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[2015] ZAWCHC 136
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Ex parte: Concato; Van Staden; Goliath and Another; Oberholzer; Botha (19753/2014; 19756/2014; 19754/2014; 19795/2014; 19755/2014) [2015] ZAWCHC 136; [2016] 2 All SA 519 (WCC); 2016 (3) SA 549 (WCC) (18 September 2015)
THE
REPUBLIC OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
In
the ex parte applications of:
ANNALISA
CONCATO
Case No: 19753/2014
WALTER
JACQUES VAN
STADEN
Case No: 19756/2014
MORNE
REGINALD GOLIATH & 1
OTHER
Case No: 19754/2014
SCHALK
WILLEM OBERHOLZER
Case No: 19795/2014
PIETER
WERNER
BOTHA
Case No: 19755/2014
Coram
:
BOZALEK J
Heard:
6 NOVEMBER 2014 & 25 FEBRUARY 2015
Delivered:
18 SEPTEMBER 2015
JUDGMENT
BOZALEK
J:
[1]
This judgment concerns five applications
for voluntary surrender, all of which are unopposed. They were first
called in Third Division
(unopposed motion court) in late October
2014 and in each case the applicant or applicants were represented by
the same firm of
attorneys and counsel. The judge initially presiding
expressed doubt, if not outright scepticism, regarding the merits of
the applications
arising out of their apparent similarity and, in
particular, the fact that in each instance it was contended that upon
voluntary
surrender a dividend of either 16 or 17 cents would accrue
to creditors.
[2]
In the light of the Court’s comments
counsel for the applicants sought a postponement in order to file a
supplementary affidavit.
The attorney acting for the applicants, Mr
Etienne Genis, duly filed an affidavit responding to the above
concerns raised as well
as the fact that same valuator was used in
each case to value the assets of the applicants.
[3]
In
his supplementary affidavit Mr Genis went to some lengths to describe
the nature of his insolvency practice and the procedure
which he
adopted in handling such applications. He stated that he had
developed an insolvency division within his practice which
specialised in voluntary surrenders and that as a result many such
potential matters were referred to him by a variety of persons.
He
emphasised that a full consultation was held and instructions taken
from every such client. If clients indicated that they wished
to
persist with such an application detailed instructions were taken and
a qualified valuator, Mr Clive Francis, was approached
to value each
such client’s assets. Using this valuation Mr Genis calculates
a provisional dividend which might be achieved
upon voluntary
surrender. This exercise enables him to weed out those clients who
are not insolvent or the surrender of whose estates
would produce
such a low projected dividend that the application would not be
feasible. In certain cases the provisional calculation
indicated that
the projected dividend would be no more than 10 or 12 cents in the
rand. In some of these instances his firm would
work at a reduced
tariff in order to achieve a greater dividend, between 12 and 16
cents. Mr Genis referred to a judgment of this
Court
[1]
where Gamble J sanctioned the capping of the same attorney’s
fees inter alia to ensure that the projected dividend was achieved.
He advised that his firm usually strove to limit its fees to R9
000.00 in each application but that to that sum had to be added
the
disbursements incurred in such matters. Regarding his firm’s
insolvency practice as a whole, Mr Genis advised that he
received
between six and 15 such instructions per month and this had been the
case over the past four years.
[4]
Regarding the uniformity in the format of
the applications the simple explanation therefor was that each was
subject to the same
legal process and requirements. They were thus
formulated to satisfy the Court that the provisions of the
Insolvency
Act, No 24 of 1936
were complied with, that there were assets
adequate to cover the costs of the sequestration, that they would
produce a sufficient
dividend for creditors and, finally, in each
case, to explain what had led to the applicants’ insolvency.
[5]
Dealing with his firm’s relationship
with the valuator, Mr Genis explained that it had previously used a
Johannesburg valuator
who had a branch office in Cape Town but this
placed restrictions on the amount of work that the valuator was able
to do and his
efficiency. He had therefore sought a local valuator
with an interest in doing the work which led him to the valuator whom
it presently
uses. Mr Genis averred that his firm’s choice of
this valuator was made on a purely professional basis.
[6]
In conclusion Mr Genis contended that any
suggestion that the applications were a ‘
scam’
was unfounded, that it was purely coincidental that in all five
applications the projected dividend was either 16 or 17 cents and,
in
all probability, that this was because the applicants’ estates
were of the same size and a result of his firm’s
careful
sifting of clients wishing to apply for voluntary surrender. The
attorney gave a general assurance that his firm conducted
a proper,
lawful and ethical practice and that it relied in these applications
on no documents which were inappropriate or which
might mislead the
Court.
PRINCIPLES
APPLICABLE TO VOLUNTARY SURRENDERS
[7]
It is, of course, open to any debtor to
seek escape from financial difficulties via the route of voluntary
surrender provided that
he or she is able to make a proper and bona
fide case in compliance with the provisions of the
Insolvency Act.
Our
courts have, over the decades, been wary of the potential for
abuse in so-called ‘
friendly’
sequestrations. It is increasingly recognised, however, that there is
a great or even greater risk of abuse and the undermining
of the
interests of creditors in voluntary surrender applications. In such
applications, as was pointed in
Ex
parte: Arntzen (NedBank Limited as intervening creditor)
2013 (1) SA 49
(KZP) at paragraph [12], the need for full and frank
disclosure and well founded evidence is even more pronounced.
