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IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE DIVISION, GRAHAMSTOWN)

Case no. 3532/13

Dates heard: 22-23/6/15; 29/9/15

Date delivered: 28/1/15

Not reportable

In the matter between:

Jacobus Marthinus Abraham Louw NO                                                             First plaintiff

Punithan Quentin Naidoo NO                                                                        Second plaintiff

and

Sobabini CC                                                                                                     First defendant

Charles Joseph Linus Hobson                                                                  Second defendant

Andre Julian Meiring NO                                                                               Third defendant

Dale Meiring NO                                                                                           Fourth defendant

Jeffery John Every NO                                                                                    Fifth defendant

Donald George Duke Jackson                                                                       Sixth defendant

E and O Ranches (Pty) Ltd                                                                       Seventh defendant

John Buhr                                                                                                     Eighth defendant

Ken S McEwan                                                                                                Ninth defendant

JUDGMENT

PLASKET, J

[1] The plaintiffs are the trustees of the insolvent estate of the Greenacres Trust (the trust) which was placed under a provisional sequestration order on 29 September 2011 and a final sequestration order on 17 November 2011. They instituted an action against nine defendants for the return of 398 head of livestock and, in relation to the sixth defendant, for the return of certain movable farming equipment as well.

[2] The action is based on ss 29, 30 and 31 of the Insolvency Act 24 of 1936: the plaintiffs allege that the delivery of the livestock and equipment by the trust to the defendants constituted voidable dispositions in terms of s 29, undue preferences in terms of s 30 and collusive dealings in terms of s 31. They sought the setting aside of these dispositions and related relief.

[3] Eight of the nine defendants settled the claims against them. The settlement agreement was made an order by me at the commencement of the trial. The sixth defendant, Mr DGD Jackson (Jackson), did not settle and opposed the plaintiffs’ claims against him.

[4] The trustees of the trust prior to its sequestration were Mr Alistair Winfield and his wife, Ms Jenny Winfield. The trust conducted business as a producer of milk and livestock.

The pleadings

[5] At various times between 2002 and 2010, the defendants entered into agreements to lease dairy cattle to the trust. Although the terms of the leases varied to an extent, typically they included terms to the effect that the trust was entitled to the progeny of the leased cattle, that, in the event of the loss, death or redundancy of a leased animal, the trust was to substitute it with an animal of similar stature, breed, age and value and that upon the termination of a lease the trust was to return to the owner livestock of similar breed, age, condition and state of pregnancy as those originally leased.

[6] The particulars of claim allege that at all material times the trust was in possession of livestock that was the subject of leases with the defendants and the progeny of that livestock, and that the trust failed to ‘adequately mark so as to identify the owners of the livestock and/or keep separate the livestock belonging to each of the Defendants from that of the Trust and the livestock belonging to the various Defendants and the Trust were indistinguishable from each other’.

[7] The crux of the plaintiffs’ case is that on or about 25 August 2011, at a time when the trust’s liabilities exceeded the value of its assets, a number of the defendants, with the knowledge of the other defendants, resolved and colluded with Winfield to take possession of all of the cattle on the trust’s farm and to ‘divide and distribute the cattle in the possession of the Trust between them as they saw fit’. This agreement was given effect to, it was alleged, on 7 September 2011. The particulars of claim continue to say:

‘The appropriation and distribution by the Defendants of the livestock was not an appropriation and distribution of the livestock owned by the Defendants but included livestock owned by the Trust in that none of the livestock appropriated and distributed was identified, or capable of being identified as the livestock leased by the various Defendants to the Trust.’

[8] The plaintiffs alleged that when the distribution occurred the defendants knew that the trust was indebted to the Humansdorp Co-operative (the co-operative) in the amount of R1.3 million; that the trust was insolvent; that the co-operative held a statutory pledge over all of the trust’s livestock and a special notarial bond in the amount of R1 050 000 over 150 dairy cows owned by the trust; that the defendants were aware that proceedings for the sequestration of the trust were imminent; and that the livestock in the possession of the trust included livestock ‘which was the progeny of livestock leased from Defendants and was owned by the Trust’.

[9] Jackson entered into an agreement to lease livestock to the trust in 2009. In terms of this agreement, he leased 244 head of cattle to the trust. It is not in dispute that a total of 163 head of cattle were allocated to him on 7 September 2011 when the distribution of the cattle took place. In addition, it is common cause that on 31 August 2011, Jackson and the trust concluded an agreement in terms of which the trust disposed of various pieces of farming equipment to Jackson in part payment of the trust’s indebtedness to him.

