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IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

CASE NUMBER: 13051/2015

DATE: 17 DECEMBER 2015

In the matter between:

ORO AFRICA (PTY) LIMITED.............................................................................................Applicant

And

SHAUN NORMAN CURRIN...............................................................................................Respondent

J U D G M E N T

DAVIS, J:

This is an opposed application in which the applicant seeks an order that respondent be finally sequestrated.  Respondent, a chartered accountant, was the chief financial officer of the applicant but ceased working for it on 24 June 2015.  Applicant contends that it has locus standi to bring the application as, in its view, respondent has defrauded it of at least of R4.5m which the respondent owed a subsidiary of the applicant (ORO Africa and Design (Pty) Limited), a further amount of R21 352.20 owed to the applicant in addition to an amount of R15 077.13 (on the respondent’s own version).

The applicant alleges that the respondent has committed an act of insolvency by leaving South Africa in that he was out of South Africa and remained absent, having departed from his home with the intent of evading or delaying the payment of his debts.  In addition, applicant contends that respondent is factually insolvent given that his liabilities exceed his assets.  Applicant alleges that this application is to the advantage of creditors in that if respondent is sequestrated, there would be a reasonably significant dividend for creditors.  Trustees would also be able to investigate the affairs of the respondent with a view to setting aside various transactions and ascertaining whether cash taken from the applicant can be located.

In response thereto, the respondent has raised a series of defences:

(1)     Respondent admits receiving money from the applicant and its subsidiaries but claims that this was pursuant to an oral agreement in which he was granted a loan facility for up to R5 million. 

(2)     Respondent further contends that the loan granted may be an affected by alleged non-compliance with certain provisions of the National Credit Act 34 of 2008 (‘NCA’).

(3)     Respondent further denies that he left South Africa to avoid his creditors and avers that his absence from South Africa was as a result of a planned trip to Malawi. 

(4)     He further contends that he is factually solvent due, inter alia, to a loan of  R4 687 521.00 which he made to Company Worx Group (Pty) Ltd (‘Company Worx’) of which he appears to be a shareholder and which on the papers he appears to have founded. 

The basis upon which applicant argued the case before this Court was, as Mr Irish, who appeared together with Mr Van Reenen on behalf of the applicant, contended, based almost entirely on the respondent’s own version.  Therefore applicant seeks to demonstrate that it is entitled to a final order of sequestration based on the version which has been put up to this Court by respondent.

I turn to deal with the various components of the case.

LOCUS STANDI:

Section 9(1) of the Insolvency Act of 1936 provides that:

““A creditor (or his agent) who has a liquidated claim for not less than £50 (R100) or two or more creditors (or their agent) who in the aggregate have liquidated claims for not less than £100 (R200) against a debtor who has committed an act of insolvency who is insolvent may petition the Court for the sequestration of the estate of the debtor.”

Section 9(2) provides that:

“A liquidated claim which is accrued but which is not yet due on the date of the hearing of the petition shall be reckoned as a liquidated claim for the purposes of subsection (1).”

As shall become apparent later, this provision is of significance to the disposition of this case.  In this conection Meskin, The Law of Insolvency at 2.1 writes:

“A liquidated claim in this context is a claim for an amount which is fixed either by agreement or by an order of the Court or otherwise.  The mere fact that the claim is disputed does not render it un-liquidated if nevertheless it is capable of easy and speedy proof.  Thus, a claim for damages whether arising in contract or delict which is yet to be quantified by a judgment or agreement ordinarily is an un-liquidated claim but a claim for damages may be a liquidated claim, e.g., a claim for damages in an amount equal to an amount stolen where such latter amount is established.” 

In this context, a claim is not a liquidated claim where its existence depends on the fulfilment of the condition but it is a liquidated claim where the condition relates only to the date for payment which is not due as at the date of the hearing of the application for sequestration.  A claim is not liquidated however where the reason for why the payment thereof is not due is where the creditor has agreed to withhold proceedings against the debtor, pending the fulfilment of a condition and this condition remains unfulfilled.

