sequestrated in the hands of the Master and why the costs of this
application on the attorney and client scale should not be costs
in
the sequestration;
4.
The order operate, with immediate effect, as a provisional order for
the sequestration
of the Respondent;
5.
The service of the order be effected by:
5.1
service on the Respondent at 5[...] S[...], 1[...] A[...] Road,
Greyville, Durban;
5.2
service on the employees of the Respondent, if any;
5.3
service on every registered trade union that represents any of the
employees of the Respondent,
if any;
5.4
service on the South African Revenue Service; and
5.5
service on the Master of the High Court, Pietermaritzburg.
JUDGMENT
HENRIQUES
ADJP:
Introduction
[1]
There is a German proverb which says “He who is quick to borrow
is slow to pay”.
These words aptly describe the conduct of the
respondent in this matter. This is an application for an order
provisionally sequestrating
the respondent’s estate. The
applicant is a judgment creditor of the respondent having obtained
judgment before Hadebe J
on 13 April 2022 for payment of R20 million
plus interest and costs which judgment debt has not been satisfied.
[2]
The respondent sought leave to appeal the judgment of Hadebe J on 19
May 2022, which
leave to appeal was refused with costs on 11 August
2022. The respondent then petitioned the Supreme Court of Appeal
which petition
was lodged on 12 September 2022 and refused on 14
March 2023. The respondent subsequently in May 2023 sought leave to
appeal to
the Constitutional Court which leave to appeal was refused
with costs on 21 August 2023.
[3]
It is apposite at this point in time to set out the basis upon which
the applicant
obtained the judgment against the respondent. The
respondent’s indebtedness arose from him having bound himself
as surety
and co-principal debtor in favour of the applicant for the
debts of Check One Supermarkets (Pty) Ltd (Check One) and Wishing
Stone
Investments (Pty) Ltd (Wishing Stone) (hereinafter referred to
as “the companies”), the respondent at the time, being
the director of both companies.
[4]
Check One is in business rescue and Wishing Stone is in provisional
liquidation. The
application for a final liquidation order is still
pending as the respondent instituted an application to place Wishing
Stone in
business rescue which is being opposed. Prior to the
liquidation of Wishing Stone and Check One being placed in business
rescue
both companies traded with banking facilities provided by the
applicant.
[5]
On 3 April 2017, a facility agreement was concluded between the
applicant, Check One
and Wishing Stone. A suretyship for joint and
several liability limited to R20 million was also concluded on the
same day between
the respondent and the applicant. Unlimited
suretyships were also concluded in Durban on 24 August 1994 between
the applicant and
Wishing Stone and the applicant and Check One.
[6]
It is common cause that Check One and Wishing Stone as principal
debtors were in breach
of the Facility Agreements. The applicant
approached the respondent to resolve the matter and remedy their
default. As a consequence
a settlement agreement was concluded on 6
August 2019 between the applicant and the respondent who acted both
in his personal capacity
and as representative of the companies.
[7]
In terms of the settlement agreement:
7.1
the respondent acknowledged liability for the debt and that it was
immediately due, owing
and payable;
7.2
the debt amounted to approximately R47 million;
7.3
the respondent and the companies undertook to make payment of the
full amount outstanding
by 31 October 2019;
[8]
In the event of a breach of the settlement agreement, the full amount
of the indebtedness
together with costs and interest became
immediately due and payable to the applicant.
[9]
The terms of the settlement agreement were not complied with and the
debt not repaid
by the companies or the respondent. As a consequence,
the applicant instituted proceedings to wind up the companies and for
judgment
against the respondent in terms of the limited suretyship in
the sum of R20 million.
[10]
Check One was subsequently placed into business rescue by the
respondent and Wishing Stone was
placed into provisional liquidation
pending a business rescue application instituted by the respondent.
[11]
Although the respondent opposed the proceedings before Hadebe J,
judgment was granted. Apart
from obtaining the default judgment
against the respondent, arising from his being surety, the applicant
also obtained a costs
order against the respondent in the winding up
application of Wishing Stone. This was as a result of the respondent
issuing an
application for business rescue the day before the final
winding up order was to be argued. As a result, the court adjourned
the
winding up application but granted a costs order against the
respondent in his personal capacity.