[8]
In his comprehensive and carefully reasoned
judgment Gorven J found that voluntary surrender applications require
an even higher
level of disclosure than do ‘
friendly’
sequestrations (paragraph [12]), the need for full and frank
disclosure being accentuated by the fact that, despite the practice
of such applications being brought on an ex parte basis, they do not
fulfil the criteria for true ex parte applications (paragraph
[6]).
In the latter the applicant is the only person interested in the
relief which is being claimed and notice is only given to
the
Registrar of the Court. In voluntary surrender applications, however,
creditors have a very real interest in the outcome of
the application
which spells the difference between the prospect of recovering the
applicant’s full indebtedness and the
prospect that recovery
will be reduced by virtue of sequestration (paragraph [6]).
[9]
After setting out the requirements and
rationale for notice to creditors Gorven J commented as follows at
paragraph [8]: ‘
From
this it is clear that in voluntary surrender applications creditors
are required to be more alert, proactive and must respond
more
quickly in assessing whether or not to intervene, than if they had
been a party to the application’
and
proceeded to make the following
further observations:
‘
It
does not require great imagination to realise that many, if not most,
creditors do not have the resources to routinely and timeously
follow
up on notices of surrender sent to them by post. Even if they follow
up, they may well decide that it is not worth throwing
good money
after bad by intervening and opposing the application. This may be
particularly so in relatively small estates where
their prospect
of recovering legal costs, even if they successfully oppose the
application, is remote. This renders creditors
peculiarly vulnerable
to voluntary surrender applications which, at a superficial level,
make out a case that sequestration is
inevitable. In such a case an
overburdened court, confronted with an unopposed application, may not
scrutinise the application
as carefully, and thus become aware of
material non-disclosures, as it would do if it were opposed. A
further reason for requiring
a higher level of disclosure in
voluntary surrender applications, is that an outright order can be
given on the first appearance
in court whereas, in most sequestration
applications, a provisional order precedes a final order in a
two-stage process.’
[10]
Gorven J referred to the tightening up,
just over a decade ago, in the various divisions of the High Court on
so called ‘
friendly
’
sequestration applications (paragraph [9]).
He
went on at (paragraph [12]) to furnish some of the reasons for his
view that full and frank disclosure and well founded evidence
was
necessary in voluntary surrender applications. These included the
failure of applicants to appreciate the need to satisfy a
more
rigourous test than for both the provisional and final stages of
sequestration applications as regards the advantage to creditors,
the
fact that the Court had no alternative, in most instances, but to
rely on the founding papers and the fact that since the debtor
is the
applicant he/she has a direct interest in the application succeeding.
[11]
The
learned judge concluded ‘
Voluntary
surrender applications therefore require an even higher level of
disclosure than do ‘friendly’ sequestrations,
if the
Court were to be placed in a position where it can arrive at the
findings and exercise the discretion set out in
sec 6(1)
of the Act’.
In this regard he reasoned further (at paragraph [13]) that, in these
circumstances, it was appropriate, at the very least, to
require
compliance with the guidelines set out in
Mthimkhulu
[2]
which can also be applied to voluntary surrender applications. One
important such guideline is that ‘…
(c)are
must be taken to put up a full and complete list of the respondent’s
assets and in particular and more importantly,
to put up acceptable
evidence upon which the Court can determine not only what their
market value is prior to sequestration but
what they will realise
post sequestration at a forced sale … Very often a value is
put to household furniture and effects
and second hand motor vehicles
which bear no relationship to their true value’
.
See
Mthimkhulu
at 517 B – H.
[12]
Gorven J referred to sequestrations where
even the friendly creditor makes no effort to have a trustee
appointed or to prove his
claim, no other creditor takes steps to
prove a claim because of a fear of contribution and the debtor waits
for the dust to settle
and, with his old creditors off his back,
carries on business as normal, a situation referred to in
Mthimkhulu
at 514 G – H. In a comment which could equally apply to some
voluntary surrender applications Gorven J stated (at paragraph
[10]):
‘
In
situations such as this the sequestration of the debtor's estate
cannot be said to have been to the advantage of creditors. Such
applications constitute an abuse of the process of court and
undermine the rights and interests of creditors. The only person who
benefits is the debtor, often at the expense of creditors’.
[13]
He went on (at
paragraph [11]) to remark pertinently about voluntary surrender
applications which ‘…
have
begun to proliferate in this division. A fledgling cottage industry
has reared its head. As was the situation with 'friendly'
sequestrations in Mthimkhulu, many of these take a standard form
with almost identical averments and are drafted by a small
set of
attorneys who have chosen to specialise in such applications. In most
cases the estate is small, as is the case in the present
application.’
I
pause to observe that, in my experience, these remarks could be made
with equal force as regards the proliferation of voluntary
surrender
applications in this Division in recent years.
[14]
A further factor relevant to voluntary
surrender applications is the relatively recent institution of
machinery for debt relief
in terms of the National Credit Act, No 34
of 2005 (‘the NCA’). Generally speaking, these mechanisms
provide for no
immediate ‘
clean
slate’,
but rather for defaulting
debtors to seek an agreement or order of Court rearranging their debt
commitments to creditors and for
reduced payments, often over an
extended period. Therefore, although potentially offering substantial
relief, such debt provisions
might appear, to some debtors at least,
as onerous in comparison to the attractions of surrendering one’s
estate particularly
if this has little or no immediate effect upon
one’s living circumstances.
[15]
The
existence of these new debt relief measures and the frequent
disregard thereof in some voluntary surrender or friendly
sequestration
applications has been previously noted in this
Division. In
Ex
Parte Ford and 2 similar cases
[3]
in which three voluntary surrender applications in terms of the
Insolvency Act were
brought, an adequate explanation was sought by
the Court why, when much of the debt fell within the ambit of the NCA
and credit
had been granted recklessly, the various applicants had
failed to avail themselves of the remedies available under the NCA.
