South Africa: Eastern Cape High Court, Grahamstown Support SAFLII

You are here:  SAFLII >> Databases >> South Africa: Eastern Cape High Court, Grahamstown >> 2016 >> [2016] ZAECGHC 64

| Noteup | LawCite

Absa Bank Limited v Murray and Another (4188/2015) [2016] ZAECGHC 64 (23 August 2016)

Download original files

PDF format

RTF format


IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO. 4188/2015

In the matter between:

ABSA BANK LIMITED                                                                                               Applicant

and

GARY DAVID MURRAY                                                                                First Respondent

CLAUDIA STEPHANIA MURRAY                                                            Second Respondent

JUDGMENT

Bloem J.

[1] On 11 February 2016 Cossie AJ issued an order for the provisional sequestration of the first respondent’s estate.  At the request of the first respondent, who delivered answering affidavits prior to the issue of the above order, the learned judge gave reasons for the issue of the order.[1]  This is an application for an order that the first respondent’s estate be placed under final sequestration.  The first respondent opposed the application.

[2] The applicant is ABSA bank Ltd.  The first and second respondents are married out of community of property to each other.  The second respondent was joined in these proceedings insofar as she might have an interest in them.  I shall hereinafter refer to the first respondent simply as the respondent, as the second respondent played no part in these proceedings.

[3] The undisputed facts are that the respondent is indebted to the applicant in the sum of R13 521 636.48, plus interest thereon at the rate of 8.5% per annum calculated and capitalised monthly in arrears.  The respondent’s indebtedness arises as a result of moneys lent and advanced by the applicant to the respondent at the latter’s special instance and request.  The moneys lent to the respondent were secured by four covering mortgage bonds registered in the applicant’s favour over an immovable property in East London, the respondent being the registered owner thereof, for a sum of R11m.

[4] The applicant is a credit provider and the respondent a consumer as defined in the National Credit Act[2] (the NCA).  The NCA applies to the loan agreement.

[5] During 2009 a debt counsellor notified the applicant and other of the respondent’s credit providers that the respondent had applied for debt review in terms of section 86 of the NCA.  The debt counsellor conducted an assessment in terms of section 86 (6) (a) of the NCA to determine whether the respondent appeared to be over-indebted.  He concluded that the respondent was over-indebted.  On 19 July 2009 the respondent made an application to the magistrate’s court at East London for an order that the respondent be declared over-indebted and that his debt obligations be re-arranged, as envisaged by section 86 (7) on the NCA.  The applicant did not oppose that application.  On 3 September 2009 the magistrate at East London made an order in terms of section 87 (1) (b) (ii) of the NCA rearranging the respondent’s obligations by extending the period within which to repay the loan in terms of the loan agreement and reducing the monthly instalments from R174 047.19 to R47 303.73.  The magistrate furthermore ordered the respondent to make monthly payments to his creditors through the National Payment Distribution Agency.  The magistrate’s order has to date hereof not been set aside.

[6] On 4 September 2013 the applicant issued summons against the respondent in the East London Circuit Local Division of the High Court for payment of the sum of R13 521 636.48 plus interest thereon being in respect of moneys lent and advanced by the applicant to the respondent, that the immovable property be declared executable and costs.  The respondent delivered a special plea wherein he pleaded inter alia that, because of the order granted against him by the magistrate on 3 September 2009 and his compliance therewith, the applicant was barred from instituting that action against him[3].  The applicant did not take any further steps to prosecute that action.

[7] On 26 August 2015 the applicant instituted these sequestration proceedings against the respondent.  It claims that the respondent is factually insolvent and committed acts of insolvency, as contemplated in section 8 (c), (d) and (g) of the Insolvency Act[4]

[8] The respondent opposes the application on the basis that the applicant failed to make out a case against him in its founding affidavit.  He nevertheless denies that he is factually insolvent or that he committed an act of insolvency.  He also opposes the application on the basis that, because he makes punctual payments in terms of the re-arrangement order, the applicant is barred by the provisions of section 88 (3) of the NCA from enforcing the loan agreement by the sequestration proceedings.  For the sake of convenience I will start with the last contention first. 