[10] The appropriation of the livestock and the disposal of the equipment to Jackson had the effect, so the plaintiffs alleged, of preferring the defendants as creditors of the trust over other creditors; was done with the intention of preferring them over other creditors; was consequent upon collusion between the trust and the defendants; and were not transfers in the ordinary course of business.

[11] The claim against Jackson is for orders: (a) declaring that the disposal of the cattle to him is a voidable disposition, alternatively an undue preference, a collusive dealing and a voidable transfer; (b) declaring any claim Jackson may have against the trust forfeit; (c) directing him to return the cattle or pay their value; and (d) directing him to pay the value of the cattle as a penalty in terms of s 31(2) of the Insolvency Act. Similar relief is claimed in respect of the equipment. The usual costs order is sought.

[12] Essentially, Jackson’s defence is that as the trust owned no cattle itself and was not entitled to the progeny of his herd, the cattle that he took on 7 September 2011 were his cattle. In respect of the equipment, he pleaded that as the trust had no livestock when the lease was concluded, a special notarial bond was passed over movable property owned by the trust as security for any future indebtedness. When, on 31 August 2011, the trust owed him in excess of R310 000 as a result of not being able to  meet its obligations in terms of the lease he, with the consent of the trust, took possession of the equipment, as he was entitled to do. 

Jackson’s lease

[13] Jackson first entered into a lease of cattle with Winfield in his personal capacity in 2005. That lease was replaced with a lease of cattle to the trust that commenced on 1 July 2009. It was terminated on or about 25 August 2011.

[14] Effectively, the 2009 lease replaced Winfield with the trust as the lessee of what were described as an initial herd and a supplementary herd of dairy cattle, as contemplated in the 2005 lease. In clause 7.2, Winfield acknowledged being in possession of the herd. Clause 7.3 stated:

‘ALISTAIR and the TRUST undertake to tag the left ear of the cattle forming part of the HERD with such tag and such additional identification markings as DONALD may reasonably prescribe from time to time.’

Clause 7.4 provided that ownership of the cattle remained with Jackson.

[15] Clause 13 provided for the provision of security for the trust’s obligations to Jackson in terms of a bond over ‘the movable property reflected in Schedule 2’ to the agreement.

[16] Clause 14 dealt with the augmentation of the herd and the identification of animals. It provided:

14.1 If and to the extent that any of the dairy cows comprising the HERD or SECURITY dies, is considered or becomes unsuitable for dairy stock, the TRUST shall augment the HERD or SECURITY  by substituting such animal with a pregnant heifer of a similar race. To the extent that the suitable animal did not die, the TRUST shall, against augmentation, be entitled to dispose of the animal for the benefit, profit or loss of the TRUST.

14.2 The TRUST shall be obliged to ensure that:

(a) the HERD and SECURITY shall at all times remain clearly marked and identifiable as being the property of DONALD, by tagging or branding the HERD or SECURITY in accordance with such means or methods as DONALD may reasonably prescribe from time to time;

(b) a comprehensive record is kept of all cattle comprising the HERD and SECURITY and such record is regularly updated to reflect all changes (“the RECORD”);

(c) the RECORD is available for inspection or the making of copies by DONALD at all reasonable times;

(d) the TRUST provides DONALD with an updated written copy of the RECORD at six monthly intervals following the EFFECTIVE DATE.’

[17] The termination of the agreement is dealt with in clause 16. Clause 16.1 provided that, on termination, the trust was to return the herd to Jackson ‘augmented where necessary in compliance with the provisions of Paragraph [14]’.[1]

The evidence

[18] Winfield testified about the decline of the trust, the disposal of the livestock in its possession and the disposal of the equipment. Jackson also testified.

The cattle

[19] The story commences in October 2008 when Winfield’s partnership with one Mukheiber came to an end after a falling-out between them. Winfield left the farm with about 600 head of dairy cattle. Of these, about 500 were leased animals and about 100 belonged to him.

[20] He moved the cattle to the farm Dieprivier in the Humansdorp district where his farming operations continued until the sequestration of the trust. Throughout the split with Mukheiber and the move to Dieprivier, Winfield kept the lessors of the 500 head of cattle fully informed.

[21] Farming operations on Dieprivier did not run smoothly for various reasons. When faced with a drought in 2010, Winfield, with the consent of the lessors, reduced the size of the trust’s herd in order to try to survive the drought. The trust was not able to pay the rental for leased animals and the lessors agreed to give him a ‘rental holiday’. While most agreed to write-off unpaid rental, two, including Jackson, insisted that the trust would remain liable for arrear rental. The effect of the reduction in numbers was that the trust had less animals in its possession than it had leased. Winfield stated that Jackson was aware of this.