[16]
The
debt relief provisions of the NCA are of recent vintage and in
deciding whether an advantage to creditor has been proved the
Court
must also bear in mind that the machinery for surrender is not
necessarily to be preferred above that of execution in the
ordinary
course including that by way of the provisions of sec 65 of the
Magistrates Court Act, No 32 of 1944. As was pointed out
in
Ex
Parte Pillay
[4]
the fact that the debtor may consider such execution onerous or
constitutes ‘
harassment’
to them has no relevance in relation to the merits of an application
for surrender.
[17]
As has been noted, the requirement that the
Court must be satisfied that it
will
be to the advantage of creditors if the estate were to be
sequestrated must be contrasted with the less stringent test for a
provisional
or final order, even in a friendly sequestration. This is
fitting inasmuch as the debtor has complete knowledge of his own
financial
circumstances, which he is bound to disclose and
accordingly bears the onus of proving, on a balance of probabilities,
that there
will be the requisite advantage to the body of creditors.
[18]
Finally,
a striking feature of most if not all the applications of this ilk
which I have seen is that the debtor includes in the
list of his/her
realisable assets virtually every item of furniture and household
equipment necessary for daily life.
Section 82
(6) of the
Insolvency Act precludes
the sale of such goods although a debtor may
renounce that protection in favour of his creditors in order to
establish advantage
to creditors
[5]
.
Such a renunciation should, in my view, be explicit.
[19]
In
Ex Parte
Rhode and 8 similar cases
(supra)
Gamble J dealt with nine applications for voluntary surrender in this
Court which were also brought by the same firm of
attorneys as act
for the applicants in the present matters. As in the present matters
all procedural requirements were met, no
creditors had sought to
intervene and in each case the assets identified by the various
applicants comprised only movables and
mostly household effects and
furniture.
[20]
Although Gamble J raised a number of
queries regarding the applications, notably, that they were obviously
being brought on a ‘
batch’
basis by the attorneys and that the valuation of second-hand
furniture must remain ‘
very
speculative’
, he ultimately
granted orders of voluntary surrender in each instance. The judgment
gives no indication what the projected dividends
were in each case.
Regarding the batch nature of the applications Gamble J considered
(paragraph [23]) that it was neither ‘
appropriate
[nor] fair to dismiss applications of this sort simply because the
legal practitioner has sought to legitimately exploit
an opportunity
in a niche market’
. He added that
what was important was ‘
to ensure
that the process is conducted in accordance with the law and that the
interests of the general body of creditors are given
due and proper
consideration’
. As far as they
go, I have no difficulty with these propositions provided always that
every such application is dealt with by the
practitioner on its
merits i.e. on the basis of reliable and, where appropriate, detailed
information, is bona fide and is not
being shoe-horned into some
pre-determined formula designed only to achieve a favourable result.
[21]
It would appear that in
Ex
parte Rhode
the applicants’
attorney had also alluded to the appointed trustee ‘
where
possible (affording) the insolvent or his/her family an opportunity
to buy the assets back’
. Gamble J
posed (at paragraph [19]), in passing, the legitimate question as to
exactly how the trustee agreed a ‘
buy-back
price’
with the insolvent and
where the insolvents found the money to fund this purchase. He noted
(at paragraph [27]), furthermore, that
in all the matters serving
before him the applicants were entitled to retain a large number of
their assets in terms of sec 82(6)
of the Act as household furniture
‘
and other essential items of
subsistence’
. It would appear
that in each such instance, however, the applications had contained a
waiver by the applicant/s of his or her
rights under this section of
the Act. It is a matter of concern that no such waivers are contained
in any of the matters presently
under consideration. This has
implications for the bona fides of the applicants, a question to
which I will revert.
THE
SWORN VALUATIONS
[22]
As
has been noted in many recent judgments of the courts dealing with
friendly sequestrations and voluntary surrenders, the question
of the
accuracy and integrity of the valuation is of primary importance. In
Nel
v Lubbe
[6]
Levinson J, stated (at 111G), albeit in the context of the valuation
of fixed property, that the court would not blindly accept
the
assertion of the expert providing the valuation without a full
explanation. In
Ex
Parte: Bouwer and Similar Applications
[7]
Makgoka AJ quoted with approval (at paragraph [1]) from the 9
th
edition of Mars at page 63 as follows:
‘
On
the other hand, insolvency practitioners are tempted to present a
rosy picture of the debtor's affairs that bears little semblance
to
reality, resulting in an estate being declared insolvent that renders
little or no dividend for creditors once the fees
of the various
participants in voluntary surrender proceedings have been deducted
and the administration costs have been paid.
Such
abuses of the process have led the courts to insist ever more
stringently on exact information regarding the debtor's affairs
being
placed before them and to demand a realistic calculation of the
potential dividend.'
[23]
More
pertinent to the present matters Bertelsman J, in
Ex
parte Erasmus and Another
[8]
,
observed as follows (at paragraph [4]):
‘
The
probability that second hand furniture of uncertain age and quality
will set an auction on fire is obviously slim. This has
negative
implications for any intended surrender of a small estate, because
the proceeds of meagre possessions must cover the administration
costs before the claims of preferred and secured creditors can be
considered.
