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[2013] ZAWCHC 153
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Vincemus Investments (Pty) Ltd t/a Kempston Finance v Kaye and Another (20498/2012) [2013] ZAWCHC 153 (9 October 2013)
THE
REPUBLIC OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE HIGH COURT, CAPE TOWN
Case
No.: 20498/2012
In
the matter between:
VINCEMUS INVESTMENTS
(PTY) LTD t/a
KEMPTSON FINANCE
.............................................................................................................
Applicant
and
DENIS HENRY KAYE
..................................................................................................
First
Respondent
Date
of Birth
Identity
Number
Marital
Status: Married out of Community of property
Name
of Spouse: Bernice Kaye
Date
of Birth of Spouse
Identity
number of Spouse
BERNICE KAYE
......................................................................................................
Second
Respondent
Date
of Birth
Identity
Number
Marital
Status: Married out of Community of property
Name
of Spouse: Denis Henry Kaye
Date
of Birth of Spouse
Identity
number of Spouse
JUDGEMENT: 9 OCTOBER 2013
BOZALEK, J:
This is the extended return date of
a provisional order placing the estate of the first respondent (‘the
respondent’)
into sequestration. The provisional order was
made on 6 February 2013 by Boqwana AJ, returnable on 12 March 2013.
On that day
the order was extended and an agreement was reached
between the parties that the respondent would file a further
affidavit and,
thereafter, the applicant would file its response
thereto. These affidavits were duly filed as well as a supplementary
affidavit
by the applicant.
At the hearing the applicant was
represented by Mr Mundell SC together with Ms Buikman. The first
respondent appeared in person,
his attorneys of record having
withdrawn shortly before the hearing.
The sequestration application was
initially based upon a debt of some R12mil odd owing to the
applicant by Sarepta Trading (Pty)
Ltd (‘Sarepta’), a
transportation business of which the respondent was the managing
director, and which arose out
of some 29 lease agreements in respect
of vehicles used by the business. By September 2012 Sarepta had
fallen into arrears in
respect of all of the leases and its monthly
payments effectively ceased from that time. The lease agreements
were cancelled
by the applicant. It then launched liquidation
proceedings against Sarepta and sequestration proceedings against
the respondent
on the basis of his joint liability for the amounts
owing by Sarepta pursuant to his standing surety for its
obligations.
The respondent opposed the granting
of the provisional sequestration order on the grounds that the
applicant had no liquidated
claim, that he was neither insolvent nor
had committed an act of insolvency and, furthermore, that an order
would produce no
benefit for creditors.
In granting the provisional order
Boqwana AJ, noted that, pursuant to cancelling the lease agreements,
the applicant had a claim
for damages of the order of R12mil odd
against Sarepta (and the respondent). She found that inasmuch as
such claim included the
amount of R1 059 744.51, being the
arrears on the agreements at the time that they were cancelled, to
this extent at
least the applicant had a liquidated claim against
the respondent and thus
locus standi vis a vis
the
respondent.
The learned judge found further that
since the applicant was unable to find any assets registered in the
name of the respondent
(and the respondent’s failure to set
out any facts to the contrary) and in the light of his obligations
in terms of the
suretyship agreements, his insolvency had been
sufficiently proven. Boqwana AJ had regard to evidence furnished by
the applicant
that the respondent was a prominent businessman with
directorships in several companies and had at his disposal the use
of luxurious
homes in both Cape Town and Plettenberg Bay, albeit
that these were registered in the names of a trust and a company
respectively.
In the light thereof she found that the applicant had
established that it would be in the interests of creditors for a
provisional
order of sequestration to follow so that a trustee could
investigate these matters with a view to piercing the corporate veil
and realising a benefit for creditors.
The additional affidavit furnished
by the applicant and respondent after the provisional order returned
to the issues of whether
the applicant in fact had a liquidated
claim as well as the issue of whether a sequestration order would
produce a benefit to
creditors albeit that a new tack was taken in
each instance.
In the first place the respondent
gave full particulars of the insured values of the 29 leased
vehicles which sums he used as
a basis for their valuation in the
total amount of R12 735 216.00. He noted that this
exceeded by nearly R1.6mil the
total balance outstanding by Sarepta
on the lease agreements, including the arrear rentals. The
respondent stated that he had
established from the applicant that it
had chosen not to sell the vehicles but to retain them and in the
circumstances he contended
that the applicant’s claim/s had
been settled and that neither Sarepta nor he were debtors of the
applicant.
As regards the requirement of there
being an advantage to creditors the respondent, for the first time,
gave details of the trust
and the company which held the two
properties he utilised, how they came to acquire those properties
and the bonds registered
against them. He did this with a view to
establishing that the properties could not be regarded as assets in
his estate and that
a trustee would have no claim to the properties
in any form whatsoever. He gave further details of his role in
various companies
and his various interests, the net effect of which
was that he enjoyed no salary from these companies nor had he any
claims against
them and he was, in short, possessed of no assets of
any significance.
