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[2014] ZAWCHC 23
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Industrial Development Corporation of South Africa Ltd v Burger and Another, InRe; Industrial Development Corporation od South Africa Ltd v Burger and Another (10679/13 & 10680/13) [2014] ZAWCHC 23 (4 March 2014)
THE HIGH COURT OF SOUTH
AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Cases
No: 10679/13 & 10680/13
DATE:
04 MARCH 2014
In
the matter between:
INDUSTRIAL DEVELOPMENT
CORPORATION OF SOUTH AFRICA LTD APPLICANT
And
JOHANNES DAVID PRINS
BURGER
.......................................................................................
FIRST
RESPONDENT
CHERYL DIANE
BURGER
....................................................................................................
SECOND
RESPONDENT
and in the matter between
INDUSTRIAL DEVELOPMENT CORPORATION OF
SOUTH AFRICA LTD
....................................
APPLICANT
And
PAUL MARTIN
BURGER
.......................................................................................................
FIRST
RESPONDENT
ALTA
BURGER
......................................................................................................................
SECOND
RESPONDEN
Coram
:
ROGERS J
Heard:
27 FEBRUARY 2014
Delivered:
4 MARCH 2014
JUDGMENT
ROGERS
J:
[1]
There are two
applications before me for the final sequestration of the brothers
Johannes (Jannie) Burger and Paul Burger (known
by his middle name
Martin). The applicant is the Industrial Development Corporation of
South Africa Ltd (‘the IDC’).
Mr G Woodland SC, leading
Ms HT Cronje, appeared for the IDC and Mr S Alberts for the Burger
brothers.
[2]
The applications were
launched on 4 July 2013. They are in substantially the same form
except in regard to the assets of the two
brothers. The applications
for provisional sequestration were belatedly opposed. Notwithstanding
such opposition, provisional orders
were granted by a Erasmus J on 10
October 2013, with a return date of 21 November 2013. On the latter
date, the Burgers gave belated
notice of their intention to oppose
their final sequestration. An order was thus made extending the
return day to 27 February 2013
with a timetable. Further affidavits
were filed but did not add much of substance to the affidavits that
served before Erasmus
J. (All references in this judgment to the
paginated record are to case 10679/2013 unless otherwise indicated.)
[3]
The IDC’s
applications are based on an alleged indebtedness by the Burgers of
R78 046 337 arising from guarantees
given by the Burgers
(as principal debtors) in respect of the liabilities of Slabbert
Burger Transport (Pty) Ltd (‘SBT’),
a company of which
they were previously the controllers. SBT was placed in a creditors’
voluntary winding-up on 5 December
2012. The said winding-up was
converted into a compulsory final winding-up on 8 February 2013 at
the instance of Standard Bank.
[4]
The Burgers admit the
alleged indebtedness to the IDC. In fact, they claim that their
indebtedness to IDC exceeds R132 million.
This is because of
additional interest and because, they say, they have a further
indebtedness of about R44 million in relation
to a guarantee which
the IDC gave to Standard Bank in respect of the obligations of SBT,
for which liability they in turn are liable
to the IDC as sureties or
guarantors. It is common cause that on any reckoning the value of the
Burgers’ assets is way below
their indebtedness to the IDC.
[5]
The IDC’s
standing and the factual insolvency of the Burgers are thus common
cause (making it unnecessary to decide whether,
as alleged by the
IDC, they also committed an act of insolvency). There has been
compliance with the procedural requirements contained
in the
provisional orders. The only question is whether, as required by
s 12(1)(c)
of the
Insolvency Act 24 of 1936
, ‘there is
reason to believe that it will be to the advantage of creditors’
if the estates of the Burgers are sequestrated.
The Burgers claimed
that their indebtedness to the IDC was greater than that alleged by
the IDC
inter alia
in order to show
that their sequestration would yield a very small dividend (less than
two cents in the rand, they say) and thus
not be to the benefit of
creditors.