In
Ex
parte Snooke
[9]
Daffue
J, expressed approval for the view in Mars that it is a lacuna in our
present legislation that no provision is made for judicial
oversight
of the actual results of the liquidation process. The learned Judge
stated:
‘
Judges
are not informed whether the dividend that was held up to creditors
in the application was in fact realised. I decided some
time ago,
when having to consider rehabilitation applications to arrange for
perusal of the applicable applications for voluntary
surrender or
sequestration to obtain personal knowledge of the allegations made
under oath and have no hesitation to state that
the averments under
oath in so-called friendly sequestrations and voluntary surrender
applications in order to prove advantage
to creditors are far from
the truth in many instances. My own experience is that sequestrations
in the majority of cases eventually
turns out not to be to the
advantage of creditors is no surprise at all. This much is apparent
from a survey conducted more than
three decades earlier…’
T
HE
FURTHER CONDUCT OF THE MATTERS
[24]
These matters came before me only after the
applicants’ attorney had filed his supplementary affidavit
responding to the concerns
expressed by the Court which initially
heard them. After hearing argument from applicants’ counsel on
the merits of the applications.
I remained troubled by the formulaic
and often superficial nature of the applications and the striking
similarities between them,
not only in their format and general
allegations, but in the projected dividend which, as mentioned, was
invariably either 16 or
17 cents.
[25]
As a general rule in this Division no
voluntary sequestration order will be granted where the projected
dividend is less than ten
cents in the rand. However, even where the
dividend is projected to be 16 or 17 cents, particularly where no
fixed property or
a major moveable asset is involved and achieving
the dividend relies solely on the sale of household items, equipment
and furniture,
considerable doubt often remains as to whether even
this level of dividend will be reached. With this concern in mind and
in light
of the fact that applicants’ attorneys have a
specialised insolvency practice in which applications for voluntary
surrender
are regularly brought in large numbers, it struck me that
in considering whether the projected dividends would be achieved and
whether such orders would be in the interests of creditors, it could
well be of assistance were the applicants’ attorney to
furnish
particulars of the outcome of similar applications in the recent
past. In this manner, rather than relying solely on the
applicants’
subjective predictions and dividend projections, the Court would have
the benefit of a retrospective view of
the outcome of similar
voluntary surrender applications and this might ultimately allay any
concerns that projected dividends would
not be achieved or that no
benefit to creditors would ensue.
[26]
In the circumstances I postponed all the
applications and directed the applicants’ attorney to furnish
an affidavit setting
out the following particulars relating to all
voluntary surrender applications brought by his firm in this Division
in the final
term of 2013 and the first term of 2014 provided that,
if these numbered less than 30, the third term of 2013 should also be
covered.
The particulars sought were:
a)
applicant’s name and case number;
b)
whether a trustee was appointed to the
estate and, if not, the reason therefor;
c)
the sale value of the assets in the
applicant’s estate and the projected dividend to creditors
(both) as initially set out
in the application;
d)
whether the assets in the estate were sold
and, if not, the reason therefor;
e)
the value actually obtained upon sale of
the assets in the applicant’s estate after surrender;
f)
the actual dividend paid to creditors and,
if none was paid, the reason therefor;
g)
whether any creditor was required to pay a
contribution towards the costs of administration of the estate and,
if so, how much;
h)
any further information which the deponent
considered might be relevant to the above questions.
[27]
In due course a considerable amount of
information in tabulated form was received and the Court is indebted
to the applicants’
attorney, Mr Genis, for the trouble taken.
In his covering affidavit he described the procedure which generally
follows the granting
of a voluntary surrender order. In many respects
the picture which emerges is a disturbing one. Firstly, it would
appear that the
initial step, the Master’s appointment of a
trustee, can take anywhere between two weeks to six months as a
result of delays
in that office. Thereafter the curator sends a
circular letter to creditors giving a provisional report on the
assets and liabilities
in the estate. The first meeting of creditors
follows and should take place within a month but often takes many
more months because
of delays within the Master’s office and
the necessity to publish details of the meeting in the Government
Gazette. A final
appointment certificate is provided to the curator
only after the Master has received the minutes of the first meeting.
Once the
curator has received his final appointment certificate he
must arrange a second meeting of creditors within three months. In
due
course the curator is required to send a formal report by
registered post to all known creditors in terms of sec 81 of the Act
indicating all the assets and liabilities in the estate. Notice of
the second meeting of creditors must also be published in the
Government Gazette and in newspapers circulating in the area in which
the insolvent lives. It is only at the second of meeting
of creditors
that the curator receives an instruction from creditors on how to
deal with assets in the estate.
[28]
For different reasons an analysis of all
the cases reported on by the applicants’ attorneys also reveals
a disturbing picture.
The report dealt with a total of 90 matters in
which voluntary surrender orders were made between November and
December 2012, in
the final term of 2013 and the first term of 2014.
[29]
Eleven (11) of these estates had a fixed
property as an asset. In each of these cases there was a major
secured creditor in the
form of the mortgagee which proved a claim
and which, in all probability, would be the only creditor to receive
a dividend. Having
regard to the total number of cases reported on it
appear that the projected dividend to unsecured creditors was never
more than
22 cents or less than 14 cents in the rand. In 40 of the 90
cases the projected dividend was 16 cents and in 26 cases 17 cents.
Thus, strikingly, in percentage terms the projected dividend in 73%
of the cases was either 16 or 17 cents in the rand.
[30]
The most conspicuous feature revealed by
the report, however, was that in the great majority of cases the
arrangement eventually
arrived at was that the insolvent bought back
the assets in his surrendered estate, almost invariably by way of
payments in instalments.