[22] Winfield decided that, given various adverse circumstances, including the location of Dieprivier, dairy farming was not viable. He wanted instead to terminate the leases and change his farming operation to the raising of heifers for other farmers. He spoke to the lessees about this option in July or August 2011.

[23] At this stage, the financial position of the trust was, as Winfield described it, dire. It was not able to pay what it owed its creditors and it was not able to restore cattle to the lessors. It was, in fact, insolvent and the lessors were aware of this.

[24] It was in this context that at least two meetings and various exchanges of correspondence occurred involving Winfield and the lessors. At a meeting attended by Winfield and four of the lessors, including Jackson, on 25 August 2011 the idea was mooted of selling all of the cattle in the possession of the trust by auction. The minutes of this meeting record that once Jackson had taken advice on the consequences of the trust’s security in favour of the co-operative, preparations could commence for the auction which could then take place in October 2011. The minutes also record that ‘Alistair in NOT selling the cows’ but that the ‘group’ – made up of the lessors – ‘is selling the cows’ and that the ‘surplus of the last milk cheque’ would be ‘split pro rata amongst the shareholders’.

[25] Winfield explained the thinking behind the idea of selling the animals as follows:

‘Well the auction was meant to pool the animals, get them into good condition round about October which gave me time, a chance to tie up with my milk buyer and make sure I can still pay my leases and the farm and all the rest of it, so it then revert back to raising heifers, and then in October we would have had an auction and then the cow owners would have split that, the proceeds of that auction.’

[26] As it happened, the idea of an auction was abandoned in favour of the herd on Dieprivier being split between the various lessors. On 31 August 2011, Jackson proposed that the lessors ‘meet on the farm on Wednesday the 7^th September and do the split’. It appears that this suggestion was accepted by the lessors. On 6 September 2011, every dairy animal on Dieprivier was driven onto a neighbouring farm by Winfield. On the following day, the cattle were split in terms of a method agreed to by the lessors.

[27] On 6 September 2011, Jackson came to Dieprivier. According to Winfield, he wanted to count the number of cattle on the farm for the purposes of the allocation that was to take place the following day. A total of 149 cows were counted. Jackson denied that this was the purpose. His evidence was that the exercise identified his animals but he ‘put them in the pot’ for allocation among the lessors, even though he could have taken them all.

[28] A total of 598 heifers had been leased to the trust by all of the lessors. A total of 398 animals were available for allocation among them on 7 September 2011. They comprised of cows, steam-up cows (cows about to calve), dry cows/heifers, bigger heifers, small heifers, smallest heifers and ‘hokke/yard’ (calves from one day old to three months old.

[29] Jackson had leased 244 heifers to the trust and this represented 41 percent of the total number of animals leased to the trust by all of the lessors. In terms of the agreement between the lessors, he was allocated 163 animals made up of 55 cows, 11 steam-up cows, 26 dry cows or heifers, 25 bigger heifers, 12 small heifers, 16 smallest heifers and 18 calves.

[30] Jackson’s evidence accords largely with that of Winfield as to the sequence of events that led to the allocation of the cattle. He differed, however, in two significant respects: first, he testified that as the trust did not own any cattle, all of the cattle on the property were owned by the lessors; and secondly, he testified that on 6 September 2011, Winfield identified 149 head of cattle as being Jackson’s cattle.

[31] Winfield’s evidence as to the trust’s ownership of cattle was that when his partnership with Mukheiber ended, he left with about 500 head of cattle that were leased and about 100 head of cattle that belonged to him. When he put up cattle as security in favour of the co-operative in 2008, the trust owned cattle. It did not own sufficient cows so he put up 150 heifers as security. They belonged to the trust: he described them as ‘my livestock’.

[32] He disputed that all of the livestock on Dieprivier belonged to the lessors. As most of the leases expressly provided that the progeny of leased cattle belonged to the trust, it had a steady supply of new stock. Winfield was therefore able to testify that on 7 September 2011, the herd consisted of milking cows, dry cows, heifers and calves, and that the heifers fell into the category of animals that did not belong to the lessors. So too, obviously, would the calves.

[33] Winfield testified that he had driven ‘all the cows, all the dry cows, all the dairy cows’ onto his neighbour’s farm and was then instructed to drive the rest of the livestock there as well. (Jackson’s evidence was that all of the livestock was driven there together, but nothing turns of this dispute.) Winfield was asked whether among these animals there were animals that belonged to the trust. With reference to the heifers in particular, he answered in the affirmative.