[6]
The IDC’s case
that sequestration will be to the advantage of creditors is based not
only on the value of the assets from
which a dividend could be paid
but also on the prospect that further assets might be uncovered
pursuant to investigations using
the machinery provided by the
Insolvency Act (cf
Dunlop
Tyres (Pty) Ltd v Brewitt
1999
(2) SA 580
(W) at 585G-H),. In this latter regard, the IDC alleges in
its founding papers that an existing enquiry into the affairs of SBT
in terms of ss 417 and 418 of the Companies Act 61 of 1973,
authorised by this court and in which the commissioner is retired
Judge Joffe, has already uncovered evidence of widespread
irregularities and fraud in the conduct of the affairs of SBT,
including
the paying of bribes, double-invoicing and so forth. The
Burgers allegedly ran the affairs of their group of companies without
regard to separate corporate personality. The Burgers deny that they
were party to irregularities or fraud. They have responded
to some of
the allegations but also state that they are disadvantaged by not
having access to the evidence which has been led at
the SBT enquiry.
[7]
In regard to a likely
dividend, there is no absolute rule that a sequestration will not be
to the advantage of creditors if it is
below a certain amount in the
rand. In the ordinary course, where there are a number of creditors
and the estate is relatively
modest, a dividend of only a few cents
in the rand may well not be sufficiently advantageous to creditors to
warrant a sequestration
order. In such cases, there is often a risk
that the free residue will not cover the costs of sequestration. Such
a risk is a disincentive
to creditors to prove their claims. Each
case must, however, be assessed on its own particular facts.
[8]
In the present case the
evidence reveals that Jannie Burger has assets worth at least
R1 039 000. Included in these assets
is an unencumbered
property in Wellington purchased in 2008 for R700 000. It may
well be worth more by now. The founding papers
also make reference to
a loan claim which Jannie Burger supposedly has against Etbur
Property Investments Pty Ltd (‘Etbur’)
with a face value
of R599 381. I think this rests on a misreading of the annexed
financial statements.
[1]
Note 4 of those financial statements, when read with the item ‘Loans
to shareholders’ in the balance sheet, indicates
that the loans
were made by Etbur to the brothers, not the other way round. (As will
appear hereunder in the discussion of the
financial statements of
certain of the entities associated with the Burgers, both brothers
appear to have additional assets in
the form of claims against
various entities though their value was not ventilated in the
papers.)
[9]
In the case of Martin
Burger, his assets, excluding a property he owns in Paarl, are
alleged to be worth R541 000. In addition,
he owns a bonded
property in Paarl. It is common cause that the value of the property
exceeds the amount owing to the mortgagee.
Mr Burger has not
disclosed the quantum of the indebtedness so the full extent of the
equity in this property is unknown. He has
a loan claim against
Slabbert Burger Eiendomme (Pty) Ltd (‘SBE’) of R2 755 739
though it appears that this
company is in liquidation and that any
dividend payable to Martin Burger will accrue to the IDC (pursuant, I
assume, to a security
cession). (Although not mentioned in the
papers, the financial statements of SBE indicate that Jannie Burger,
like his brother,
has a loan claim against SBE, in the amount of
R2 326 484.
[2]
)
[10]
The only liabilities
which the Burgers have, apart from their liability to the IDC, appear
to be liabilities to family trusts and
group companies. These
liabilities are relatively modest in relation to the IDC’s very
large claim.
[11]
If the Burgers owe the
IDC more than R132 million, it is clear that the dividend
payable on their currently known assets will
be very small. Of
course, their indebtedness may be reduced by any dividends which the
IDC receives in the liquidation of SBT and
in the liquidation of
other group entities which, like the Burgers, are liable under
guarantees. Any such reduction in the indebtedness
would increase the
dividend expressed as a certain amount per rand (though not the
monetary amount of the dividend). There is no
danger of the costs of
sequestration not being met. Although the amounts that the IDC
will recover in the insolvent estates
would represent only of a
fraction of its full claim, the amounts will not be trivial. Suppose,
for example, that a dividend of
R800 000 could be paid to the
IDC from the estate of Jannie Burger (a not unrealistic assumption):
Why should the IDC not
be entitled to receive that sum just because
its full claim is R132 million rather than, say, R10 million?