[31]
The first period reported on by the
applicants’ attorney dealt with applications brought in the
last terms of 2013 and the
first term of 2014. Of a total of 64
cases, eight involved estates including fixed property as an asset.
Of the 56 remaining cases
it is explicitly stated that the
insolvent’s movable assets were sold back to him in 50 of those
cases. Of the remaining
six cases in one instance it is unclear what
the outcome was. In the remaining five cases, however, it is clear,
principally through
the fact that the amount recovered exactly
matched the value attributed to the insolvent’s estate by the
valuator, that a
similar arrangement was arrived at with the
insolvent i.e. he or she purchased his or her assets back.
[32]
The applicants’ attorney then
reported on applications for voluntary surrender in the period
November/December 2012. These
numbered 26 of which three involved
estates having fixed property as an asset. An analysis of the outcome
in the remaining 23 cases
is somewhat complicated by the fact the
applicants’ attorney changed his method of reporting and made
no mention of any cases
where the creditors had resolved to sell the
insolvent’s assets back to him/her either by way of instalment
payments or by
way of a lump sum payment. Reading between the lines,
however, it would appear that such an arrangement was reached in 20
of the
remaining 23 cases, once again since in the vast majority the
precise prior valuation placed on the insolvent’s assets by
the
valuator had been recovered. In two such cases it is made explicit
that such an arrangement was made. In the remaining three
cases,
although no mention of an auction is made, it would appear that the
surrendered estate was sold but that a sum considerably
less than the
valuation sum was recovered.
[33]
In summary, on an analysis of all the
periods covered by the report the overall picture is that, out of a
total of 79 cases in which
there was no fixed property asset, the
insolvent/s purchased back his/their assets in at least 70 such cases
i.e. nearly 90% of
the total. Furthermore, in the great majority of
these instances it appears that the insolvent purchased his assets
back by way
of payment in instalments.
[34]
The applicants’ attorney felt
constrained to explain the prevalence of this arrangement, mainly on
the basis that the curator/trustee
had recommended this option to
creditors. Further, according to Mr Genis, it is in the best
interests of creditors that an insolvent
is given time to purchase
his assets back by way of instalments. He reasoned that such assets
have much more value for the insolvent
at the estimated forced sale
value than for other potential purchasers. This way, he opined, the
insolvent retains his dignity,
can make a positive contribution
towards the economy and learns to budget monthly for the payment of
these instalments. He also
stated that where assets were purchased
back by the insolvent in this manner there was no chance of a
contribution having to be
made by creditors because the monies which
would ultimately be recovered would always be enough to meet the
costs of the sequestration
and the projected dividend. Mr Genis added
that where, by contrast, an auction was held there was always the
risk that no interest
would be shown or the goods would be sold for
such a low price that the costs of sequestration would not be covered
and thus the
creditors would receive no dividend. It should be noted,
however, that judging by the report auctions are seldom, if ever,
held.
[35]
It is by no means clear to me, however,
that such ‘
buy-back’
arrangements are always, or even in the majority of cases, in the
interests of the body of creditors. Firstly, many creditors will
not
trouble to prove a claim. This is borne out by Mr Genis’ report
which in three instances reveals that of the monies recovered,
portions thereof were paid into the Guardian’s Fund because an
‘
insufficiency of claims’
were proved. In another five cases, the entire proceeds recovered, in
many cases quite substantial, were paid into the Guardian’s
Fund because no claims at all were proved.
[36]
There are other reasons why these
‘
buy-back’
arrangements, carried out on the scale revealed in these
applications, raise serious doubt as to whether they serve the
interest
of creditors. The assets are valued on a forced sale basis
and yet, without any auction being held, the insolvent invariably
purchases
them back at this value and in most instances, by way of
instalment payments over an extended period. Life goes on virtually
unchanged
for the insolvent. None of his household goods are removed
and he/she continues to utilise and enjoy all his/her household goods
and assets, until, in due course, he reaches an arrangement with the
trustee to purchase them back, almost always by way of instalments.
During this period the debtor is immune from his existing creditors
by virtue of the voluntary surrender order which has been granted.
[37]
Another disturbing aspect is what appears
to be the virtually pre-ordained nature of the arrangement whereby
the insolvent purchases
his estate back. I find it highly improbable
that the applicants’ attorney is not aware that this
arrangement will in all
likelihood prevail upon the granting of a
voluntary surrender order or that this very outcome is not discussed
with the client
prior to the application being brought. The
percentage of cases in which the arrangement is reached (90%) is too
great, in my view,
to allow of any inference other than that the
would-be applicants are fully apprised that if an order is granted
they will be able
to purchase their assets back at the forced sale
valuation by way of monthly instalments. In other words, except where
immovable
property forms part of the estate, there is virtually a
pre-determined outcome to all of the successful voluntary surrender
applications
brought in batches by the applicants’ attorneys.
[38]
In these circumstances it seems to be that
the interests served by such voluntary surrender orders are those of
professional persons
involved, namely, the attorneys, the valuator
and the trustee, besides, of course, those of the insolvent him or
herself. The former
earn fees and the latter are able to retain all
their assets and then purchase them back, generally over time, at the
forced sale
valuation. This they achieve without being pestered by
their creditors or without having to undergo the rigours of paying
them
by way of an arrangement or rescheduling made under the NCA.