[9] Section 88 of the NCA deals with the effect of debt review or re-arrangement order or agreement between a credit provider and a consumer.  Section 88 (3) reads as follows:

(3)       Subject to section 86 (9) and (10), a credit provider who receives notice of court proceedings contemplated in section 83 or 85, or notice in terms of section 86 (4) (b) (i), may not exercise or enforce by litigation or other judicial process any right or security under that credit agreement until-

(a)       the consumer is in default under the credit agreement; and

(b)       one of the following has occurred:

(i)      an event contemplated in subsection (1) (a) through (c); or

(ii)     the consumer defaults on any obligation in terms of a re-arrangement agreed between the consumer and credit providers, or ordered by a court or the Tribunal.” (own underlining)

[10] It has been held that an application by a credit provider for the sequestration of a debtor does not constitute litigation or other judicial process by which the credit provider exercises or enforces any right under the credit agreement between itself and the consumer.[5]  In Kona Meyer AJA concluded at 242B that an application by a credit provider for the sequestration of a consumer’s estate does not constitute litigation or other judicial process within the meaning of section 88 (3) of the NCA and that such an application is accordingly not precluded by the prohibition on the institution of litigation or other judicial process by which the credit provider exercises or enforces any right or security under the credit agreement.

[11] The court has also decided in Kona that a debt re-arrangement order in terms of section 86 (7) (c) (ii) of the NCA places a moratorium on credit providers pursuing their contractual remedies for as long as the consumer complies with the terms of the debt re-arrangement order.  However, that moratorium is lifted by operation of law once the consumer is firstly in default under the credit agreement and secondly in default of any obligation in terms of the re-arrangement order.  The default under the debt re-arrangement order entitles the credit provider, without further ado, to pursue his contractual remedies in terms of the credit agreement.[6]

[12] In summary, the Supreme Court of Appeal has given the following interpretation to the provisions of section 88 (3) of the NCA:

12.1.    sequestration proceedings are not an endeavour to “exercise or enforce by litigation or other judicial process any right or security” under a credit agreement; and

12.2.    it is not impermissible for a credit provider to bring sequestration proceedings against a consumer in respect of whom a re-arrangement order has been made.

[13] I am bound by the above interpretation given by the Supreme Court of Appeal to section 88 (3).

[14] The Insolvency Act was amended by section 38 of the National Credit Amendment Act[7] by inter alia the insertion of section 8A in the Insolvency Act.  That section,  which commenced on 13 March 2015, reads as follows:

8A – debt review

A debtor who has applied for a debt review must not be regarded as having committed an act of insolvency.

[15] Until the above amendment, a debtor who informed his creditor that he has applied for, or was under, a debt review was by necessary implication informing the creditor that he was unable to pay his debts.  Such a debtor committed an act of insolvency with the result that he could face sequestration proceedings[8].  The legislature stepped in by inserting section 8A into the Insolvency Act.  The clear meaning of that section is that it is impermissible to regard a debtor who has applied for a debt review as having committed an act of insolvency.

[16] Applied to the facts of this case, it means that it is impermissible to regard the respondent, who applied for debt review and obtained a re-arrangement order, as having committed an act of insolvency.

[17] The applicant’s case is that the respondent cannot rely on the fact that he applied for debt review and that a re-arrangement order was granted, because he was in default of his obligation to make monthly payments in terms of the re-arrangement order.  Its evidence in this regard in its founding affidavit is that the re-arrangement order terminated as a result of the first “respondent’s non-payment during August 2011 when the first respondent was in arrears with his debt review order in an amount of R144 798.47”.  The respondent admits that the re-arrangement order was temporarily terminated but that the parties subsequently agreed to have it reinstated.  As proof thereof the respondent referred to a letter 4 July 2012 that the applicant addressed to him wherein it confirmed “that the court order issued on the 03 September 2009 was reinstated on the 29 June 2012 and is still currently valid”.  The applicant failed to deal with this aspect in its replying affidavit.  One would have expected the applicant to at least explain why no reference was made to that letter in its founding affidavit.  It does not lie in the applicant’s mouth to rely during 2015 on the respondent’s default in 2012 to comply with the re-arrangement order when it confirmed during 2012 that the re-arrangement order was reinstated and valid.

[18] In its founding affidavit the applicant submits that the respondent’s “debt review application was not bona fide and indeed amounts to an act of insolvency under section 8 (c), 8 (d) and 8 (g) of the Insolvency Act.”  I have already dealt with the provisions of section 8 (g) and 8A of the Insolvency Act.  I will accordingly deal with section 8 (c) and (d).