[12]
Apart from the
financial benefit which creditors (in effect, the IDC) could receive
by way of a dividend from the known assets of
the Burgers, the IDC
relies on advantages which may accrue from investigations conducted
under the
Insolvency Act. The
Burgers’ response is that there
is already an inquiry into the affairs of SBT; that three family
trusts have also been sequestrated;
and that, since the IDC says that
the affairs of the Burgers are inextricably intertwined with those of
the group companies and
family trusts, everything that could be
discovered in an inquiry pursuant to their individual sequestration
could just as well
be investigated in the liquidation of SBT and in
the sequestration of the three family trusts.
[13]
I do not think that the
possibility of investigation in other liquidations and sequestrations
is a reason not to make available
to creditors the investigative
advantages which would flow from a sequestration of the personal
estates of the Burgers. The investigation
which can permissibly be
conducted in relation to any particular liquidation or sequestration
is circumscribed. It cannot be taken
for granted that all the
dealings of the Burgers in their individual capacities, including
transactions between themselves and
their spouses and between
themselves and family trusts, could permissibly be investigated in
(for example) the liquidation of SBT.
Moreover, and even if the
investigations legitimately conducted in other liquidations and
sequestrations could uncover irregular
dealings of the Burgers in
their personal capacities, only a trustee in the insolvent estates of
the Burgers could exercise certain
resultant remedies such as those
pertaining to impeachable transactions.
[14]
The founding affidavit
discloses a long list of alleged irregularities in which the Burgers
were supposedly involved. The Burgers
dispute those allegations and
for present purposes I naturally cannot, and do not, decide the truth
of the allegations. However,
they provide a reasonable basis at least
for suspecting that the Burgers in general engaged in irregular
financial conduct and
that it would thus be to the advantage of
creditors that there should be the fullest investigation into the
affairs of all relevant
players, including individual estates of the
Burger brothers.
[15]
Mr Alberts submitted
that the IDC has failed to set out in its papers how an investigation
might result in the discovery of further
assets in the Burgers’
personal estates. He said that the papers do not reveal that the
investigations conducted to date
in the SBT inquiry show such a
likelihood. I repeat, however, that an enquiry into the affairs of
SBT is legally limited by matters
which are relevant to the affairs
of that company. The IDC does not allege that it has knowledge of
what an investigation into
the estates of the Burger brothers would
yield; what it alleges are circumstances which indicate the need for
an inquiry because
there is a reasonable possibility of pecuniary
advantage. This is not a case where there is no reason for suspicion
of substantial
irregularities. Particulars, albeit disputed, are set
out in the founding affidavit. Although those particulars concern in
the
main the affairs of SBT (the entity under investigation in the
s 417
inquiry), they raise a reasonable concern that there may
also have been irregular conduct by the Burgers in relation to their
personal
affairs and in their dealings with family members and family
trusts.
[16]
In that regard, the IDC
alleged in its founding papers that the Burger brothers were
associated with at least 15 trusts. The IDC
wishes to have
investigated the relationship between the brothers and these trusts.
The response in the answering affidavit is
that the details of the 15
trusts have not been disclosed by the IDC and that no facts have been
placed before the court to establish
why such an investigation has to
date not occurred. The Burgers do not, however, deny that they are
associated with 15 trusts.
Mr Alberts in argument justified the
bareness of his clients’ response by submitting that nothing
substantial had been said
in the founding affidavit to call for a
more detailed answer. Again, however, the IDC cannot be expected to
know the details. It
wishes to have them investigated. The Burger
brothers were at one stage in control of a substantial group of
companies. Those companies
have collapsed. One knows from experience
that trusts can be used to shield assets from creditors. One also
knows from experience
that when a substantial family-controlled group
of companies goes bankrupt, it often transpires that the individuals
behind the
group abused the group’s affairs for their personal
benefit. I do not say that this happened in the present case but it
is
a matter worth investigating.
[17]
The financial
statements forming part of the record reflect various transactions in
which the Burgers or family trusts were involved.
The following
examples suffice to demonstrate that there is material, relevant to
the Burgers’ personal affairs, which could
usefully be
investigated:
[a] Etbur
is a Namibian company of which the Burger brothers were, as at
February 2012, the directors and shareholders.
[3]
As at February 2012 Etbur had made loans to the brothers of R599 381
and R382 866.
