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OFFICE OF THE CHIEF JUSTICE

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

2/11/15

Case number: 14219/2014

In the matter between:

THE BODY CORPORATE OF EMPIRE GARDENS                                         APPLICANT

And

NOBUHLE GLORIA SITHOLE                                                                     RESPONDENT

NEDBANK  LIMITED                                                                INTERVENING CREDITOR

 

JUDGMENT

DE KLERK AJ:

 

Introduction:

[1] This is an opposed application by a Body Corporate for the provisional sequestration of the estate of a unit holder over which unit a bond is registered.

[2] Nedbank, which is the bondholder, was given leave to intervene as a creditor in these proceedings.

 

Common cause facts:

[3] The Respondent is a co-owner of one half share of the aforesaid immovable property situated at Section No. 12, Empire Gardens, Parktown, Johannesburg.

[4] The Applicant obtained two judgments against the Respondent (and the other co-owner of the said property) in the Magistrate's Court for payment of the amounts of R13 385.70 and R99 298.80 respectively as a result of failure to pay levies to the Applicant.

[5] Pursuant to the first judgment a warrant of execution was issued against the Respondent's movable property.

[6] A sale in execution  of the  movable assets  resulted in a shortfall of R147.23.

[7] Subsequently to that leave was granted to the Applicant in the Magistrate's Court to execute against the respondent’s immovable property.

[8] The immovable property was sold by the Sheriff at a sale in execution for the amount of R170 000.00, subject to the intervening creditor's confirmation thereof. The intervening creditor did not accept the said price.

[9] On 18 February 2014 the Applicant lodged this application for the provisional sequestration of the Respondent's estate. A similar application was not lodged in respect of the other co-owner.

[10] The Respondent did not disclose the extent of her assets and liabilities in her answering affidavit, nor did she disclose facts showing a prospect of the discovery of any other assets available for liquidation.

[11] The Respondent's only known asset is her one. half-share in the immovable  property.

[12] The intervening creditor obtained a sworn valuation of the Respondent's immovable property from a certain Wampach.

[13] According to Wampach the immovable property has a forced sale value of R375 000.00 and a market value of R478 000.00.

[14] The outstanding balance due to the intervening creditor (in respect of the mortgage bond) as at 1 May 2014 amounted to R438 972.84 together with interest thereon at the rate of 8.75% per annum.

[15] The capital amount alone of the two judgments obtained by the Applicant amounts to R112 684.00 (of which the last judgment was granted 2-years ago).

[16] The Respondent has maintained her monthly instalments to the intervening creditors, however the levies were not paid to the Applicant and the arrear amount increases monthly.

 

The Intervening Creditor's Contentions:

[17] Counsel for the Intervening Creditor maintained that the sequestration of the Respondent's estate would not be to the advantage of the Respondent's creditors. Only the Applicant would benefit therefrom.

[18] Counsel suggested that a new sale in execution be arrange to sell the immovable property for a purchase consideration in line with the forced sale value as determined by Wampach.

[19] In his heads of argument counsel set out the following reasons why such a sale would be more advantageous than to obtain a sequestration order:

Firstly the costs of the sale in execution would be considerably less than the costs of a sequestration specifically in view of the fact that the Sheriff's commission is limited to a maximum amount of RB 750.00 plus VAT. In case of a sale in execution the purchaser of the immovable property is obliged to make payment of the Sheriff's commission, the costs associated with obtaining a levy clearance certificate, electrical compliance certificate, gas installation and plumbing certificate and the other costs attendant upon having the immovable property transferred to such purchaser. In case of a sequestration application these costs would form part of the cost of sequestration, which are deducted before any dividend is paid to creditors.

In the second place, given the inordinate delay in the Master's office and having regard to the unpaid levies and accruing interest the creditors would at the end of the day be left with a situation where they have considerable larger claims than reflected at the outset, much of which they would not be able to recover.

Finally a new sale in execution would overcome the difficulty of a trustee having to deal with one half share in the immovable property.

 

The Applicant's contentions:

[20] Counsel for the Applicant submitted  that  the  benefit  for  the  Applicant would be that the Respondent as a non-paying member would be removed from the Scheme and replaced by a paying member.

[21] Counsel for the Applicant further submitted that the sui generis position of the Applicant should weigh heavily in these proceedings.

 

Issue:

[22] The Court has to decide whether there is prima  facie reason to believe that it would be to the advantage of the creditors as a body if Respondent's estate is sequestrated.