Respondent admits, save for the defences raised in terms of the NCA, that he owes applicant money.  His defence is that the money is not yet due but this point cannot be raised to dispute the applicant’s locus standi by virtue of section 9(2).  As the Court stated in Nedbank Ltd v Fuls and Another [2012] ZAWCHC 196 (12 November 2012):

“More significantly the first respondent never disputes that he owes the applicant a substantial sum of money for the applicant have locus standi as a creditor that amount needs not be due.”

I should add that this particular issue was hardly pressed by Mr Tredoux, who appeared on behalf of the respondent.

THE RESPONDENT’S LOAN:

The respondent’s version of the loan agreement is that it was authorised by applicant.  In September 2013 he had a telephone conversation with Mr Stephen Nathan, a director of applicant, while Mr Nathan was overseas.  Respondent’s case is that he asked for a loan in the amount of R5 million as he wanted “to capitalise Company Worx Group (Pty) Ltd” and “perform renovations on his property”.  Respondent states that he was not intent on investing in Company Worx Group (Pty) Ltd but would simply lend money to the entity.

As stated in his opposing affidavit, respondent says:

“In September 2013 I had a telephone conversation with Stephen Nathan whilst he was in Italy at the time and informed him that I needed a loan with the applicant in the total amount of R5 million.  I knew that Stephen had the authority to approve such a loan.  I explained to him that I wanted to capitalise company Worx Group (Pty) Ltd, start-up company, which my brother wanted to start and which was going to be managed by my brother and perform some renovation work on my properties.  I explained to him that the way I was going to do that was not to invest it in company Worx Group (Pty) Ltd by becoming a shareholder of that company, but simply as a loan to that company.  I was therefore to become the major creditor of company Worx Group (Pty) Ltd.  Mr Stephen Nathan immediately approved the loan.  It was agreed that the loan would be interest bearing at prime and unsecured.  It was also agreed that the loan will only be payable on demand.  These were the expressed terms of the agreement between the two of us but that tacit or implied terms of the agreement was that I would draw such amounts as and when I need from time to time up to the limit of R5 million provided that all drawings by myself had to be properly accounted for.  The further tacit or implied terms of the agreement was obviously that once repayment of this loan was demanded the applicant and I would have to agree on a structure for the repayment of the loan.  The Nathan brothers was (sic) fully aware at all times of my financial position and that it would never have been possible for me to repay an amount of R5 million in a lump sum simply on demand.”

Mr Irish sought to interrogate the basis of respondent’s version concerning the terms of the loan by firstly contending that the respondent had not appreciated the difference between a tacit and an implied term of an agreement.  A tacit term of a contract would, of course, in terms of trite law be established by reference to the intention of the parties as opposed to an implied term in which case the intention of the parties would not be relevant.  See Alfred McAlpine and Son (Pty) Ltd v Transvaal Provincial Administration 1974 (3) SA 506 (A) at 531; Van der Merwe et al Contract: General Principles (4 ed) at 241 and the cases collected at fn 216.

As Mr Irish noted, there was no basis on which an implied term has been alleged or established on these papers.  If respondent’s contention was that a tacit term existed, then, in order to decide whether this was so, it was important to examine the express  terms of the contract. 

In this connection Mr Irish referred to Pan-American Airways Inc v Fire and Accident Insurance Company Ltd 1965 (3) SA 150 (A) at 175C:

“When dealing with a problem of an implied term the first enquiry is of course whether regard being had to the expressed terms of the agreement there is room for importing the alleged implied term.  The existence of the tacit term is determined by the bystander test.”  See also Christie, The Law of Contract in South Africa (6^th edition) at 174-176.

Courts have generally been slow to infer a tacit term for, as stated, in City of Cape Town (CMC Administration) v Bourbon’Lefty N.N.O 2006 (3) SA 488 (SCA) at 494I-495B:

“It follows that a term cannot be inferred because it would on application of the well known officious bystander test have been unreasonable if one of the parties not to agree to it upon the bystander suggestion nor can it be inferred because it would be convenient or might therefore very well have been incorporated in a contract if the parties have thought to bide the time.  A proposed tacit term can only be imported into a contract if the Court is satisfied that the parties would necessarily have agreed upon such a term if it had been suggested to them at the time ... if the inference is that the response by one of the parties to the bystander question might have been that he would first like to discuss and consider the suggested term, the importation of the term would not be justified.  Manifestly the onus of proving the terms of the agreement from which it relies rests on the respondent who has alleged the existence of such a term.”