[34] In my view, it is more probable than not that the trust owned a large number of the animals that were distributed among the lessors on 7 September 2011. First, tag numbers indicated that some of the 150 heifers put up in 2009 as security in favour of the co-operative were among the animals distributed to the lessors. Secondly, the trust owned the progeny of the cattle leased from all of the lessors. Jackson asserted that because his lease with the trust was silent on this aspect, the trust did not own the progeny of his herd but he did. In my view, he is not correct in his view. It seems to me that the essence of a lease such as this is that the lessee obtains the milk and the progeny produced by the leased animals. In the absence of an express term, the trust’s ownership of the progeny was, in my view, a tacit term of the agreement of lease between the trust and Jackson. It is noteworthy that Jackson never sought the delivery of the progeny of his herd, never enquired about them and never required them to be identified. Jackson never sought payment for the expense of raising them. These are strong indications that the parties considered the lease to include a tacit term to the effect that the progeny of the leased cattle became the property of the trust.

[35] Thirdly, augmentation of the lessors’ herds had not taken place at all, so the progeny would have remained the property of the trust, while the lessors’ herds diminished. Fourthly, as there were no records kept, there was no way of knowing that ownership may have passed from the trust to a particular lessor even if there had been an augmentation. This also meant that there was simply no way of knowing who owned which animals. This problem was highlighted in the evidence of Jackson. When he claimed that 149 animals were identified as belonging to him on 6 September 2011, there were only four that could be connected to the herd identified in his lease with the trust.

[36] It was Jackson’s evidence that on 6 September 2011, he went to Dieprivier and Winfield identified 149 cows as belonging to him. Winfield’s evidence was that this was simply a stock count for purposes of the distribution that was to take place the next day.

[37] In my view, for the reasons that follow, Winfield’s version is more probable than that of Jackson. First, I can see no logical reason why Jackson would want to identify his cattle when he had already agreed with the other lessors on a pooling of all of the cattle in the possession of the trust and a pro rata distribution of them among the lessors. His attempts to justify this did not make any sense.

[38] Secondly, it was only possible to connect four animals to the herd identified in his lease and any of his animals that had died, been lost or become redundant – as well as those that were sold in 2010 – had never been replaced. Jackson conceded that because of the chaotic state of the trust’s affairs, Winfield never augmented the lessors’ herds as animals became redundant.

[39] Thirdly, Jackson conceded that his animals were ‘probably not identifiable’. He acknowledged too that Winfield ‘didn’t know what was going on, he didn’t know what numbers were what’ and he had ‘no concept of what his records were and whose cow was whose’. In other words, it would have been impossible to identify his cattle.

[40] Fourthly, the animals that were allocated on 7 September 2011 were allocated on the basis of the agreement between the lessors and his allocation differed substantially from the animals that he said were identified as his on the previous day. He was not allocated these 149 animals augmented by a further 14, as he suggested. Rather, he was allocated only 55 cows in milk as well as dry cows, steam-up cows, bigger heifers, small heifers, smallest heifers and calves.

[41] Fifthly, Jackson testified that all of the 149 animals supposedly identified as his were all of the animals on the farm that were being milked. That is highly unlikely.

[42] My conclusion is that Jackson’s defence that he was the owner of the animals that he took on 7 September 2011 has no merit and must fail. I shall deal in due course with the consequences of this finding.

The equipment

[43] When the trust and Jackson entered into the lease in 2009, Jackson required the trust to provide security (just as he had required Winfield to provide security in the 2005 lease). To this end, clause 3.1 made it a suspensive condition that the trust enter into and register a special notarial bond in favour of Jackson in accordance with clause 13. That clause provided:

‘As security for the obligations owing by the TRUST to DONALD in terms of this Agreement, the TRUST agrees to register the BOND, securing all obligations owing by the TRUST to DONALD in terms of this Agreement, over the movable property reflected in Schedule 2 (“the SECURITY”) on the terms and conditions reflected in Schedule 3.’

[44] Schedule 2 identified the security as being three tractors, a planter, a fertilizer spreader and a trailer.

[45] Schedule 3 is the special notarial bond. In clause 1, the trust acknowledged an indebtedness to Jackson of R2.1 million and R420 000 but the security was also intended to cover ‘existing, future and contingent indebtedness’.

[46] The special notarial bond is one contemplated by the Security by Means of Movable Property Act 57 of 1993. Section 1(1) of the Act provides:

‘If a notarial bond hypothecating corporeal movable property specified and described in the bond in a manner which renders it readily recognizable, is registered after the commencement of this Act in accordance with the Deeds Registries Act, 1937 (Act 47 of 1937), such property shall-

(a)        subject to any encumbrance resting upon it on the date of registration of the bond; and

(b)        notwithstanding the fact that it has not been delivered to the mortgagee,

be deemed to have been pledged to the mortgagee as effectually as if it had expressly been pledged and delivered to the mortgagee.’