In response the applicant filed
detailed valuation certificates by an appraiser in terms of s(6)(1)
of the
Administration of Estates Act, No 66 of 1965
giving both the
forced sale values and market values of each of the 29 vehicles.
These totals were, respectively R5 532 000.00
and
R7 532 000.00. The applicant pointed out that as 18
November 2012, the date on which Sarepta was placed in provisional
liquidation, the amounts ‘
owing’
to the applicant
in respect of the 29 vehicles leased to Sarepta was R13 064mil.
The applicant explained, furthermore, that
when it was eventually
able to repossess the vehicles from Sarepta, it sold them to one of
its group companies at the ‘
forced sale values’
.
In these circumstances, it contended, it had established a
liquidated claim for the difference between the total amount owing
under the lease agreement, namely, R13 064mil less the total
forced sale prices of the vehicles i.e. R7 532 mil. In the
alternative, it contended that, if the market values were attributed
to these vehicles its liquidated claim against Sarepta (and
the
respondent) amounted to the sum of R4.990mil.
The applicant took issue with the
respondent’s contentions that the sums for which the vehicles
were insured represented
their value and pointed out that even if
these values were used the applicant would nonetheless retain a
liquidated claim against
Sarepta, and hence the respondent, in the
sum of R329 000 odd. In the circumstances it contended that on
any calculation
it had a liquidated claim well in excess of the sum
of R100.00 as required by s9(1) of the Insolvency Act.
As regards the question of the
advantage to creditors the applicant’s deponent analysed and
then took issue with the respondent’s
description of his
financial affairs. In doing so he pointed to the improbability of
the respondent having no funds or assets
notwithstanding that he
controlled the property-owning company (‘Belladensel’)
and was one of three trustees of a
trust in whose names respectively
were registered the two valuable properties in Plettenberg Bay and
Cape Town. The applicant’s
deponent contended that, having
regard to the interrelationship between the respondent, the trust,
Sarepta and Belladensel that
all these entities were parties to a
universal partnership and could be held liable for the debts of
Sarepta and the respondent
by ‘
piercing the veil’
.
In the circumstances, the applicant contended, a final sequestration
order would definitely hold an advantage for creditors
in that the
newly appointed trustee could, through the machinery of the
Insolvency Act, investigate all relevant aspects of the
respondent’s
financial affairs in detail, gain access to his bank statements and
the like with the real possibility that
this would uncover assets
which could be utilised for the benefits of the respondent’s
creditors.
Since the additional affidavits were
furnished pursuant to an agreement between the parties which was
made an order of court there
can be no difficulty with the court
having regard to their contents in determining whether a final order
should be granted or
not.
Finally, the applicant filed a
supplementary affidavit dealing with aspects of a s417 Companies Act
inquiry held pursuant to the
winding up of Sarepta in which evidence
was heard on 22 and 23 July 2013. It would appear the respondent,
his wife (the second
respondent) and his attorney, Mr Vukic, gave
evidence at this inquiry as a result of which the following main
points emerged:
The latest financial statements for
the trust owning the Cape Town property utilized by the respondent
valued it at R13mil whilst
the financial statements of Belladensel
revealed the value of the residential property in Plettenberg Bay to
be R6.5mil. Prior
to the provisional order of sequestration the
respondent was the only director of Belladensel whilst the second
respondent is
now the sole director.
Both the trust and Belladensel have
guaranteed, through deeds of suretyship, the liabilities owing to a
finance company, Merchant
Commercial Finance (‘Merchant’)
by Sarepta and two other companies controlled by the respondent.
Prior to the respondent’s
provisional sequestration Merchant
had registered collateral bonds over both properties as security for
the indebtedness owing
to it by the trust and Belladensel.
The trusts co-trustees confirmed at
the inquiry that they occupy their positions as no more than
figureheads and do the respondent’s
bidding without demur.
Although the trust and Belladensel are registered and incorporated
entities respectively, both are nothing
more than a cover for the
respondent who burdened and encumbered them in his discretion and
who treated both properties as his
and his family’s assets. In
this regard the applicant annexed an email from the respondent in
which he refers to the properties
as ‘
my house’
and ‘
our Plettenberg Bay home’
respectively.
In addition the deponent to the
applicant’s supplementary affidavit stated that evidence at
the inquiry had revealed that
there had been collusive dealings
between the respondent and Merchant so as to ensure that the latter
had been secured and preferred
as a creditor. In this regard
reliance was placed on an alleged reversal of Sarepta’s
assets, or at least its encumbered
assets, into a company, Taxi
Logistics, also controlled by the respondent, at a time when Sarepta
found itself in financial difficulties.