[12]
The applicant subsequently taxed a bill of costs against the
respondent in the sum of R59 824.17.
On receipt of the taxed bill of
costs the respondent’s attorneys of record wrote to the
applicant tendering payment of the
sum of R59 824.17 in three
instalments. It is undisputed however, that the debt in respect of
the taxed costs has been paid and
the respondent did so in a single
instalment on 2 November 2022.
Acts
of insolvency
[13]
The applicant relies on the following acts of insolvency to found the
application for sequestration
namely a paragraph from the
respondent’s answering affidavit in the application for
judgment specifically paragraph 64 where
he states the following
under oath:
‘
To properly grasp,
the Applicant’s destructive purposes against Check One, Wishing
Stone and myself, I point out to this Honourable
Court, that the
suretyship I signed capped at R20 Million, was untenable because I
have never held nor owned assets of that amount
at the time of
signing or presently.’
[14]
In addition, the applicant conducted a Windeed property search which
established that the respondent
does not own any immovable property.
[15]
The applicant consequently submits that the excerpt in this answering
affidavit constituted a
notice in writing that the respondent was
unable to pay his debts as contemplated in
s 8(g)
of the Act.
[16]
The second act of insolvency which the applicant relies on is that
envisaged in terms of
section 8(b)
of the Act as the sheriff has
rendered two
nulla bona
returns dated 28 June 2022 and 30 May
2022. On 18 May 2022 (prior to the respondent delivering the
application for leave to appeal)
the sheriff attended at the
respondent's residential address to execute on the R20 million
judgment. The return of service notes
that when he made demand for
payment of the judgment debt from the respondent it was not paid and
insufficient property to satisfy
the judgment was pointed out.
[17]
The second
nulla bona
return relates to the sheriff attending
at the residential property of the respondent on 24 May 2022 to
execute the writ of execution
in respect of the unpaid costs order
granted against the respondent. The return of service notes that
despite demand for payment
of R59,824.27 the respondent did not pay
the same and no disposable assets were pointed out or found by the
sheriff to satisfy
the demand for the amount.
[18]
These two acts of insolvency were committed prior to the application
for leave to appeal and
prior to the taxed costs being paid.
[19]
In response to the sheriff’s attempt at execution of the debt
of R59,824.27 the respondents’
attorneys of record addressed
correspondence to the applicant's attorneys on 30 May 2022. The
respondent proposed settling the
outstanding amount of taxed costs in
three monthly instalments.
[20]
This the applicant submits is a further act of insolvency as the
letter constituted a notice
in writing of the respondent's inability
to pay his debt as contemplated by
s 8(g)
of the Act.
[21]
The applicant not only relies on the acts of insolvency to show that
the respondent is insolvent
it also relies on the fact that the
respondent is factually insolvent. The applicant submits that even if
only the applicant's
claim is taken into account the respondent is
insolvent. This is further demonstrated by the fact that Check One
had creditors
of over R400 million and one of Check One's creditors
Shield is owed over R100 million. The respondent had signed surety
for this
debt and it is likely that the respondent has signed
suretyships for other creditors of Check One. Consequently, it
submits that
the respondent is
de facto
insolvent.
Advantage
to creditors
[22]
The leading authority on what constitutes advantage to creditors is
the decision in
Meskin
& Co v Friedman
.
[1]
The applicant is required to satisfy the court that there is reason
to believe that sequestration would be to the financial advantage
of
creditors or stated differently that there is a reasonable prospect,
not too remote, that some not negligible pecuniary benefit
will be
obtained by creditors. This would include a prospect of a pecuniary
benefit and also would be to the advantage if an enquiry
were
conducted into the respondent's financial affairs where there is a
prospect of undisclosed assets being brought to light.