[47] Clause 10 of the special notarial bond provided for Jackson’s rights in the event of a default on the part of the trust. It provided:

‘Upon the happening of an event of default referred to in [9] above, the MORTGAGEE shall, without prejudice to any other right which it has in terms hereof or at law, be entitled –

10.1 Notwithstanding the terms and conditions of any indebtedness of the MORTGAGOR to the MORTGAGEE arising before, simultaneously with or after the execution of this bond to declare the full amount of the MORTGAGOR’s indebtedness to the MORTGAGEE from the DEBT or whatever cause arising to be due and payable forthwith and to claim and recover the same from the MORTGAGOR forthwith on demand;

10.2 To have the ASSETS excussed and/or attached by legal process;

10.3 To execute upon all or any of the ASSETS;

10.4 To employ such other remedies and to take such other steps against the MORTGAGOR as are allowed by law.’

[48] Clause 14 deals with proof of indebtedness. It allows for such proof, in respect of any indebtedness secured by the bond and the fact that it is due and payable, by way of a certificate signed by ‘any director of the MORTGAGEE’. That certificate would be ‘prima facie proof of the facts therein stated and shall constitute sufficient evidence thereof unless and until contrary facts are proved by the MORTGAGOR’.

[49] On 31 August 2011, Jackson and Winfield signed a document, prepared by Jackson, entitled ‘Voluntary Surrender’. In terms of this document, the trust and Winfield acknowledged, in clause 1, an indebtedness to Jackson ‘for various amounts in respect of, inter alia, rental owing in terms of written agreements of lease’. Clause 2 recorded that a special notarial bond had been entered into by the trust and it listed the property that served as security. Clauses 3 and 4 then provided:

‘3. We have fallen in default in the payment of the debt.

JACKSON, by virtue of the Bond, is entitled to take all or some of the movable assets encumbered by the Notarial Bond into pledge.

4. JACKSON has agreed that in the event of the DEBT not being repaid by the due date then the value of the items listed above, being agreed on as being R310 000, will be deducted from the CAPITAL value of the herd outstanding.

Ownership of all items will pass to JACKSON.’

[50] The document ended with a statement to the effect that the trust and Winfield ‘hereby voluntarily deliver to JACKSON the assets to be held in pledge as security for the payment of the DEBT’.

[51] Soon after 31 August 2011, Jackson took possession of the tractors, planter, fertilizer spreader and trailer, and removed them from the trust’s property. He has sold some of the equipment and retains the rest.

[52] When Winfield was asked why he had made this arrangement with Jackson, he stated that he had felt indebted to Jackson and Jackson ‘happened to come forward with this proposal’ while none of the other lessors had done so.

[53] For his part, Jackson was not able to explain the debts of R2.1 million and of R420 000 that are mentioned in the special notarial bond save to say that he thought that these figures must have represented the value of the herd that he had leased to the trust. Similarly, when he was asked about the extent of the trust’s indebtedness to him on 31 August 2011, he was unable to quantify it.

[54] In his evidence in chief, Jackson explained his reasons for taking the equipment as follows:

M’Lord if you noticed the date of this document is the 31^st of August, which was after the meeting of the 25^th of August when Mr Winfield informed us that he no longer wished to continue with dairy hence the herd owners’ decision to deal with their cattle, and I had to make a call as far as my movables were concerned in order to minimise my damages, so in terms of the notarial bond which I held over these listed movables I notified Mr Winfield that I wish to remove them and this document was drawn up, signed by Mr Winfield and the movables were subsequently removed with Mr Winfield’s assistance.’

[55] When Jackson was cross-examined on whether he had submitted a claim against the trust, his answer was that he had not but, he said, ‘I chose not to submit a claim by agreement with Mr Winfield, he said take the stuff to be deducted off the money the Greenacres Trust owes you, which is what we did’.

[56] In circumstances like these in which a creditor holds security in the form of movables, on the insolvency of the debtor, s 83 of the Act provides for a procedure for the creditor to follow. That involves the giving of notice to the Master and the trustee; the handing over of the property to the trustee or its realisation in defined circumstances and the paying of the proceeds of the sale of the property to the trustee; and thereafter, the lodging of a claim against the insolvent estate.