Merchant then took a general
notarial bond over these assets, secured by deeds of suretyship from
the trust and Belladensel.
In due course Taxi Logistics was placed
into liquidation at the instance of Merchant. It is alleged that the
notarial bond was
perfected with a result that Merchant secured its
claim to Sarepta’s assets to the prejudice of that company’s
other
creditors.
The entire scheme, it is alleged,
was evidence of collusive dealings between respondent in his
personal capacity and as the representative
of Taxi Logistics and
Merchant.
It was further alleged that it would
be open to the liquidators of Sarepta and to the respondent’s
trustees, in the event
that the provisional sequestration order was
made final, to invoke the provisions of s31 of the Insolvency Act to
set aside those
transactions and seek further appropriate relief
which would be in the interests of the creditors of Sarepta and the
respondent.
The respondent raised no objection
to the furnishing of this further affidavit nor did he seek to reply
thereto. Since the facts
set out in this affidavit only came to
light in July of this year through the s417 inquiry, and were not
available at the time
that the provisional order was sought, I
consider that it would be appropriate for the affidavit to be
admitted.
In the light of the respondent’s
opposition to the finalisation of the provisional order and the
considerable additional
information which has been furnished by way
of additional affidavits it is appropriate to again consider the
elements which must
be established by the applicant in order to
obtain a final order of sequestration, namely:
1) that it has a liquidated claim in
the amount of at least R100.00;
2) that the respondent is insolvent
or has committed an act of insolvency;
3) that there is reason to believe
that it will be to the advantage of the creditors of the respondent
if his estate is sequestrated.
LIQUIDATED CLAIM
It is well
established that a liquidated claim in terms of s9(1) of the
Insolvency Act means a claim where the amount is fixed
either by
agreement or by an order of Court or otherwise.
1
In
Hassan
v Berrange NO
2012
(6) SA 329
at para [35] the SCA stated that what the Legislature
intended in this regard ‘
was
that there should be certainty in connection with the amount of the
claim which was not affected by the legal basis and nature
thereof’
.
In that case the applicant’s liquidated claim was for the
value of certain shares in a company allegedly misappropriated
by
the respondent and which had given rise to a delictual claim for
damages on the part of the applicant against the respondent.
The SCA
held that this was a liquidated claim in that the shares were traded
on the stock exchange and their market value was
therefore easily
determinable.
The applicant in this matter
similarly enjoys a delictual claim for damages against Sarepta after
having cancelled a series of
lease agreements. Whatever the case may
have been when the sequestration proceedings were launched it would
appear that on any
reckoning the applicant has a claim which
satisfies the requirements of s9(1) of the Act. It has now disposed
of the vehicles
at their forced sale values, which values were
supported by formal valuations, thus leaving it with a liquidated
claim, calculated
as above, in the amount of R4, 990mil. Even if one
employs the market value referred to in the sworn valuations or, for
that
matter the insured values which were relied upon by the
respondent, the applicant is left with a substantial and liquidated
claim.
In argument the respondent took
issue with the figure of R13 064mil which the applicant
utilised as the high watermark of
its claim and from which it
subtracted either the purchase prices it secured for the vehicles or
the differing values contended
for. The respondent pointed to the
fact that in the founding papers the applicant relied on an amount
of R12 010mil as being
the total sums outstanding in terms of the
lease agreement as at the date of their cancellation and hence as a
measure of the
applicant’s damages. That sum was confirmed by
a certificate of indebtedness and the working papers in respect of
each
lease agreement evidenced the manner in which the total
liability was calculated and arrived at. However, in its affidavit
in
response to the respondent’s supplementary affidavit the
applicant utilised the increased figure of R13 064mil. The
annexure on which this figure was based, however, indicates that
these were the amounts owing as at 28 November 2012, a month
later
than the date referred to in the original certificate relied upon.
Although there is no breakdown of this figure nor an
explanation of
the discrepancy between the two figures, a perusal of the various
working documents contained in the applicant’s
founding papers
indicate that the total monthly instalments on the 29 lease
agreements approached half a million rand. Furthermore,
although the
respondent calls the figure of R13 064mil into question he
himself produced no evidence, detailed or otherwise,
to suggest that
it was incorrect.
Taking all these factors into
account I consider that the applicant has proved on a balance of
probabilities that it has a liquidated
claim of at least
R364 000.00.
I find myself in respectful
agreement with Boqwana AJ insofar as she rejected the applicant’s
reliance on an alleged act
of insolvency on the part of the
respondent. This leaves the applicant to rely on the respondent
being
de facto
insolvent. An anomalous position presents
itself in this regard since the respondent has declined to give any
detailed account
of his estate or financial position, apparently
relying on the assertion that all the assets which he enjoys are
owned by other
entities. At no point does he suggest that he has the
means to meet any claims which the applicant may have against him
arising
out of the suretyship agreements which he concluded. It is
the applicant which contends that the respondent does have an estate
and that, if the necessary investigation and enquiries are made by a
trustee, assets will be discovered which will produce a
benefit for
creditors. In these circumstances it appears to me that this issue
must be determined on the basis of the respondent’s
case,
namely that, faced with a claim of any substance from the applicant,
he is
de facto
insolvent. In the circumstances I find that
this requirement has been proved by the applicant.