[4]
What became of these funds? (Since the brothers are the shareholders
of the company, any residual value in the company will represent
further value in the estates of the brothers. The financial
statements in question reflect that the value of the company’s
assets exceeds its liabilities by R3 303 323.)
[b] The
brothers were also the directors and shareholders of SBE (their
sister was also a director). As at February 2012 the
brothers had
lent SBE R2 326 484 and R2 755 739 respectively,
of which R652 744 was lent during the year
ended February 2012
(one can pick this up from the prior-year figures).
[5]
From where did they get the money which enabled them to make the
substantial loans?
[c] One
of the property companies with which the brothers are associated is
called Purple Rain Properties 437 (Pty) Ltd. In
note 12 of this
company’s financial statements for the year ended 29 February
2012, being the notes dealing with related
party transactions, it is
recorded that the JDP Trust (of which Jannie Burger was a trustee
[6]
)
owed the company R817 110.
[7]
The company’s trial balance reflects that Jannie Burger in his
personal capacity had a loan claim against the company of
R302 555
as at February 2012.
[8]
(The latter loan claim, I should mention, appears to be an additional
asset in Jannie Burger’s estate, not mentioned in the
founding
or answering papers.) What did the JDP Trust do with the money
obtained from the company and who in particular benefited
from the
payment; and where did Jannie Burger obtain money to make the loan to
the company?
[d] Another
of the property companies is Purple Rain Properties 352 (Pty) Ltd.
From the company’s financial statements
it appears that its
shareholder was the Jannie Burger Eiendomme Trust. The notes to the
financial statements indicate that the
company was a debtor to Jannie
Burger as at February 2011 in the amount of R1 169 384 but
that this amount was repaid
during the year ended February 2012 (the
loan account had a nil balance on the latter date). The same note
indicates that as at
February 2011 the JDP Trust owed the company
R213 460 but that the said trust was able to repay the money
during the year
ended February 2012.
[9]
What did Jannie Burger do with the substantial sum which was repaid
to him during the year ended February 2012; and where did the
JDP
Trust obtain the money to make repayment to the company during that
year?
[e] Yet
another property company is Purple Rain Properties 411 (Pty) Ltd.
Again, its shareholder is the Jannie Burger Eiendomme
Trust. During
the financial year ended February 2012 the JDP Trust lent the company
R423 892. During the same financial year
the company repaid the
Jannie Burger Eiendomme Trust R320 261.
[10]
Similar questions to those which I have posed rhetorically in respect
of other transactions arise here.
[f] The
brothers are also associated with a company called DMJ Boerdery (Pty)
Ltd. Both are listed among its shareholders in
note 4 to its
financial statements for the year ended February 2012.
[11]
The financial statements reflect that as at February 2012 Jannie and
Martin Burger had loan claims against the company of R64 881
and
R921 956 respectively. (Again, these loan claims have not been
taken into account in the discussion of the Burgers’
assets.)
[g] The
notes to the financial statements of the JDP Trust for the year ended
February 2012 show that the Trust had a loan
claim of R1 726 529
against Jannie Burger, of which R1 610 276 was lent to him
during that financial year.
[12]
What did he do with the proceeds?
[h] One
of the allegations of irregularity contained in the founding
affidavit is that during late 2011 or early 2012 Jannie
Burger sold
certain trailers which belonged to SBT at a price below that which
SBT had negotiated with the purchaser, and that
the proceeds of the
sale were recouped not by SBT but by an entity known as Virtigo
Properties 33 (Pty) Ltd (‘Virtigo’),
of which Jannie
Burger was alleged to be the ‘corporate controller’. In
his answering affidavit, Jannie Burger denied
that the transaction
was fraudulent. He confirmed his direct involvement in the
transaction and said that ‘to the best of
his knowledge’
the trailers were not sold below the negotiated price. He said that
he derived no personal benefit from the
transaction and denied that
he was the ‘corporate controller’ of Virtigo. The
financial statements of the company as
at February 2013 show,
however, that Jannie Burger was a director until 30 November 2012 and
that since then the sole director
has been his wife Cheryl.
[13]
Note 5 to the financial statements indicates that the shareholders of
Virtigo as at February 2013 were Jannie Burger and the JDP
Trust.