[57] In this instance, s 83 was not complied with at all. In Venter NO v Avfin (Pty) Ltd,[2] a case with strikingly similar facts to the present case, the creditor having failed to give notice of its security and having sold the security, argued that it was not obliged to pay the amount realised to the trustee because s 83 had not been complied with and thus had no application. Scott AJA dealt with this argument as follows:[3]  

‘The interpretation, I think, becomes all the more unlikely when the phrase is considered in the broader context of the Act. The trustee is the person burdened with the task of administering and winding up the insolvent estate. In terms of s 20 of the Act the effect of insolvency is to divest the insolvent of his estate and to vest it in the trustee upon the latter's appointment. The trustee, in turn, is required in terms of s 69 of the Act to take into his possession or under his control all movable property, books and documents belonging to the insolvent. At common law a creditor who held movable property as security for his claim could not realise it himself. He had to deliver it to the trustee who had the right to administer it subject to the preference of the creditor in relation to the proceeds derived from its realisation (see National Bank of South Africa Ltd v Cohen's Trustee 1911 AD 235 at 250). Section 83, however, permits a creditor who holds movable property as security for his claim, subject to certain limitations, to retain possession of such property and to realise it himself. But once the property is realised he must pay the proceeds to the trustee. The provisions in s 83(10) requiring him to do so are consistent with the general scheme of the Act and, to the extent that the trustee is entitled to receive such proceeds, with the common law.

Viewed against this background it could not, I think, have been intended that a creditor by his own non-compliance with the provisions of the Act could notionally place himself in a more favourable position vis-à-vis the trustee and avoid his statutory obligation to pay over the proceeds to the trustee. That the trustee may himself have failed earlier to recover the  property in terms of s 83(6) does not detract from the obvious anomaly which would result from such a construction. Indeed, the non-compliance by the creditor may occur prior to the second meeting of creditors.

In my view, therefore, the reference in the phrase in question to the preceding provisions was intended to be no more than a general reference to the realisation of securities as contemplated in the earlier subsections of s 83. It was not intended to import into s 83(10) a requirement of compliance with those subsections as a precondition to the obligation of the creditor to pay over the proceeds of his security to the trustee.’

[58] The effect of s 1(1) of the Security by Means of Movable Property Act and the special notarial bond was that the equipment mentioned in the special notarial bond was pledged to Jackson. The ‘voluntary surrender’ recorded Jackson’s entitlement to ‘take all or some of the movable assets encumbered by the Notarial Bond into pledge’. It then stated, however, that the value of the equipment would be deducted from the value of Jackson’s herd and that ownership of the equipment would pass to Jackson.

[59] Jackson’s case was that he was simply acting in accordance with his rights under the special notarial bond when he assumed ownership of the equipment. In this he was incorrect. He was entitled to attach the equipment and then, on the trust’s insolvency, to deal with it and to claim in terms of s 83 of the Act. In truth, the ‘voluntary surrender’ had nothing to do with the special notarial bond, even though it referred to it: the ‘voluntary surrender’ recorded the terms of a scantly disguised sale and set-off. The trust sold the equipment to Jackson for R310 000 which was set off against the amounts the trust owed him.

Conclusion

[60] Section 2 of the Insolvency Act defines a disposition as ‘any transfer or abandonment of rights to property and includes a sale, lease, mortgage, pledge, delivery, payment, release, compromise, donation or any contract therefor, but does not include a disposition in compliance with an order of the court’. It also defines the word ‘property’ to mean both movable and immovable property situate within the country and it includes ‘contingent interests in property’.

[61] Section 29 of the Act concerns voidable preferences. Section 29(1) provides:

‘Every disposition of his property made by a debtor not more than six months before the sequestration of his estate or, if he is deceased and his estate is insolvent, before his death, which has had the effect of preferring one of his creditors above another, may be set aside by the Court if immediately after the making of such disposition the liabilities of the debtor exceeded the value of his assets, unless the person in whose favour the disposition was made proves that the disposition was made in the ordinary course of business and that it was not intended thereby to prefer one creditor above another.’

[62] Section 30 deals with undue preferences. Section 30(1) provides:

‘If a debtor made a disposition of his property at a time when his liabilities exceeded his assets, with the intention of preferring one of his creditors above another, and his estate is thereafter sequestrated, the court may set aside the disposition.’

[63] Section 31 is concerned with collusive dealing. It provides:

‘(1) After the sequestration of a debtor's estate the court may set aside any transaction entered into by the debtor before the sequestration, whereby he, in collusion with another person, disposed of property belonging to him in a manner which had the effect of prejudicing his creditors or of preferring one of his creditors above another.

(2) Any person who was a party to such collusive disposition shall be liable to make good any loss thereby caused to the insolvent estate in question and shall pay for the benefit of the estate, by way of penalty, such sum as the court may adjudge, not exceeding the amount by which he would have benefited by such dealing if it had not been set aside; and if he is a creditor he shall also forfeit his claim against the estate.

(3) Such compensation and penalty may be recovered in any action to set aside the transaction in question.’