[39]
It does not appear from
Ex
Parte Rhode
that Gamble J considered
the question of whether an application for voluntary surrender could
be said to be bona fide where all
the indications are that its
outcome, in the event of an order being granted, was virtually
predetermined, namely, the insolvent
buying back his assets at the
forced sale valuation by way of instalments. Certain further
fundamental questions raise themselves
in this regard. Why is the
forced sale valuation invariably used to determine the purchase price
of the insolvent’s household
goods and furniture when no such
forced sale is in fact taking place? In this regard it is also
instructive that Mr Genis, in motivating
for the ‘
buy-back’
arrangement, himself appears to have
limited faith in forced sale values being obtained on auction. No
light is shed on the question
of whether the trustees seek to obtain
a better price from the insolvent other than the forced sale
valuation level. Is this not
a case of the applicants ‘
snatching
at a bargain’
? A further question
remains how the insolvents, whose incomes are always eclipsed by
their expenses, manage to find the resources
to repurchase their
household furniture and goods.
[40]
One of the primary requirements for a
voluntary surrender application to be successful is that it must be
made bona fide. The facts
which have been brought to light by the
report from the applicants’ attorney, lead me to conclude that
these buy-back arrangements
are largely pre-ordained. In none of the
applications before me, however, was any mention of such an
arrangement made by the applicant/s.
I have little doubt also that no
mention of any such arrangement was made in the 90 cases which the
report covers. In my view on
this ground alone it can be concluded
that the bona fides of these applications is open to serious doubt.
At the least I would
expect an applicant to disclose that he has been
advised of the likelihood of such an arrangement and that he intends
to take advantage
thereof, if circumstances permit. Such disclosure,
together with an explanation of how the applicant will finance such a
re-purchase,
would afford the Court an opportunity to realistically
consider whether an order is in the interests of creditors or whether
the
application for voluntary surrender is merely a self-serving
exercise.
[41]
In the present matters it also does not
inspire confidence that the same valuator is used in each instance
and that his valuations
follow the same format, namely, a pro forma
affidavit, a table of the household goods and furniture, their
estimated value and
their condition being described as either
‘
average’, ‘fair’
or ‘
good’
.
The valuator’s affidavit refers only to a ‘
visual’
inspection of the assets. It is not stated when and where the
inspection took place, leaving open the possibility that it was done
by looking at photographs of the assets. Very sparse details of the
goods are furnished and, other than these basic details, the
valuations are unmotivated.
[42]
Of course this is not to say that each and
every arrangement whereby an insolvent purchases back his estate is
not in the interests
of creditors. Every case will have to be
determined on its own merits. Obviously, moreover, care must also be
taken not to confuse
the role of the Court, which must grant or
refuse an order of voluntary surrender, with that of the trustee who
must dispose of
any surrendered estate to the best advantage of, and
on the instructions of, the creditors.
[43]
Finally in regard to the grave reservations
I have regarding the validity of these re-purchase arrangements, it
stands to reason
that if an applicant is prepared to purchase his
assets back at their forced sale valuation because of the value he
attaches to
them, he/she may very well be prepared to pay a premium
above such a valuation. No explanation has been furnished by the
applicants’
attorney as to why curators and/or creditors appear
never to negotiate with the insolvent for a higher purchase price
than the
forced sale valuation.
[44]
I proceed now to consider the various
matters on an individual basis.
MS
A CONCATO: CASE NO. 19753/2014
[45]
In this as well as the other matters all
the technical requirements for a voluntary surrender are met in the
applicant’s papers.
She submits, based on a sworn valuation of
her goods, and after making provision for the costs of the
sequestration, that there
is sufficient residue in her estate to pay
an acceptable dividend to her creditors, namely, the inevitable 17
cents in the rand.
The applicant records liabilities totalling some
R290 000.00 all arising from short term credit extensions.
Provision is made
for attorney’s costs in the amount of
R14 132.98.
[46]
There are several puzzling aspects and
omissions in the applicant’s papers, however. She furnishes a
salary slip in support
of her monthly income indicating that she
earns commission on top of her basic salary but there is no
explanation whether the commission
earned in that particular month
was greater or less than what she normally earns. The applicant also
annexes a policy schedule
to prove compulsory ‘
insurance’,
the bulk of which is made up of motor vehicle cover in the amount of
R225.49 per month, one of her monthly expenses. She also attributes
R2500.00 to her monthly petrol expenses. In her statement of affairs
the applicant makes reference to once having had a motor vehicle
which was re-possessed by the bank. She then explains that she does
have a motor vehicle but it was given to her by her brother.
No
explanation is furnished as to why this is not included in her list
of assets.
[47]
A sworn valuation of the assets in the
applicant’s estate, which appears to comprise the entire
contents of her household,
including bedroom and lounge furniture, is
attached in the amount of R79 800.00. It includes four
television sets and a wide
variety of electrical appliances. Many of
the main domestic appliances appear to be duplicated; for example
there are four refrigerators
or freezers and two microwaves. There is
no explanation for this rather lavish array of electronic equipment
and appliances. In
her statement of affairs the applicant gives a
confusing and, at times, contradictory account of how she was
divorced and left
with the responsibility of paying a bond on a house
when her husband disappeared.
[48]
As in many of the statements of affairs in
these matters, much of the applicant’s account is taken up with
personal details,
in this case relating to her marriage, which are
entirely irrelevant to her financial position. The nature and
quantity of this
type of irrelevant personal material leaves one with
the distinct impression that its purpose is simply to evoke sympathy
for the
applicant/s.
[49]
Notwithstanding the plethora of irrelevant
detail which the applicant furnishes, little detail of the employment
which she presently
enjoys is given nor how her income is made up
other than as reflected in one payslip. Nor is any explanation given
as to why the
applicant has not used the provisions of the NCA to
re-schedule her debts and pay monthly instalments to her creditors.