The difficulty for respondent is that he has failed to provide evidence required to establish a tacit term. There is no basis by which he discharged the onus which rested upon him.  Further, the tacit term alleged would contradict the express terms that the loan would be repayable on demand.  In short, the passage from the respondent’s affidavit, which I have cited, is riddled with contradiction and most certainly cannot justify the various versions which were set out therein.  A tacit term cannot be established on this version.

Furthermore, the replying affidavit of Mr Gary Nathan demonstrates very clearly that the importation of a term would never have been tacitly agreed to between the parties.  Mr Nathan says:

“Stephen and I deny that any such alleged oral loan agreement was concluded with the respondent.  Stephen recalls no such conversation and no such loan agreement would have been entered into for the following reasons:

 

1.     The notion that Stephen would authorise a loan of up to R5 million is simply insane.  The applicant has never made such a large loan to a director who is not a shareholder.  There would never have been such a loan to a member of staff such as the respondent.

2.     Stephen would never have made such a decision without speaking to the other directors of the applicant.

3.     There was no way a loan of R5 million would be granted without the agreement being adduced to writing and would never have been granted without some form of security.

4.     The alleged terms are also bizarre in that there are no terms of repayment, that could never have been the case.

5.     Every other loan to directors bore interest at above prime.  There was no reason why the applicant would lend money at prime. If such a discussion happened (which it did not) then Stephen and the respondent would have certainly reduced it to writing.  Stephen was in Italy in September 2015 from 26 September 2015 until October 2015, a total of 4 working days.  He attended a London Bullion Metal Association Conference and was in meetings all day and had functions at night and then returned to South Africa.  It is also very strange that the respondent would call Stephen who is a non-executive director of the applicant regarding the loan when I (being the CEO, director and shareholder in the applicant) was sitting in the office next door.  Stephen and I also deny that respondent stated that he needed the loan to capitalise company Worx Group (Pty) Ltd or renovate respondent’s properties.  This allegation cannot be true as company Worx Group was only registered in 2014, some months after the alleged loan.  The allegation that the loan was required to renovate the respondent’s properties (i.e. more than one) was also incorrect.  In 2013 he owed the sectional title unit only.  It was only 2014 when he purchased the Lakeside property(sic).  This is apparent from the property searches attached to my founding affidavit.  Respondent also give no details of the renovation which he allegedly concluded.”

In reply respondent has sought to rely on a number of documents to support his claim that an authorised loan existed between the applicant and himself.  These documents included the following: 

1.     A draft order report which stated that:

“The provision of financial assistance to related parties as defined per the Companies Act that are loaned to S Currin (director of a subsidiary) and loan to G Nathan (director in ORO Africa) do not have proof of written board approval.”

No terms of the loan are set out and the applicants’ representative did not notice that entry in the draft report.

2.     The annual financial statements of the applicant for the year ending 31 March 2014 wherein it was stated that the amount of R18 688 137.00 were “loans to directors, managers and employees”.  This document however describes amounts as loans which would bear interest at rates ranging from prime to prime plus 1.5 and have no fixed terms of repayment.

3.     A certificate of loan balance for the year ending 31 March 2014 signed by the respondent on 30 October 2014.  On 28 November 2014 a correct loan certificate was signed, in which the respondent stated that R751 380.00 (and later R766 457.00) was owing to the applicant.  Both these documents state inter alia that the loan was payable on demand.”

The respondent also appears to justify the conclusion that the loan was repayable on demand when he claims:

“I stated that the capital amount advanced by the applicant to me under the authorised loan agreement is       R453 865 762.31.  The total amount repayable as at 31 July 2015 would have been R4 748 610.00 which would have included the interest of amount R362 048.00 if not for the provisions of the National Credit Act 34 of 2015.”

This statement was made in an answering affidavit in the application for referral to oral evidence.  It is thus a document of which I can take cognisance.