[23]
In support of its contentions that it would be the advantage of
creditors of the respondent for
his estate to be sequestrated, the
applicant relies on the following:
23.1
the fact that the respondent’s spouse although he is made out
of community of property to her, owns
an unencumbered immovable
property which vests in the trustees in terms of
s 21
of the Act;
23.2
the respondent has admitted he is a director of LENZO Investments Pty
Ltd and LESCOT Investments Pty Ltd.
Although he does not disclose the
extent of his interests, he confirms that he is conducting the
affairs of these two companies.
The respondent contends that this
fact is irrelevant as he is not insolvent, the trustees will have the
powers of investigation
and can fully investigate the respondent’s
affairs. In addition to these powers, the trustees will be able to
fully investigate
what has become of the respondent’s
entitlement to the benefits of the business which in 2017 turned over
R2.1 billion. In
addition, it is evident, having regard to the
respondent's various affidavits that despite not owning any assets he
has been a
director of several entities, among them Check One and
Wishing Stone and has signed surety for these entities, but also that
of
Shield One.
[24]
At the initial hearing of the matter Mr
Harpur
SC indicated
that the allegations of procedural non-compliance with the
Insolvency
Act were
no longer in dispute and were a not being pursued. He
submitted that there were a number of aspects on which the respondent
challenged
the sequestration application. The first related to the
fact that the appeal process was still pending before the
Constitutional
Court. It emanated during the course of argument that
the petition to the Supreme Court of Appeal had been lodged on the 14
September
2022 and was finalized in March 2023.
[25]
The sequestration application had been set down for hearing by the
applicant on 5 December 2022.
Subsequent, to the refusal of the
petition to the Supreme Court of Appeal. The respondent then lodged
the application for leave
to appeal with the Constitutional Court in
May 2023. Mr
Van Rooyen
confirmed that the applicant’s
answering affidavit in the application for leave to appeal which was
due on 24 May 2023 had
been lodged. As at the date of the hearing in
May 2023 the appeal before the Constitutional Court was still
pending.
[26]
The crux of the appeal relates to the failure by Hadebe J to allow an
interlocutory application
to serve before her at the hearing of the
application in which the applicant obtained the default judgment
against the respondent
for R20 million based on the suretyship
agreement. When I asked Mr
Harpur
SC whether or not the
documents that the appeal related to were before me and whether or
not I could decide the sequestration application
on the papers before
me, his response was ‘yes and no My Lady’.
[27]
At the initial hearing before me, the respondent challenged his
indebtedness which formed the
basis of the judgment. The first
related to the fact that the respondent’s accountant had done a
recalculation of the interest
and found an over-calculation of
interest of approximately R6 million. He indicated that one could not
simply combine the debts
of the two entities being Wishing Stone and
Check One and simply subtract the over-calculated amount from the
money due as this
was a joint facility extended to two entities.
[28]
In addition, he indicated that the judgment was granted based on the
suretyship agreement. He
raised vague allegations of duress and also
indicated the suretyship agreement was null and void as the debt did
not exist. The
suretyship is challenged on the basis that the amount
reflected therein is incorrect and secondly, as the suretyship
agreement
is against public policy. He indicated that the suretyship
agreement subsists even after payment of the debt and consequently
exceeds
the bounds of public policy. It is thus unenforceable and
falls to be set aside. That then takes one back to the facility
agreement
and if the calculation of the interest is not correct then
the debt which formed the basis for the suretyship agreement is
challenged
on
bona fide
and reasonable grounds.
[29]
Much of Mr
Harpur
SC’s argument centered around the
appeal process and the difficulty which this court faced in deciding
the matter at that
stage. The dilemma faced by the court at that
juncture, was in the event of the respondent being successful in the
appeal to the
Constitutional Court, this court would have
sequestrated the estate of the respondent and it would be difficult
to return the status
quo ante.
[30]
The applicant, however indicated that if it is found that the court
applied the incorrect interest
rate what the respondent failed to
consider in doing the re-calculation was that the applicant was
entitled to charge penalty interest
and in doing the calculation the
respondent’s accountant used the incorrect interest rate.
Secondly, the respondent failed
to have regard to the fact that there
is joint and several liability for the indebtedness of the respondent
with the two entities.