MR
S.W OBERHOLZER: CASE NO. 19795/2014
[50]
The applicant discloses assets in his
estate of R70 000 odd, the bulk thereof comprising a motor
vehicle valued at some R60 000.00.
He gives his monthly salary
as just less than R11 000.00 and his monthly expenditure as
R13 305.00. It is unclear, however,
by whom the applicant is
employed and what his monthly income is. He states that he earns only
on a commission basis. All that
he attaches by way of proof of
earnings is a document entitled ‘
Benefit
Report - Career’
indicating that
he was paid just less than R11 000.00 in August 2014 by way of
commission. It falls well short of satisfactory
proof of his
earnings.
[51]
Notwithstanding the applicant’s claim
that he earns monthly income of only R11 000 odd he shows
monthly expenditure of
R2 766.00 on a medical aid fund and
R3 500.00 per month on fuel. If the motor vehicle is sold on
auction much of the
last mentioned sum will be available to
creditors. A utility bill is attached to show the monthly expense for
utilities on a certain
property. The cover page is missing, however,
and details of how the applicant and his family are accommodated are
sketchy in the
extreme. The applicant declares that his wife pays the
monthly house rent, also from commission earnings, but no details are
given
of her income or monthly rental.
[52]
The great bulk of the applicant’s
debts, which he puts at R240 000 odd, is made up of short term
credit. He projects
a dividend of 17 cents in the rand to creditors.
The applicant appears to state that he was subject to a debt
rescheduling plan
in terms of the NCA but advises that this was
cancelled. The only supporting documentation furnished merely
indicates that he was
declared over-indebted in 2011. The applicant’s
statement of affairs is replete with historical and irrelevant detail
regarding
businesses that failed six years ago.
[53]
According to the sworn valuation furnished
the balance of the applicant’s assets consist of some couches,
a table, some benches,
four beds, a washing machine, a cell phone and
little else. Again there is no explanation of how he and his family
will survive
if these goods are sold.
MR
P.W BOTHA: CASE NO. 19755/2014
[54]
The applicant states that he is a
production manager earning R6 785.00 per month. In total his
creditors’ claims amount to
R164 000.00. He seeks to
surrender an estate with assets valued at R53 500.00 based on a
projected dividend of 16 cents in
the rand. The applicant’s
payslip indicates that he is an employee of a photography business
and that a considerable portion
of his salary is made up of
commission. No explanation is given by the applicant of the basis
upon which, as a production manager,
he earns commission or what his
monthly commission earnings are.
[55]
Subtracted from his salary are deductions
of R3000.00 per month in respect of a cash advance and a staff loan.
The cash advance,
presumably a once-off deduction, would indicate
that his normal salary is at least R2000.00 more but this is left
unexplained.
The staff loan details appears to suggest that he is
indebted to his employer in the amount of R40 000.00 odd. No
such debt
is reflected in his statement of affairs, however. That
statement indicates that the applicant’s total debt amounts to
R164 000.00,
all short term credit or goods sold and delivered.
[56]
One of the major expenses the applicant
lists is petrol at R2300.00 per month. No motor vehicle is reflected
as an asset in the
applicant’s estate and he states that his
wife pays for her own transport. Nor is there any indication that
this vehicle
may have been purchased on credit with ownership
remaining vested in the seller or financier. The applicant gives a
long and generalised
account of a business which he once had which
failed but without furnishing any dates or other relevant detail.
Again, however,
the statement of affairs is full of much irrelevant
and sympathy-seeking detail. Although the applicant mentions an
unsuccessful
debt review process under the NCA no supporting
documentation is furnished.
[57]
As in many of the other applications the
applicant’s assets comprise only the major items of furniture
and appliances which
would be found in a family household. No
explanation is given as to how the applicant, his wife or his
children would survive were
all these goods to be sold by auction, no
doubt because this is not what is envisaged.
MR
R. GOLIATH AND ONE OTHER: CASE NO. 19754/2014
[58]
The applicants are married in community of
property and seek to surrender their joint estate which is made up of
household goods,
furniture and equipment with an estimated forced
sale value of R75 000.00. Their liabilities total R275 000.00
and are
made up of short term credit from various suppliers and
retail stores. They project a dividend of 17 cents in the rand. The
applicants’
combined income is some R17 000.00 per month.
The first applicant’s payslip reveals that he earns a small
basic salary
plus ‘
incentive’
monies which appear to be in the nature of commission since he is
employed as a ‘
field marketer’
.
He gives no explanation of what his commission earnings are, however.
His expenses are set out but no proper vouchers are furnished.
[59]
An amount of R2500.00 per month is
attributed to the lease of a motor vehicle and insurance and a
further R2500.00 per month for
petrol but no vehicle forms part of
the joint estate and no explanation is given as to why these expenses
are incurred. Again there
is no indication that the vehicle was
purchased on credit either.
[60]
The sworn valuation reflects the standard
appliances, furniture and equipment to be found in a household but
again no explanation
is given as to how the family would exist
without these goods which includes beds, a dining room table, lounge
suite and major
appliances. As noted by the Master in his report, the
applicants do not state whether they rent or own the property at
which they
reside. No explanation is furnished as to how the
applicants and their children will survive if all their assets are
sold.
[61]
The applicants state that they made an
unsuccessful attempt at debt consolidation under the NCA but,
strangely, were told by the
consultant that they could not be helped
because ‘
the premium’
would be too high and they state that they would also have to pay for
years even if they could pay this premium. The explanation
is
unsatisfactory to say the least.