In short, it appears that the major defence which was raised by the respondent when all the various allegations are interrogated is one based upon the NCA.  Respondent contends that the applicant was obliged to register as a credit provider and that the applicant’s failure to register as a credit provider would render the loan which it made to the respondent unlawful in terms of section 89 of the NCA.

Curiously in these papers the respondent states that he is prepared to pay back the loan on reasonable terms if this Court should decide that the NCA is inapplicable.  I shall return to this claim presently.  Mr Irish contended that the difficulty for respondent was that the NCA only applied in respect of agreements concluded between parties acting at arm’s length.  Section 4 of the NCA, to the extent that it is relevant, provides:

“(1)  Subject to sections 5 and 6 this Act applies to every credit agreement between parties at arm’s length and made within or having an effect within the Republic except (iv) any other arrangement (aa) in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction.” (my emphasis)

In Guide to the National Credit Act the following is said at para 4.2 about this particular issue:

“A notional commercial arm’s length transaction on interest assumes a lender will insist on payment of the interest he charges and a borrower able to pay that interest.  Our Courts have held that an agreement between close acquaintances, at the interest rate charged to the credit provider by his bank was not “at arm’s length”.  In the context of the law of insolvency and in particular with regards to the question of whether a debtor had the intention to prefer his creditor, it has been accepted that parties were dealing at arm’s length when no relationship between them existed other than that of debtor and creditor.  It has also been held “that at arm’s length” means that each party is independent of the other and will therefore strive to get the utmost possible advantage out of transaction for himself.  This view has been codified in the National Credit Act.”

Significantly in an another analogous area of law, namely the Income Tax Act 58 of 1962, as amended, and, in particular section 103(1) of that Act (the old tax avoidance section), the concept of arm’s length was interrogated very carefully by courts in a number of cases.  In particular in Hicklin v CIR 1980 (1) SA 481 (A) at 495A Trollip, JA, in dealing with the concept of “dealing at arm’s length” for the purposes of this section said:

“It connotes that each party is independent of the other and in so dealing will strive to get the utmost possible advantage out of the transaction itself.”

Mr Irish submitted that, in the light thereof, the loan agreement was not concluded at arm’s length.  The applicant and respondent were not independent parties.  The respondent was the CFO of the applicant.  The loan, on respondent’s own papers, was informally concluded, was not reduced to writing and indeed no attempt had been made to conclude a written agreement.  The loan was unsecured which was “extraordinary”, in Mr Irish’s view, bearing in mind the amount of the loan.  The interest rate which was fixed at prime was a lower rate than that which a commercial enterprise would have charged for such a unsecured loan.  There were no fixed terms of repayment and, upon respondent’s version, the applicant could only invoke a demand requesting payment, which importantly would be on respondent’s own terms.

Significantly, the nature of the loan appears in various contradictory documents which are on the papers.  For example in a letter to the accounting firm Grant Thornton on 30 October 2014 respondent writes:

“I hereby certify that the amount of R75 138 owing by S Currin to the above company (applicant) at 31 March 2014 is correct and further certify that (1) the amount owing is secured as follows:  unsecured, (2) the loan bears interest at the rate of: interest free, (3) the terms of repayment are as follows: repayable on demand, (4) the company has issued the following guarantees on or provided the following security on my behalf, movements of the loan account for the year as reflected in the attached copy of the ledger account are correct.”

There is a further document which indicates that the entire interest charged on an amount of R3 176 275,69 for the period September 2013 to December 2014 was R97 360.56.  It thus appears that the interest rate charged was less than 3%.

Mr Tredoux submitted that each of the propositions which I have set out and which form the basis of applicants’ contentions regarding the inapplicability of the NCA were open to serious question.

The proposition that because the loan was unsecured and carried a prime interest rate could not be invoked by the applicant because, in his view, it was clear that applicant had granted an unsecured loan to Melamed Finance (Pty) Ltd in the amount of R5.8 million at a prime interest rate and a further loan to Sunset Point Properties ATA CC in the amount of R4.6 million, although secured, was also at a prime interest rate.  Further, the fact that the loan was informally concluded could never on its own, in Mr Tredoux’s view, indicate that the parties were not independent of each other when the loan was granted.