[64] Section 32(1) empowers the trustee of an insolvent estate to institute proceedings to ‘set aside any disposition of property under section 26, 29, 30 or 31, or for the recovery of compensation or a penalty under section 31’. In terms of s 32(3), a court that sets aside a disposition under ss 29, 30 or 31 ‘shall declare the trustee entitled to recover any property alienated under the said disposition or in default of such property the value thereof at the date of the disposition or at the date on which the disposition is set aside, whichever is the higher’.

[65] I turn now to whether the requirements of ss 29, 30 and 31 have been established, commencing with s 29.

[66] I have found that the cattle that Jackson took were not his but, for the most part, the property of the trust. They were disposed of by the trust to Jackson.[4] It was common cause that the equipment belonged to the trust and was given to Jackson by the trust. Dispositions have been proved in respect of both the cattle and the equipment. Those dispositions were in favour of Jackson, a creditor of the trust.[5] The disposition of the equipment occurred on 31 August 2011 and the disposition of the cattle occurred on 7 September 2011. The trust was provisionally sequestrated on 29 September 2011 and finally sequestrated on 17 November 2011. It has thus been established that the dispositions occurred within six months of the trust’s sequestration.

[67] In Klerk NO v Kaye[6] Scott AJ held that when deciding whether a disposition had the effect of preferring one creditor over others, the ‘true enquiry’ is whether the disposition involved one creditor ‘being paid proportionately more than the other creditors or being paid in advance of the others’. The effect of the disposition of the cattle was to prefer Jackson and the other lessors over the rest of the trust’s creditors, particularly the co-operative, in both of these senses. The effect of the disposition of the equipment was to prefer Jackson over the trust’s other creditors including the other lessors and the co-operative, also in both sense referred to by Scott AJ: in Jackson’s own words, he ‘had to make a call as far as my movables were concerned in order to minimise my damages’ and he ‘chose not to submit a claim’ but instead to take the equipment, with its value to be deducted from what was owed by the trust. 

[68] Jackson took an active interest in the financial position of the trust. He had done so since about April 2011 at least. He was aware at all material times – on 31 August 2011 and on 7 September 2011 – that the trust did not have the cattle to return to the lessees when the leases ended. He knew that the shortfall was substantial. He also knew that Jackson was unable to pay rental to the lessors, himself included, and that it owed them all money that it could not pay. Once all of the cattle on the trust’s farm had been taken by the lessors, its source of income no longer existed. Jackson also knew, before 31 August 2011, that the trust owed money to the co-operative and that it held security for the debt owed to it. On 6 September 2011, he knew that the amount owed was in the region of R1.3 million. He was aware that the co-operative was contemplating bringing an application for the sequestration of the trust. All of these facts establish objectively[7] on a balance of probabilities[8] that the trust’s liabilities exceeded the value of its assets both before the dispositions and immediately after the dispositions were made.

[69] It was Jackson’s case that he was entitled to take both the cattle and the equipment. It was not pleaded by him, and consequently was also not proved by him, that the dispositions of the cattle and the equipment were made in the ordinary course of business and that they were not made with the intention of preferring him over other creditors. Indeed, the facts viewed holistically compel one to the conclusion that the dispositions occurred precisely because of the insolvent circumstances of the trust.  

[70] The requirements of s 29 have thus been established by the plaintiffs.

[71] I now proceed to consider whether the plaintiffs have established the requirements of s 30. For the reasons stated in relation to s 29, I accept that the plaintiffs have established the dispositions that they rely on; that, at the time the dispositions were made, the trust’s liabilities exceeded its assets; that the dispositions were made to Jackson with the intention of preferring him over other creditors, particularly the co-operative; and that the trust was sequestrated thereafter. It is pointed out by Bertelsmann et al that when these requirements have been established, judgment in favour of the trustees must follow because ‘there are no defences available to the person benefitted by the disposition’.[9]

[72] I turn now to s 31. Once again, I accept that the plaintiffs have established, for the reasons stated in relation to s 29, the dispositions of the trust’s property in favour of Jackson and that the dispositions had the effect of preferring Jackson over other creditors, particularly the co-operative. That the dispositions had the effect of prejudicing the trust’s creditors is self-evident.