Although the respondent avers that the
incorrect calculation of the interest taints the indebtedness there
is no authority which
has been referred to for this submission.
[31]
Given the circumstances which prevailed at the time of the initial
hearing, the application was
adjourned pending the outcome of the
appeal to the Constitutional Court. Such appeal was subsequently
dismissed in August 2023
and the opposed application was re-enrolled
for further hearing in October 2023.
[32]
At the reconvened hearing, Mr Van Rooyen submitted that the
requirements of the
Insolvency Act had
been met in that:
32.1
the applicant has a claim in excess of R100.00;
32.2
the acts of insolvency are admitted;
alternatively
the
respondent is de facto insolvent;
32.3
the applicant has demonstrated an advantage to creditors as the
solvent spouse’s assets vests in the
trustees and it is evident
that there will be a not negligible dividend to creditors;
32.4
the respondent has indicated in his affidavit that the family
business which has been in operation for a
number of years generated
an income of approximately R2.1 billion which a trustee can
investigate; and
32.5
lastly the respondent is a director of two entities being Lenzo and
Lescot which the trustee can investigate.
[33]
Consequently, the applicant has established a prima facie case for
sequestration in compliance
with
s 9
of the
Insolvency Act.
[34
]
In order to succeed in the application the applicant must satisfy the
three requirements for a provisional
sequestration order as contained
in
s 9
of the
Insolvency Act, namely
that it has established on a
prima facie
basis it has a liquidated claim exceeding a R100
against the respondent, that the respondent has committed an act of
insolvency
contemplated in
s 8
of the Act and that there is reason to
believe that the sequestration of the respondent will be to the
advantage of creditors.
[35]
Once an applicant for a provisional sequestration order establishes
the three requirements for
such order the court has a discretion
whether or not to grant the order. This much is evident from the
decision of Wallis J in
Firstrand
Bank Ltd v Evans
[2]
in which the court said the following:
“
Once the applicant
for a provisional order of sequestration has established on a prima
facie basis the requisites for such an order,
the court has a
discretion whether to grant the order. There is little authority on
how this discretion should be exercised, which
perhaps indicates that
it is unusual for a court to exercise it in favour of the debtor.
Broadly speaking, it seems to me that
the discretion falls within
that class of cases generally described as involving a power combined
with a duty. In other words,
where the conditions prescribed for the
grant of a provisional order of sequestration is 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.
[36]
Having regard to the application papers, the respondent has no basis
to oppose the granting of
the order. In the main, the basis for his
opposition related to the failure by Hadebe J to allow the further
the admission of the
recalculation presented by his accountants in an
attempt to dispute his indebtedness. Regrettably, this formed the
subject matter
of the various applications for leave to appeal which
have been dismissed the last being before the apex court.
[37]
At the reconvened hearing, Mr
Voormolen
who now appeared for
the respondent, submitted that this was still a live issue as no
court had pronounced on this and consequently
the debt was disputed
on bona fide and reasonable grounds. Regrettably, I cannot agree. The
effect of the dismissal of the application
for leave to appeal to the
Constitutional Court is that the applicant has a judgment in excess
of R100.
[38]
The respondent filed a supplementary affidavit which raised only one
issue, at the reconvened
hearing, namely that he was unaware of the
payments which the applicant had received from the business rescue
proceedings of Check
One. In addition, he submits that there was a
possibility that as a consequence thereof the principal debt has been
settled. In
its supplementary replying affidavit the respondent deals
with this aspect and in my view the response renders the issue raised
by the respondent in the supplementary affidavit as a non-issue. The
applicant confirmed that the principal debt is some R47 million.
The
respondent’s liability is limited to R20 million. He bears the
onus to show that the balance of the R27 million has been
paid and he
has not put up any evidence in support of this.
[39]
More importantly the applicant indicates that the respondent is being
disingenuous in indicating
that he does not know what payments were
made as he raised this pertinently in the related winding up
application of Wishing Stone.