Mr Tredoux also contended that the fact that there were no fixed terms of repayment on respondent’s version was not unusual, for applicant granted loans to third parties on this basis.  Reference was made to a loan to Leuven Metals (Pty) which also had no fixed terms of repayment. 

In Mr Tredoux’s view, the applicant was left with one proposition, namely that the respondent was the CFO and a senior manager of the applicant.  Mr Tredoux submitted, on its own, this fact was not sufficient to hold that the parties were not independent of each other.  It was significant that the legislature considered relationships in corporations and confined it to those provided for in section 4(2)(b)(i)(ii) of the NCA which clearly excluded employees, irrespective of the seniority of the employee.

According to Mr Tredoux,on a proper construction of section 4 of the NCA, it had to be inferred that the legislature did not regard loans to senior employees as being covered by the exemption. 

If this Court follows the Hicklin test which in my view presents a correct interpretation of the concept of arm’s length, as set out in the NCA, then notwithstanding the fact that it can be pointed that a couple of other loans may well not have been arm’s length, does not on its own detract from a conclusion that the loan which respondent, on his version, contends was made between himself and the applicant was not concluded arm’s length. 

I should, add that even if the agreement breaches the NCA, on its own this would not be a sufficient defence to a claim.  In National Credit Regulator v Opperman and Another 2013 (2) BCLR 170 (CC) the Constitutional Court stated at para 55:

“The most plausible meaning of section 89(5)(c) is the one the High Court gave it.  The interpretation reflects what common sense tells one the aim of the provision is, in view of the NCA as a whole.  Consumers have to be protected against uncontrolled credit providers and therefore credit providers are required to register.  Credit providers who do not register in contravention of the NCA face severe consequences; courts must declare the agreement void and order either that all rights perceived to follow from the agreement (including the right to restitution) are cancelled or forfeited to the State.  In practice it may well always be forfeited to the State.”

The Court in Opperman held that section 89(5)(c) of the NCA would result in an arbitrary deprivation of property in breach of section 25(1) of the Republic of South Africa Constitution Act 108 of 1996.  Accordingly, at para 78, in dealing with the consequences of this finding the Court said:

“As the High Court pointed out a credit provider’s objective is to make money by way of interest.  A credit provider who enters into a lawful agreement is not legally entitled to the interest.  Foregoing the interest is another means to achieve the aims of the NCA that is less restrictive than the means employed by section 89(5)(c). 

 

The effect of this decision is that section 89(5)(c) of the NCA is invalid and the provisions thus has no effect on the claim against the capital of the debt.

An applicant may also have an enrichment claim against the respondent in respect of the capital amount advanced, which in this case is R4 386 562.31, notwithstanding that the defences insofar as the NCA might succeed. 

 Mr Tredoux submitted that in an enrichment action, the defendant’s liability is confined to the amount of his or her actual enrichment at the time of the commencement of the action.  This would mean that where the defendant’s enrichment is diminished or lost before action is instituted, his or her liability is likewise reduced or extinguished.

The only authority which Mr Tredoux raised to support his argued was the section on enrichment in LAWSA, Volume 9, authored by Lotz and Brand in which the learned authors state at para 209:

“In an enrichment action, the defendant’s liability is confined to the amount of his or her actual enrichment at the time of the commencement of the action.  This means that the defendant is not liable for benefits that he or she could have derived from the enriching fact but did not.  It also means that whether defendant’s enrichment is diminished or lost before action is instituted, his or her liability is likewise reduced or extinguished subject to the following qualifications:

(1)     From the moment that the defendant becomes aware or should have been aware that he or she has been enriched, sine causa, at the expense of another, his liability is reduced or extinguished only if he is able to prove that the diminution or loss of his enrichment was not due to his own fault.

(2)     From the moment the defendant is in mora, the rule mora debitoris perpetuat obligationem applies.  From that moment his liability to reduce or extinguished only if he is able to prove that the event which diminished or extinguished his enrichment would also have operated against the plaintiff if performance had been made timeously.”