[73] I turn now to the central question of whether the dispositions were made by Winfield in collusion with Jackson. In Finn’s Trustees v Prior[10] Kotze AJP defined collusion as ‘a conniving together between two persons . . . to practise a fraud on the creditors’. It was argued in Gert de Jager (Edms) Bpk v Jones NO & McHardy NO[11] that, in order to establish collusion, a person had to prove that the intention of the parties to collusion was to defraud the insolvent estate. This argument was rejected by Rumpff JA who held that ‘as die partye tot die samespanning weet dat die skuldenaar insolvent is en ook weet dat die vervreemding die gevolg sal hê wat in art. 31(1) genoem word, dan volg dit dat die samespanning bedrieglik is ten opsigte van die skuldeisers in die sin dat die oogmerk daarvan is om hulle tekort te doen’.[12]

[74] It is clear that Winfield colluded with the lessors, including Jackson, in relation to the disposition of the cattle and with Jackson in relation to the disposition of the equipment: he co-operated fully with the lessors who had decided to take all of the cattle in the possession of the trust and divide them among themselves, he agreed to this arrangement and helped to facilitate it; he agreed with Jackson to transfer ownership of the equipment in return for a set-off of its value against whatever the trust owed Jackson, and he then delivered the equipment to Jackson. I have found already that both Winfield and Jackson knew that the trust was insolvent and that their conduct had the effect of preferring Jackson over other creditors of the trust and of prejudicing those other creditors. It follows therefore that their intention was to do those other creditors out of their rights and that they acted fraudulently in this sense. The requirements of s 31(1) have been established.

[75] Having found that Jackson had engaged in collusive dealing with the trust, s 31(2) of the Act becomes of application. It provides that a party to a collusive disposition ‘shall be liable to make good any loss thereby caused to the insolvent estate in question and shall pay for the benefit of the estate, by way of penalty, such sum as the court may adjudge, not exceeding the amount by which he would have benefited by such dealing if it had not been set aside; and if he is a creditor he shall also forfeit his claim against the estate’.

[76] First, on the setting aside of the dispositions, s 31(2) envisages Jackson having to make good any loss occasioned to the trust by his actions. In this matter, that is simple enough. I shall order him to return the cattle and equipment that he took or pay their value.

[77] Secondly, s 31(2) makes provision for a penalty to be imposed on the person guilty of collusive dealing. The use of the word ‘shall’ in this respect, followed close on the heels of the same word used in relation to making good any loss occasioned by the collusion indicate to me that the imposition of a penalty is not discretionary. The quantum of the penalty, however, lies within the discretion of the court but may not exceed the value of the benefit which would have accrued to the person had the disposition not been set aside. In my view, Jackson’s conduct was particularly reprehensible, such was his contempt for other creditors and the law. He helped himself to as much as he could lay his hands on. I can see nothing that mitigates his conduct. I intend to impose a penalty equal to the value of the cattle, which has been agreed upon, and of the equipment, which was agreed to be R310 000 between Jackson and Winfield.

[78] Thirdly, s 31(2) makes provision for the forfeiture of the creditor’s claim against the insolvent estate – and that means any claim which the creditor may have against the insolvent estate. This is an automatic consequence of the finding of collusive dealing. The court has no discretion in this regard.[13] Accordingly, I shall make an order to this effect in respect of any claim that Jackson may have had against the insolvent estate of the trust.

The order

[79] For the reasons set out above, I make the order that follows.

(a)       The disposition of the Greenacres Trust to the sixth defendant of 55 cows, 11 steam-up heifers, 26 dry cows, 25 large heifers, 28 small heifers and 18 yard heifers on 7 September 2011 is set aside in terms of ss 29, 30 and 31 of the Insolvency Act 24 of 1936.

(b)       The disposition of the Greenacres Trust to the sixth defendant of a Holland 56304X4 tractor, a Ford 66104X4 tractor, a Duncan 15 row planter, an Aguirre twin disc fertiliser spreader and a blue tip trailer with drop sides on 31 August 2011 is set aside in terms of ss 29, 30 and 31 of the Insolvency Act.

(c)        The sixth defendant is directed to return to the plaintiffs the livestock described in paragraph (a) and the equipment described in paragraph (b) and, in the event that he cannot do so or does not do so within ten days of the date of this order, he is directed to pay to the plaintiffs the amounts of R660 000, being the value of the livestock described in paragraph (a), and R310 000, being the value of the equipment described in paragraph (b), together with interest on these amounts calculated at the legal rate from date of judgment to date of payment.

(d)       The sixth defendant is ordered to pay to the plaintiffs, as a penalty in terms of s 31(2) of the Insolvency Act, the amounts of R660 000 and R310 000, together with interest on these amounts calculated at the legal rate from date of judgment to date of payment.

(e)       The sixth defendant’s claims against the insolvent estate of the Greenacres Trust are declared forfeit.

(f)         The sixth defendant is directed to pay the plaintiffs’ costs.

______________________

C Plasket

Judge of the High Court

 

APPEARANCES

For the plaintiffs: D De La Harpe instructed by De Jager & Lordan Inc

For the sixth defendant: A Byleveld SC instructed by NN Dullabh & Co

 

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