MR
W.J. VAN STADEN: CASE NO. 19756/2014
[62]
The applicant seeks to surrender an estate
having assets with a sworn valuation of R37 900.00. These assets
comprise household
contents save for a vehicle which is valued at
R13 700.00. Against this the applicant declares liabilities in
the amount of
R88 000.00 all being described as monies loaned.
One creditor is given as a firm of attorneys, without explanation of
how
the applicant came to borrow monies from it. The applicant
declares an income as a waiter of approximately R9 000.00 per
month.
The supporting payslip describes this as ‘
normal
time payment’
but contains no
figures for certain other categories of payment for which it makes
provision. Although the payslip makes provision
for deductions, none
are reflected.
[63]
After provision for the total costs of
sequestration in the amount of R23 000.00, of which more than
R12 000.00 comprises
legal fees, the applicant projects a
dividend of 16 cents in the rand. He gives no explanation of how he
would live should all
his household items be sold on auction, a
further indication, in my view, that, no sale of the applicant’s
assets to any
third party is envisaged.
[64]
The applicant gives a vague account of
being under debt review for a year but finding himself unable to pay
the monthly premium
of R4 800.00 per month. The only supporting
documentation furnished indicates that the applicant was approved for
debt review
in July 2009. No explanation is forthcoming as to what
transpired in this process in the intervening five years before the
present
application was launched. He states further in this regard,
improbably, that three months prior to the present application all
his creditors contacted him seeking increased premiums.
[65]
The applicant’s explanation for
falling into financial difficulties is a mixture of generalised
statements and irrelevant
detail. Central to the explanation is the
applicant’s loss of his pub business. When one looks at the
supporting documentation
it would appear that he lost this business
some eight years prior to the launching of this application. The
lapse of so much time
renders that business’ failure largely
irrelevant to the applicant’s explanation for his present
financial difficulties.
[66]
In another part of the applicant’s
explanation he states that he has lost his motor vehicle as a result
of his financial difficulties.
This is at odds both with his monthly
expenses and his list of assets which includes a motor vehicle and
fuel costs. In his report
the Master notes that there is no proof of
the applicant’s indebtedness to the list of creditors set out
in his statement
of affairs.
CONCLUSION
[67]
Having regard to the evidence concerning
the outcome of scores of similar applications brought by the
applicants’ attorney
over the past few years, more particularly
those where the estates comprise only movable property consisting
mainly of household
furniture and goods, I have very little reason to
doubt that the most likely outcome, should orders of voluntary
surrender be granted
herein, will be that the applicants will
purchase back their assets at the forced sale valuation. Where they
are unable to pay
off this sum in one payment (in itself, a troubling
contra-indication of insolvency) they will be afforded an opportunity
to do
so by way of instalments. In fact, I would go so far as to say
that the probabilities are overwhelming that these applications were
brought by the applicants with just such an outcome in mind. The
result, in all likelihood, will then be that the applicants will
continue to enjoy the possession and use of their assets but they
will divest themselves of their creditors. In each case a substantial
portion of each applicant’s patrimony will be reduced by the
fees which the attorneys will earn in each such application
together
with the fees of the other professional parties involved, including
the valuator.
[68]
Whether this outcome will serve the
interests of the creditors, however, is most unlikely. Many creditors
will no doubt not prove
claims for the reasons given by Gorven J
in
Ex Parte Arntzen
. In that event,
whatever monies are recovered will be paid to the Guardian’s
Fund. Finally, in this entire process all the
sophisticated debtor
relief provisions created by the NCA will have been largely ignored.
At best for the creditors, in the
unlikely event that all prove
claims, they will receive a dividend of no more than 16 or 17 cents
in the rand. Even in such cases,
the lengthy period between the
granting of an order and the realisation of the estate, coupled with
the fact that the forced sale
valuations will generally only be paid
by the applicants over time, means that the creditors will receive
such dividends in paltry
amounts, trickling in over years.
[69]
For all these reasons I do not consider
that the applications are either bona fide or that the orders of
voluntary surrender will
be to the advantage of creditors. My
conclusion that the applications are not bona fide is informed also
by the various shortcomings
which I have identified in the
applications as a whole including but not limited to the
superficiality of the applications, the
similarity in the averments
made and the uncanny coincidence of the projected dividend being
either 16 or 17 cents in the rand.
Apart from these fatal defects,
when regard is had to the lacunae in the individual applications,
which I have set out above in
some detail, I consider that the
applicants have either not made full and proper disclosure of their
affairs or have not employed,
or properly utilised, alternative
statutory measures to reach an accommodation with their creditors. I
am therefore unpersuaded,
ultimately, that it will be to the
advantage of creditors that orders of voluntary surrender be granted.
[70]
In the result each of the applications for
voluntary surrender is refused.
______________________
BOZALEK
J
APPEARANCES
For
the Applicants:
Mr A Walters
Instructed
by:
Etienne
Genis Attorneys
[1]
Ex
parte: Rhode and 8 Similar Cases (Case 8214/2012, 20 September
2012)
[2]
Mthimkhulu
v Rampersad and Another (BOE Bank Ltd, Intervening Creditor)
[2000]
3 All SA 512
N
[3]
2009
(3) SA 376 (WCC)
[4]
1955
(2) SA 309
(N) at 311
[5]
See
Ex
parte Anthony en ‘n Ander en 6 soort gelyke aansoeke
2000 (4) SA 116
(C) at 125
[6]
1999
(3) SA 109 (W)
[7]
2009
(6) SA 382 (GNP)
[8]
2015
(1) SA 540 (GP)
[9]
2014
(5) SA 426
(FB)