[19] Section 8 (c) of the Insolvency Act provides that a debtor commits an act of insolvency “if he removes or attempts to remove any of his property with intent to prejudice his creditors or to prefer one creditor above the other”.

[20] Mr Olivier SC, counsel for the applicant, relied on two payments made by the respondent in support of the submission that the respondent disposed of his property which had or would have the effect of prejudicing his creditors or of preferring one creditor over the others.  The first payment is a payment made to Builders Trader (Pty) Ltd and the second is a payment made to the Buffalo City Metropolitan Municipality.  Mr Dugmore SC who, with Ms Watt, appeared for the respondent, submitted that the applicant did not make out a case in its founding affidavit that the respondent committed an act of insolvency as envisaged in section 8 (c), but the respondent in any event denied the commission of such act of insolvency. 

[21] In motion proceedings an applicant must set out its case fully in its founding affidavit to such an extent that a respondent should know what relief the applicant seeks and the facts upon which the applicant relies for such relief.[9]  Those necessary facts must be set out such that the respondent is sufficiently informed as to what case he is required to meet.[10] The general rule is that an applicant must stand or fall by the facts contained in his founding affidavit. 

[22] I will now deal with the alleged payment to Builders Trader (Pty) Ltd.  In its founding affidavit the applicant mentioned that, when the application was made for debt review, except for the applicant, the respondent was also indebted to Builders Trader (Pty) Ltd in the sum of R61 413.94 and North and Robertson (Pty) Ltd in the sum of R141 789.19.  Nowhere in its founding affidavit did the applicant allege that the respondent settled its indebtedness to Builders Trader (Pty) Ltd and that such settlement had the effect of prejudicing his creditors or of preferring one creditor above another.  That allegation could have been made in the founding affidavit because the applicant attached the entire debt review application to its founding affidavit.  That application showed that the sum of R141 552.99 was due to Builders Trader (Pty) Ltd by the respondent when the application for debt review was made but that such sum was paid when the order was granted on 3 September 2009.  The re-arrangement order furthermore shows that the respondent withdrew its application for debt review against Builders Trader (Pty) Ltd and was ordered to pay the latter’s costs.  There is no evidence that the respondent disposed of any of his property in relation to the Builders Trader (Pty) Ltd debt.  What happened to the respondent’s indebtedness to Builders Trader (Pty) Ltd is also not clear.  What is important is that the respondent was not called upon in the applicant’s founding affidavit to respond to an allegation that he disposed of his property to settle his indebtedness to Builders Trader (Pty) Ltd and by doing so committed an act of insolvency as envisaged in section 8 (c).  The applicant did not make out such a case and the respondent was accordingly not called upon to respond to such a case.

[23] I will now deal with the payment to the Buffalo City Metropolitan Municipality.  In support of its contention that the respondent is factually insolvent, the applicant alleged in its founding affidavit that the respondent was indebted to it in the sum of R15 180 093.58 with interest accumulating at around R117 000.00 per month and to the municipality in the sum of R1 296 532.42.  The respondent denied that he was factually insolvent.  He alleged that he was in dispute with the municipality regarding certain assessments, but that the dispute had been resolved.  It turned out that the respondent owed the municipality only R387 442.21 which was paid on 30 July 2015.  Under these circumstances, the applicant cannot now, because the sum of R387 442.21 was paid to the municipality, submit in its heads of argument that the respondent committed an act of insolvency, as envisaged in section 8 (c) when no such case was made out in its founding affidavit.

[24] In the circumstances, the applicant’s reliance on section 8 (c) of the Insolvency Act cannot be sustained.

[25] Section 8 (d) of the Insolvency Act provides that a debtor commits an act of insolvency “if he removes or attempts to remove any of his property with the intent to prejudice his creditors or to prefer one creditor above another”.  There is simply no evidence in any of the applicant’s affidavits in support of a claim that the respondent committed an act of insolvency as envisaged in section 8 (d).  It is accordingly not surprising that no claim was made in respect thereof in the applicant’s heads of argument delivered before and after the provisional sequestration order was issued.  Nothing further need be said other than to make the finding that the applicant did not make out a case that the respondent committed an act of insolvency as envisaged in section 8 (d).