This calls into question Jannie Burger’s denial that he was the
effective controller of Virtigo. Significantly, note
5 indicates that
as at February 2012 Jannie Burger had a loan claim against Virtigo of
R6 952 495 and that during the
financial year ended
February 2013 he was repaid R3 313 296, yielding a reduced
balance owing to him as at February 2013
of R3 639 199.
[14]
Jannie Burger thus had substantial resources to lend to Virtigo and
received a substantial amount in repayment during the year
ended
February 2013. Creditors are entitled to know where he initially
obtained the funds to lend to Virtigo and what he did with
the amount
of more than R3,3 million repaid to him during the financial year
ended February 2013. (I note, again, that the loan
claim has not been
taken into account in the computation of Jannie Burger’s
assets.)
[18]
It is also common cause
that Jannie Burger’s wife Cheryl ran a successful ‘tuck
shop’ from SBT’s business
premises and that over the
period September 2009 to December 2012 its turnover was about R9,5
million. Creditors are entitled to
ascertain how Cheryl Burger funded
the tuck shop business and whether it was in truth (as Jannie Burger
alleges) her separate enterprise.
Upon Jannie Burger’s
sequestration, the assets of Cheryl Burger will vest in his trustee
(s 21(1)
of the
Insolvency Act), and
the trustee will only have
to release the assets to her if one or other of the circumstances set
out in
s 21(2)
is satisfied. This would entail an enquiry into
whether she acquired the assets in question by a title valid against
Jannie Burger’s
creditors.
[19]
In regard to the
requirement of advantage to creditors, the test at the provisional
stage is whether the court is ‘of the
opinion that
prima
facie
’ there
is ‘reason to believe’ that it will be to the advantage
of creditors if the estate is sequestrated. For
a final sequestration
order (which is what I am dealing with), the test is whether the
court ‘is satisfied’ that there
is ‘reason to
believe’ that it will be to the advantage of creditors if the
estate is sequestrated. I do not need to
find that on a balance of
probability advantage will accrue. I must simply be satisfied that
there is reason to believe that an
advantage will accrue, which is a
considerably lower threshold (see
Amod
v Khan
1947 (2) SA
432
(N) at 437-438;
London
Estates (Pty) Ltd v Nair
1957
(3) SA 591
(D) at 592C—H;
Hillhouse
v Stott & others cases
1990
(4) SA 580
(W) at 585C-F;
Epstein
v Epstein
1987 (4)
SA 606
(C) at 609B-D) . The attitude of creditors, where such views
are not materially divergent, can be taken into account in assessing
the question of advantage to creditors (see, for example,
Kempff
v Amod Essa & Co
1934
TPD 139
at 141-2;
Geo
Browne & Son v McFarlane
1936
NLR 268
at 273-4). In the present case there is only one independent
creditor, the IDC. The IDC’s claim represents far and away the
largest component of the Burgers’ debts. The IDC considers that
sequestration will be in its interests.
[20]
All things considered,
the prospect of a not insubstantial monetary dividend (albeit a very
small dividend in the rand), coupled
with the not too remote prospect
of the recovery of further assets through a process of inquiry in the
insolvent estates (see
Commissioner,
SARS v Hawker Air Services (Pty Ltd
[2006] ZASCA 51
;
2006
(4) SA 292
(SA) para 29)), satisfies me that there is reason to
believe that it will be to the advantage of creditors if the estates
of the
Burgers sequestrated. In the circumstances, I see no basis to
exercise the court’s residual discretion against the granting
of final orders.
[21]
Mr Alberts argued that,
even if the papers satisfied me that there was reason to believe that
sequestration would be to the advantage
of creditors, I should
nevertheless consider whether a referral to oral evidence (for which
his clients asked) would disturb that
assessment. He referred in that
regard to
Mahomed v
Malk
1930 TPD 605
and
Hilleke v Levy
1946 AD 214.
These
cases do not support Mr Albert’s contention.
Hillike
dealt with an
application for a final interdict.