ADVANTAGE TO CREDITORS
This leaves the requirement of there
being reason to believe that any sequestration order will result in
an advantage to creditors.
The respondent’s case that he
is possessed of no assets at all is to a large extent based upon an
acceptance of the legal
arrangements whereby the residential
property in which he resides in Constantia and the holiday home
which he enjoys in Plettenberg
Bay are owned respectively by a trust
and Belladensel. Doubt is cast on the validity of these legal
relationships, however, in
the light of the evidence heard at the
s417 inquiry into the affairs of Sarepta. In terms of the
applicant’s summary of
the evidence given at that inquiry a
picture emerges of these two vehicles being, utilised by the
respondent as he saw fit to
advance his personal and business
interests with his fellow trustees being at best, passive figures.
It appears to be common
course, moreover, that the respondent used
those assets to finance, directly or indirectly, his business
interests with the result
that Merchant holds a bond over the
Constantia property in the sum of R8mil and two bonds over the
Plettenberg Bay property in
the sum of R5mil.
On the evidence led at the inquiry
there is also room for the argument that there were collusive
dealings between the respondent
and Merchant as contemplated in s31
of the Insolvency Act arising out of the Merchant causing collateral
security bonds to be
registered over these properties to secure
liabilities owing to it
inter alia
by Sarepta. This raises
the possibility of the respondent’s trustee, after the
necessary investigation, bringing an action
to set aside such
security. If, in addition thereto, the trustee is able to establish
that the trust and Belladensel are in effect
respondent’s
alter ego the substantial assets presently vesting in the trust and
in Belladensel will accrue to the benefit
of the respondent and may
be realised in satisfaction of his debts. In this regard the
following dictum of Cameron JA in
Land and Agricultural Bank
of SA v Parker and Others
2005 (2) SA 77
(SCA) at para
[37.3] is relevant:
‘
It
may be necessary to go further and extend well-established principles
to trusts by holding in a suitable case that the trustees’
conduct invites the inference that the trust formed was a mere cover
for the conduct of business “as before” , and
that the
assets allegedly vesting in trustees in fact belong to one or more of
the trustees and so may be used in satisfaction
of debts to the
repayment of which the trustees purported to bind the trust.’
The respondent, on his own account,
has been a very successful business man in the transport industry
for at least 30 years. During
this period he has established, built
and sold various transport businesses worth considerable sums of
money. The respondent
holds directorships in other companies and
appears to lead a lifestyle commensurate with these offices. He
himself has provided
almost no detail of his financial circumstances
in these papers and is improbable that throughout all these years he
has not
managed to build up a significant estate even if it excludes
the two properties which he utilizes.
In
Commissioner, SARS v Hawker
Aviation Partnerships and Others
[2006] ZASCA 51
;
2006 (4) SA 292
(SCA) at
para
[29]
the Supreme Court of Appeal held as follows:
‘
The
question is whether the commissioner has established that
sequestration would render any benefit to creditors give that the
partnership is now defunct. The answer seems to lie in those
decisions that have held that a court need not be satisfied that
there will be an advantage to creditors in the sense of immediate
financial benefit. The court need be satisfied only that there
is
reason to believe – not necessarily a likelihood, but a
prospect not too remote – that as a result of investigation
and
inquiry assets might be unearthed that will benefit creditors.
It is of course beyond this Court’s
remit to make any findings in regard to the lawfulness or otherwise
of the various arrangements
which the respondent may have utilised
in dealing with the two properties in question. Should a final order
of sequestration
be granted legal machinery becomes available to the
respondent’s trustee to control the collection, custody and
disposal
of any asset in the respondent’s estate and to
inquire into and establish whether such assets exist notwithstanding
the
various legal arrangements upon which the respondent relies in
denying their existence. On the overall picture it appears to me
that the applicant has established that there is reason to believe
that, should an investigation be commenced by the respondent’s
trustee into his affairs using the legal machinery at his disposal,
an advantage will accrue to creditors.
For these reasons I am satisfied
that the applicant has satisfied the test for establishing an
advantage to creditors as contemplated
in s10(1)(c) of the
Insolvency Act and, as a result, all the requirements for a final
sequestration order.
In the result, for these reasons the
provisional order for sequestration is made final.
_________________________
L. J.
BOZALEK
JUDGE OF THE HIGH COURT
1
Kleynhans
v Van der Westhuizen NO
1970 (2) SA 742
(A) at 749 E and 750 A - B