Visser, Unjustified Enrichment cites this paragraph of Lotz and Brand and then notes that the limit of the defence, as has been stated by these two authors, is that from the moment that the defendant becomes aware or should have been aware that he has been enriched sine causa at the expense of another, his liability is reduced or extinguished only if he is able to prove that the extinction or loss of his enrichment was not due to his fault. 

Visser at 736 states further:

“[I]t should be noted that the question whether a defendant has been unjustifiably enriched by the receipt of money, should not be regarded as having been permanently enriched has also been raised in this country.  Some argue (in particular De Vos, Verrykingsaanspreeklikheid at 201ff (2^nd edition)) that once the value of an estate has been increased by the addition of the sum of money, it is impossible to trace the fate of the specific amount which later forms the object of the enrichment action.  The answer to this argument I believe must be that this is simply not so and the sophisticated law of tracing in common law jurisdictions amply demonstrates that it is not impossible to trace the fate of a particular sum.  Of course it will often be very difficult and sometimes one will in fact not be able to do so, but that should not prevent the acceptance in principle of the notion that a specified, identified monetary value may be lost from an estate.”

In this case respondent did not plead any such extinction.  This argument appears to come as a desperate and last attempt to stave off the averments regarding enrichment.  The very basis of respondent’s defence to insolvency is predicated on the argument of a loan owing by Company Worx which exceeds the so-called amount of money owing to applicant.  Hence it is not possible for respondent to plead the very point that Mr Tredoux attempted to raise in an attempt to stave off the obvious, namely that the respondent has been enriched.  There is no basis on these papers to show how the enrichment has been diminished.  Accordingly on the clear application of the available law, there is an enrichment claim which is sufficient to justify the basis of applicant’s case.

ACT OF INSOLVENCY

This brings me to the question of the act of insolvency.  Section 8(a) of the Insolvency Act provides:

“A debtor commits an act of insolvency (a) if he leaves a company or being out of the Republic, remains absent there from or departs from his dwelling or otherwise absence himself with intent by so doing to evade or delay the payment of his debts.”

Meskin in The Law of Insolvency says at 2-65 in regard to this section:

“The essence of each of these acts of insolvency is that by the particular conduct the debtor has intended to evade or delay the payment of his debts. The test in relation to the debtors intention is a subjective one but such intention is established by a process of inferential reasoning and is not dependent on the mere ipse dixit of the debtor. Thus while his leaving the Republic or leaving his dwelling gives rise to an inference that such intention was present, it is insufficient in itself to justify a conclusion, even prima facie that an act of insolvency has been established since there may be other explanations for such conduct.  But the other circumstances of a particular case e.g. that the debtor owes numerous creditors substantial amounts and has departed without any prior reference to them or any attempt to provide for satisfaction of their claims, may justify an inference that the debtor acted with the requisite intent.  In determining whether the requisite intention existed, the Court “must weigh up all the relevant factors, facts and circumstances in order to determine what, on the balance of probabilities, was the dominant operative or effectual intention in substance and truth of the debtor”.

Respondent alleges that in February 2015 he and his father, who is employed in Malawi, decided that the former would visit the latter for one month, sometime after 30 June 2015.  On 24 June 2015 respondent decided to depart to Malawi early on 26 June 2015. 

Hower, he sent an email to the Nathan brothers on 26 June 2015 calling for a meeting at 2h00 pm as he intended to use the skype facilities in the applicants’ boardroom later that day.  At 1h36 pm on 26 June 2015 he wrote to the Nathan’s:

“I have taken legal advice from my attorney.  I have been advised that I must not have further direct communication with you.  Any further communication between you and I will be via my attorney.  I will therefore need to postpone the 14h00 meeting to a later date.”

This email needs to be read in conjunction with one written on the same day, that is on 26 June 2015 at 6h30 in which respondent writes:

“Let me start with a time frame; it is now 6h30 in the morning on Friday 26 June 2015.  On Wednesday 24 June 2015 I arrived at the office and was called directly into Gary’s office and then into a meeting where Fay was being confronted with questions and allegations being made.  There were two matters raised; the first regarding Faye’s alleged duplicating of invoices and alleged paying of these amounts into her bank account.  I say alleged as I was not privy to any information evidence and could only go on what I heard in the morning.  I made it very clear in this meeting that I had no knowledge that this was happening and from my brief inspection of paperwork presented, I did not see my signature on either document.