 

Legal position:

[23] Section 10 of the Insolvency Act, Act No 24 of 1936 (as amended), entitled 'provisional sequestration', reads as follows:

“(1) If the Court to which the petition for the sequestration of the estate of a debtor has been presented is of the opinion that prima facie -

(a) the petitioning creditor has established against the debtor a claim such as is mentioned in subsection (1) of Section 9; and

(b) the debtor has committed an act of insolvency or is insolvent, and

(c) there is reason to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated,

it  may  make  an  order  sequestrating  the  estate  of  the debtor provisionally'.

[24] In the case of London Estate (Pty) Ltd v Nair 1957 (4) All SA 1 (N) it was held that:

"It seems to me that a sequestration is to the advantage of creditors only when it results in some payment in respect of the claims of the creditors as a body, e.g. "a not  negligible  dividend"  (of  Trust  Wholesalers  and Woollens (Pty) Ltd v Mackan 1954 (2) SA 109 (N at p. 111). If no payment results or even  worse,  creditors have to contribute towards the costs of sequestration, it is not to their advantage. Whether it is advantageous or not, must clearly depend on the circumstances, the value and number of assets available for liquidation, the amount of the claims, and the cost of sequestration . ..

... The so-called "indirect advantages" inherent in every process   of  sequestration,  such  as  control,  power  of investigation, etc. cannot per se  constitute  an 'advantage to creditors'. (Meskin & Co v Friedman, 1948 (2) SA 555 (W) at p. 559). ..

'Reason to belief', in my opinion, is constituted by facts giving rise to such belief Clearly they need not show "advantage" on a balance of probability that would constitute proof, not belief  When do they give rise then to such belief? I respectfully adopt what was said by Roper, J. in Meskin & Co. v Friedman 1948 (2) SA 555 (W) at p. 559:

The facts put before the Court must satisfy it that there is reasonable prospect – not necessarily a likelihood, but a prospect which is not too remote - that some pecuniary benefit will result to creditors.'

As all the relevant facts are usually not known it would be extremely difficult to work with  any more exacting standard, such as e.g., one of likelihood, one can only accept with confidence a future result as "likely" when one has some knowledge of all the relevant facts . .."

[25] In the case of Stratford and Others v Investec Bank LTD and others 2015 (3) SA 1 at par [43] it was held that:

"In terms of the Insolvency Act, a Court may grant a sequestration order, either provisionally or finally if there is reason to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated . ..

... Meskin et al stated that:

'The relevant reason to believe exist when, after making allowance for the anticipated costs of sequestration, there is a reasonable prospect of an actual payment being made to each creditor who proves a claim, however  small  such  payment  may  be,  unless  some other means of dealing with the debtor's predicament is likely to yield a larger such payment .. .

The correct approach in evaluating advantage to creditors is for a Court to exercise its discretion guided by the dicta outlined in Friedman. For example, it is up to a Court to assess whether the sequestration will result in some payment to the creditors as a body; that there is a substantial estate from which the creditors cannot get payment, except through sequestration; or that some pecuniary benefit will redound to creditors."

[26] In Body Corporate of Geovy Villa v Sheriff, Pretoria Central, Magistrate's Court 2003 (1) SA 69 (T) at 73 [6] - 74 [7] it was held that:

"[6] ... It is clear that this is not an isolated  case... The bodies corporate are hampered in their functioning. The other owners must carry the defaulting owners. If there are a number of defaulters the body corporate is unable to maintain the building in a proper condition ...

The only advantage to creditors is usually to put an end to a factual impasse and to prevent the debt of the body corporate increasing ...

The interests of not only the body corporate but also of other owners of units in sectional title schemes, bondholders and of the community as a whole requires that bodies corporate  act against defaulters as quickly as possible ...

... In the Barnard matter ... when he discussed the Ne/ case, Brand AJA said the following at 9BOA: "Vo/gens hierdie beslissing kan die regspersoon, ingevolge die wetsbepaling, in die geval van die eienaar se sekwestrasie daarop aandring dat bydraes wat deur die insolvent verskuldig is ten volle betaal word alvorens hy 'n uitklaringsertifikaat uitreik.  Hiervolgens  verleen die wetsbepaling  dan,  wat agterstallige  bydraes betref, in effek, aan die regspersoon 'n voorkeur eis wat voorrang geniet selfs  teenoor 'n versekerde skuldeiser wat 'n verband oar die eenheid hou."'