[26] Regarding the allegation of factual insolvency, the applicant’s case in its founding affidavit is that as at 1 March 2015 the debt due by the respondent to it was R15 190 093.58 and interest accumulating at around R117 000.00 per month and that the debt due by the respondent to the municipality was R1 296 532.42.  The value of the immovable property, if sold under insolvent circumstances, would be approximately R11.52m, leaving a shortfall in the respondent’s estate of approximately R5.54m.  The applicant submitted that it was accordingly reasonable to submit that the respondent is factually insolvent.

[27] The respondent denied that he is factually insolvent.  His case is that the method used by the applicant to arrive at the conclusion that he is factually insolvent is flawed and incorrect.  He admits his indebtedness to the applicant to the extent of R15 180 093.58.  He attached to his answering affidavit an affidavit of Danie Fenwick, a professional valuer who inspected the immovable property on 16 September 2015 and compiled a valuation report in respect thereof.  In that report Mr Fenwick placed a market value of R26m on that property.  He confirmed that valuation in his affidavit.  Mr Fenwick placed a forced sale value of R19.5m on the property.  In reply the applicant criticised Mr Fenwick’s report because it was prepared “in accordance with” the respondent’s instruction and that such instruction was not disclosed, that no documentary proof was provided “in support of a single item mentioned” in the report by either the respondent or Mr Fenwick.  As an example, the applicant claimed that rental income could easily have been supported by reference to the respondent’s financial statements.

[28] The dispute about the value of the property is incapable of being resolved on these papers.  On the basis on the principles set out in Plascon Evans Paints Ltd v van Riebeeck Paints (Pty) Ltd,[11] I accept the version of the respondent and Mr Fenwick that the market value of the property is R26m.  That being the case it means that the respondent’s assets of approximately R26m far exceed his liabilities of approximately R15.2m.  In my view the applicant failed to prove that the respondent is factually insolvent.

[29] In the light of the above findings it is unnecessary to deal with the alleged absence of benefit to creditors or to exercise a discretion whether or not to decline the issue of a final sequestration order.

[30] In the result, the following order is issued:

30.1.    The provisional sequestration order is discharged;

30.2.    The application for the sequestration of the first respondent’s estate is dismissed with costs, such costs to include the costs attendant upon the employment of two counsel, where so employed.

________________________

G H BLOEM

Judge of the High Court

 



For the applicant:                                   Adv L M Olivier SC, instructed by Huxtable Attorneys, Grahamstown                                                    

 

For the first respondent:                        Adv A G Dugmore SC and Adv K L Watt, instructed by Nettletons, Grahamstown

 

For the second respondent:                 No appearance

 

Date heard:                                             28 July 2016

 

Date of delivery of the judgment:        23 August 2016



[1] A full set of affidavits had been filed of record when Cossie AJ heard the application for provisional sequestration.  It appears that immediately after the learned judge had heard submissions by counsel for the respective parties she issued the provisional order.

[2] National Credit Act, 2005 (Act No. 34 of 2005).

[3] Although the section is not specifically pleaded, the respondent must have relied on section 88 (3) of the NCA which is quoted hereunder.

[4] Insolvency Act, 1936 (Act No. 24 0f 1936).

[5] Firstrand Bank Ltd v Evans 2011 (4) SA 597 (KZD) at 606E-F referred to with approval in Firstrand Bank Ltd v Kona and Another 2015 (5) SA 237 (SCA) at 241G-242A.

[6] Jili v Firstrand Bank Ltd (t/a Wesbank 2015 (3) SA 586 (SCA) at paragraph [25].

[7] National Credit Amendment Act, 2014 (Act No. 19 of 2014).

[8] See section 8 (g) of the Insolvency Act, Firstrand Bank Ltd v Evans and Firstrand Bank Ltd v Kona and Another (supra).

[9] Rule 6 (1) of the Uniform Rules of Court provides as follows: “safe where proceedings by way of petition are prescribed by law, every application shall be brought on Notice of Motion supported by affidavit as to the facts upon which the applicant relies for relief”. (own underlining).

[10] National Council of Societies for the Prevention of Cruelty to Animals v Openshaw [2008] ZASCA 78; 2008 (5) SA 339 (SCA) at 349A-B.

[11] Plascon Evans Paints Ltd v van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634I-635A.