The second matter, there were amounts of R60 000.00 and R120 000.00 relating to petty cash which is alleged to have been given to me.  I state that I did not receive these amounts and for all amounts that I did receive from petty cash I paid into ORO Africa account from my personal bank account.  Post Faye been suspended Gary had a meeting with me and said that as I was in control of the department that the company is considering taking legal action against me and that it is best that I leave now among other details. 

The afternoon of Wednesday you started sending threatening SMS’s to my phone.  I received another threatening SMS on Thursday indicating I had stolen money which is money I had on loan account.”

Respondent then sets out a range of ‘facts’ and continues:

“The fact is further that you and Gary both had borrowed from ORO Africa as directors with no written authority to do so.  This is not considered a threat?

It brings into question your motives given my departure, I will bring into focus other potential irregulations for which I require further clarity that will cause question on your credibility.  If you have laid a charge please provide me with your evidence so that I can assess its validity and context?  I owe ORO Africa loan funds and interest.  I intend fighting you on this matter of alleged theft as this is not true...I would like to talk to you at ORO at 14h00 today to discuss the above and the evidence.  I am attempting to get legal support to attend with me.  I request that prior to the meeting you send me the evidence so that I have an opportunity to review alternatively I will do so without time in the meeting (sic).”

Mr Irish submitted that respondent had left the country in order to avoid repaying the applicant and hence in order to avoid his obligations as he wanted to prevent a criminal prosecution.  He only returned to South Africa once he was assured by his attorneys that he would not be arrested.  In this connection, Mr Irish referred to a letter generated by Liddell Weeber and Van de Merwe Incorporated of 14 July 2015 to respondent which, inter alia, reads thus:

“I had several telephonic conversation with Luzanne at ORO Africa.  She has continued to promise to send me the contact details of their attorneys in the criminal case number but to date I have not received anything from her.  On Monday 13 July 2015 I received a call from a person introducing himself as Stephen Nathan who informed me inter alia as follows; that he was presently overseas and speaking to me from his mobile car phone, that he has reported and opened a case of theft at the Priority Crime Detectives in Bellville and that the matter is being investigated by Lieutenant Colonel Kellerman; that Shaun has apparently absconded and the police are looking for him at his various addresses to arrest him and that the company’s legal representative is also searching for him; that he was not interested in my instructions that a loan account existed and that it amounted to nothing less than theft and fraud totalling R4.5 million and a further half a million rand, both of which are being investigated by Lieutenant Kellerman .. After our discussions it appears to be that Sergeant Jacobs is sharing my views that this was not a fraud matter but rather a civil matter and that ORO Africa and its directors were attempting to engage the police in pursuing a possible civil action against Shaun and that the matter should not at all be in the criminal Court ... Sergeant Jacobs assured me that there was no warrant for the arrest of Shaun and that on the basis of which I had explained to him he would not apply for such a warrant until he had met with Senior Public Prosecutor next week and obtained a decision in respect of prosecution.”

This email has to be read together with the balance of respondent’s own version.  Regrettably respondent has not been candid with this Court.  It is clear that, notwithstanding respondent’s version, he must, on any basis, have left South Africa on the morning of 26 June 2015.  At best for him, he would then have taken a flight from Cape Town at either 06h00, or at the latest at 07h00, in order to catch the flight from Johannesburg to Malawi on that date.  There was absolutely no basis by which he was going to, could have, wanted to or was willing to attend a meeting at 14h00 in applicant’s offices on that day. Hence his version is a blatant lie.  It is regrettable that the respondent, as unfortunately has been the case on more than one occasion in his papers, not been candid with this Court.  After all, he is a chartered accountant who should maintain the highest standards of probity which is regrettably is manifestly not the case.