[27] In the case of Redberry Park Body Corporate v T & R Reddy supra at par [19] it was held that:

"A further consideration is that contrary to the bald a/legations that sequestration would be to the advantage of creditors, it is clear that the Applicant will be the only creditor guaranteed to receive full payment of its claim and costs to the detriment of other creditors. I say so because in terms of the provisions  of Section 15(8) (3) of the Sectional Title Act, Act 95 of 1986, registration of transfer of immovable property (following a sale of same by the Liquidator) will not be permitted without obtaining a levy clearance certificate from the Body Corporate (the Applicant). In order to obtain this certificate the outstanding  levies must be paid or adequately secured to the Body corporate (Applicant). This may well be required as a form of security as contemplated by the provisions of the Insolvency Act".

[28] In Body Corporate of Graaf-Reinett Oord and Another  v Masanabo and Others (3624412012) 2014 it was held that:

"The sui generis position of the body corporate was a factor which should weigh heavily in the present analysis."

[29] In the case of Body Corporate of Costando v Kiggandu and Another (1281112013) [2014] ZAGPPHC 674 15 September 2014) Webster J, it was held that:

[15] ... The Applicant has the duty to demonstrate the benefit to creditors which will tip the scale in favour of the Applicant.    Nothing in this regard has been  advanced  - no  effort,  even  of a speculative nature has been made to illustrate what the benefit to creditors will be, if the intervening creditor's version is accepted . . .

That there is reason to believe that sequestration will be to creditor's advantage is established if there are facts proved which indicate that "there is a reasonable prospect  - not necessarily  a likelihood, but a prospect which is not too remote - that some pecuniary benefit will result to creditors" ... The concept of "advantage" to creditors  is  a  broad  one  (demonstrated by, example, a not negligible pecuniary benefit to creditors, or that advantage is to be gained through an enquiry into the debtor's financial affairs)  but  in  essence  there  must  be some useful purpose."

 

Evaluation:

1. The Applicant bears the onus to prima facie prove that there is reason to believe that it will be to the advantage of the body of creditors if the Respondent's estate is sequestrated.

2. It is therefore incumbent upon the Applicant to place facts before the Court to enable the Court to determine whether there is a reasonable prospect that a benefit will result to creditors e.g. the extent of the debtor's estate, (value and number of assets available for liquidation, the amount of claims), the cost of sequestration etc.

3.

3.1 The Applicant advanced that the benefit to the "Applicant" would simply be that the Respondent as a non-paying member of the Applicant would be removed from the scheme.

3.2 The intervening creditor, on the other hand maintained that the sequestration of the Respondent's estate would only benefit the Applicant and that the creditors, (based on the intervening creditor's calculation), will have to contribute towards the costs of sequestration.

4. Although it is quite understandable that all the relevant facts were not known to the Applicant, the Applicant should at least have furnished the Court with a sworn valuation of the Respondent's immovable property and the anticipated costs of sequestration.

5. On the facts before me I am of the view that after making allowance for the anticipated  costs of the sequestration, (as calculated by the intervening creditor), there is no reasonable prospect that an actual payment will be made to any other creditor but the Applicant.

6. I am further of the view that an enquiry into the Respondent's financial affairs would not reveal any assets, worth mentioning, that would be available for liquidation.

7. The reason advanced by the Applicant is an important consideration, however if the other creditors of the Respondent are not going to receive any dividend, (which I have already found to be the case), it would make no difference to them and consequently would not be to their benefit that the sequestration will terminate the Respondent's liability for levies.

8. It was furthermore submitted by the intervening creditor that a sale in execution in line with the forced sale value, (which is R200 000.00 more than the price fixed during the first sale), and the concomitant lower cost implication of this method of execution, would be more advantageous to the Respondent's creditors as a body than a sequestration.

 

Conclusion:

9. In view of these facts I have come to the conclusion that the Applicant did not discharge the onus.

10. As regards costs, costs must follow the result.

11. In the result it is ordered that:

1. The application for sequestration of the Respondent's estate is dismissed with costs.

I

___________________________

DE KLERK

ACTING JUDGE OF THE GAUTENG DIVISION HIGH COURT, PRETORIA

 

APPLICANT'S REPRESENTATIVES

 

ADVOCATE: Adv. J Vorster

INSTRUCTING ATTORNEY: E.Y Steward

 

RESPONDENTS' REPRESENTATIVES

 

ADVOCATE:

INSTRUCTING ATTORNEY:

 

INTERVENING CREDITORS REPRESENTATIVES

 

ADVOCATE: Adv. Brandon Lee

INSTRUCTING ATTORNEY: Van Halsteen

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