The business rescue practitioner in
that application had delivered an affidavit indicating that it
received R9 million of the R47
million debt. In addition, the
applicant annexed payments received in terms of the conclusion of the
settlement agreement which
indicates a total overall payment of R14
414 940.42. Consequently, there is monies owing in terms of the
principal debt of the
entities in respect of which the respondent
signed surety.
[40]
Mr
Voormolen
also focused his argument on the acts of
insolvency and his submissions in relation to the acts of insolvency
relied on by the
applicant in the original papers. I have considered
his submissions but my difficulty is that the de facto position is
that the
respondent on his own version is insolvent. Apart from the
acts of insolvency the main thrust of the respondent’s initial
challenge to the sequestration application related to the judgment in
the sum of R20 million, and that the debt was being challenged
on
bona fide and reasonable grounds. Once the last appeal was dismissed
the factual position is the judgment stands and the applicant
is a
creditor as it has a judgment of R20 million. Consequently, these
further submissions were without merit.
[41]
The respondent has reached the end of the road in my view and the
applicant has an interest in
the finality of the matter and the
satisfaction of the judgment debt. The respondent has not advanced
any reasons as to why this
court ought not to grant the orders
sought. He has not demonstrated special or unusual circumstances that
warrant the exercise
of the court’s discretion in his favour.
[42]
Considering the three requirements that the applicant has to
establish for a sequestration order
the applicant has in my view
successfully done so. Regrettably the respondent has reached the end
of the line in that:
42.1
the applicant is a judgment creditor with a claim in excess of R100,
namely a judgment of R20 million;
42.2
the respondent on his own version is factually insolvent;
42.3
the applicant has in my view demonstrated advantage to creditors.
Conclusion
[43]
In the result the following orders will issue:
1.
The estate of the Respondent is placed in provisional sequestration
in terms
of the provisions of the
Insolvency Act, 24 of 1936
;
2.
The estate of the Respondent is provisionally sequestrated in the
hands of the
Master of the Kwa-Zulu Natal Division, Pietermaritzburg
(“the Master”);
3.
A
rule nisi
is issued calling upon all persons interested to
show cause, if any, to this court on the 22
nd
day of
August 2024 at 09h30 or so soon thereafter as the matter may be
heard, why the estate of the Respondent should not be finally
sequestrated in the hands of the Master and why the costs of this
application on the attorney and client scale should not be costs
in
the sequestration;
4.
The order operate, with immediate effect, as a provisional order for
the sequestration
of the Respondent;
5.
The service of the order be effected by:
5.1
service on the Respondent at 5[…] S[…], 1[…]
A[…] Road, Greyville,
Durban;
5.2
service on the employees of the Respondent, if any;
5.3
service on every registered trade union that represents any of the
employees of the Respondent,
if any;
5.4
service on the South African Revenue Service; and
5.5
service on the Master of the High Court, Pietermaritzburg.
HENRIQUES
ADJP
CASE
INFORMATION
APPEARANCES
Counsel
for the Applicant:
RM
Van Rooyen
Applicant’s
attorneys:
Edward
Nathan Sonnenberg Inc
Email:
alombard@ensafrica.com /
aykhan@ensafrica.com
Ref:
A Lombard/A Khan/0459975
C/O
Stowell & Company
295
Pietermaritz Street Pietermaritzburg
Ref:
N Moodley
Counsel
for the Respondent:
G D
Harpur SC, A V Voormolen SC
A
J Gevers
Instructed
by respondent’s:
Larson
Falconer Hassan Parsee Inc
C/O
A K Essack, Morgan Naidoo & Co.
Address:
311
Pietermaritz Street Pietermaritzburg
033
345 2304
Dates
of Argument:
24
May 2023 26 October 2023
Date
of Judgment:
14
June 2024
This
judgment was handed down electronically by circulation to the
parties’ representatives by email, and released to SAFLII.
The
date and time for hand down is deemed to be 13h00 on 14 June 2024.
[1]
Meskin
& Co v Friedman
1948 (2) SA 555
W at 558
[2]
Firstrand
Bank Ltd v Evans
2011 (4) SA 597
(KZD) at para 27