Mahomed
,
like the present case, dealt with the return day of a provisional
sequestration order. However, the point in dispute in that case
was
whether the debtor had committed an act of insolvency. The
petitioning creditor was obliged to prove on a balance of probability
that an act of insolvency had been committed. Because final relief
was being sought, the usual rule applied in the resolution of
factual
disputes in motion proceedings. Tindall J, delivering the judgment of
the full bench, said that such a question could not
usually be
decided simply on a balance of probabilities based on an assessment
of the affidavits. Resolution of the dispute required
oral evidence
unless the court was satisfied that oral evidence would ‘not
disturb this balance of probabilities’ (at
619). He proceeded
to say that such a conclusion might be reached if the debtor’s
version was so inherently improbable that
it could not reasonably be
true or if the admitted facts showed that the attack on the validity
of the claim or on the grounds
of insolvency was not honestly made or
if for other sufficient reason the court was satisfied that the oral
evidence would not
disturb the balance of probabilities. By these
remarks, it appears to me, the learned judge was intending to
describe the circumstances
in which a court considering the grant of
final relief might conclude that there is no genuine dispute of fact.
The authoritative
test in that regard is now the one laid down in
Plascon-Evans Paints
Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634H-635C. (The position where there are factual
dispute at the provisional stage is somewhat different, because in
that
situation the court is entitled to determine whether the
petitioning creditor has made out a
prima
facie
case in the
sense that the balance of probabilities on the affidavits favour the
grant of a provisional order. If the petitioning
creditor has made
out a
prima facie
case in that sense,
a court will not ordinarily accede to a request by the debtor to
refer the matter to oral evidence at the provisional
stage; but if at
the provisional stage the balance of probabilities on the affidavits
is not in favour of the petitioning creditor,
the court has a
discretion to allow oral evidence, such discretion being guided in
the main by the prospect of oral evidence tipping
the balance in
favour of the petitioning creditor (
Kalil
v Decotex (Pty) Ltd & Another
1988
(1) SA 943
(A) at 975I-980A).
[22]
Accordingly, if there
were a genuine dispute of fact in the present case, the application
for final sequestration orders would have
to be dismissed unless the
IDC requested (and was granted) a referral to oral evidence. The IDC
has not made such a request, because
Mr Woodland submits on its
behalf that there is no genuine dispute of fact. In determining
whether there is a genuine dispute of
fact, it is important to
appreciate the distinction between an enquiry into objective facts
such as whether the petitioning creditor
has a claim and whether the
debtor has committed an act of insolvency, and an enquiry into
whether there is reason to believe that
sequestration will be to the
advantage of creditors. The latter enquiry calls for a value
judgement. Where the advantage to creditors
is said to lie in the
pecuniary benefit which may be yielded by investigation, the court,
in making its value judgement, does not
necessarily need to resolve
disputed allegations of impropriety on the part of the debtor. The
very fact that there are allegations
of impropriety is a relevant
consideration, even though they may be disputed. The court cannot be
expected, in order to determine
whether there is reason to believe
that it will be to the advantage of creditors to grant a final
sequestration order, to investigate
and determine the very matters
which the petitioning creditor says should be investigated by way of
the machinery provided by the
Insolvency Act. Where
a court grants a
final sequestration order because of the benefits which might flow
from future investigation, the possibility
always exists that in the
event the investigation will not bear fruit. That does not mean that
the court, when it granted the final
order, erred in being satisfied
that there was reason to believe that sequestration would be to the
advantage of creditors.
[23]
I thus grant final
orders in both cases.
ROGERS
J
APPEARANCES
For Applicant: Mr G Woodland SC
Instructed by:
Edward Nathan Sonnenbergs
ENS House, Loop Street
Cape Town
For Respondents: Mr S Alberts
Instructed
by:
Heyns
& Partners Inc
Ground
Floor, The Chambers
50
Keerom Street
Cape
Town
[1]
Record 214ff.
[2]
Record 246 read with the balance sheet at record
240.
[3]
Record 218 and note 4 at record 225.
[4]
Record 210 read with note 4 at record 225.
[5]
Record 246 read with 240.
[6]
See record 230.
[7]
Record 446 read with trial balance at 445.
[8]
Record 445.
[9]
Record 450.
[10]
Record 454.
[11]
Record 413 in Case 10680/2013.
[12]
Record 233.
[13]
Record 394.
[14]
Record 402.