Respondent left South Africa in circumstances where he represented to the (Nathan) to whom he owed a considerable sum of money, that he would present himself at their offices.  The irresistible inference is that the emails sent, particularly the one at 06h30, was a subterfuge and contained a commitment that could never be implemented.  Regarding the idea that the respondent had a return ticket, as Mr Irish correctly submitted, a return ticket to South Africa is a necessity because it is not possible for a foreigner to obtain the necessary visa to enter Malawi without a return ticket.  This attempt at justification can thus be discounted.  However, it is not strictly necessary for me to make a finding in this regard because I can make the necessary finding in respect of factual insolvency.

FACTUAL INSOLVENCY

Meskin at 2.19 writes:

“However one may seek to establish act for insolvency directly by adducing evidence of circumstances indicative thereof, e.g. the fact that debts remain unpaid or that the debtor sought a moratorium or that his endeavour to compromise with his creditors. But the Court must be cautious in inferring insolvency from such circumstances.  It is submitted however that it suffices if such an inference can be drawn, notwithstanding that the precise amount of the deficiency is uncertain.”

According to the papers, respondent has listed assets in a schedule which are attached to his answering affidavit.  There are low and high values which are set out therein.  On a low value of the various assets, he claims that he has assets to the value of R9 761 642.00.  On the high value, the amount is R11 339 476.00.  Taking account of bond and overdraft and a loan to the applicant in the amount of R4 748 610.00, he lists his liabilities as R7 723 816.00.  Accordingly on this basis, he is solvent on either account.  However the assets cited create certain difficulties. 

Respondent claims to have cash which is held by the applicant of R1 .2 million.  This is the most puzzling averment, namely that the applicant holds R1.2 million of respondent’s cash.  On what basis this claim is made, I do not know.  No explanation is provided, no justification is given and this amount cannot be taken into account. The inclusion of the respondent’s pension fund is manifestly incorrect because in terms of section 23(7) of the Insolvency Act of 1936, any pension fund is excluded from the insolvent estate.

Certain of the properties were already sold.  For example, the Muizenberg property was sold not at the low value of R1.85 million but for R1.65 million.  Whatever the reason, the fact is that R1.65 million was obtained.  These figures significantly reduce the respondent’s assets.  Crucially the question then arises; what is the true value of the Company Worx loan?  Without this asset respondent’s estate is manifestly insolvent.

THE COMPANY WORX LOAN

In his answering affidavit respondent stated the following about the loan which he made to Company Worx:

“I have also provided for the loan payable by Company Worx to me.  In this regard I wish to annexe a copy of certificate of loan balance dated 31 July 2015 and signed by my brother Wesley Currin evidencing the indebtedness of company Worx to me in the amount of R4 687 521.00.”

In an application for referral of oral evidence, respondent in reply to the criticism of the manner in which he had dealt with the loan, sought to set out the terms thereof.  In his answering affidavit in that application, he stated that on 18 March 2014 the respondent sold the business of Growth Accountants to Company Worx for R3.5 million.  The sale was made up of a loan account to Company Worx in the amount of R3.5 million.  This was not a cash loan however but a convenient accounting entry. 

As at 31 July 2014 the Company Worx loan was valued at R4 687 521.00.  There was also a cash amount of R990 260.00 which was paid to Company Worx.  The terms of the loan to Company Worx is evidenced from an undated agreement of loan facility which provides that respondent will not be able to demand payment of the loan for a period of 3 years form the effective date, that is 3 years after 1 March 2014.  At the end of the 3 year period the respondent and Company Worx would mutually agree the payment for the balance of the loan facility and, if no agreement can be reached, respondent will have the right to demand repayment from 1 March 2017.

Mr Tredoux’s major argument was to rely on a judgment of Mantame, J in which the learned Judge dealt with an application by the applicant; in this case for referral to oral evidence (case number 13051/2015: judgment of 30 October 2015).  In her judgment the learned Judge said the following about the Company Worx loan:

“I tend to agree with Mr Tredoux that respondent would not have been expected to provide the details of this loan.  Company Worx is indebted to the respondent and not the applicant.  Applicant does not have a right of recourse against Company Worx but against the respondent.  If respondent is satisfied with the terms and conditions of the loan, it is not for the applicant to question such a contract.  It may be that applicants’ suspicions were raised due to the proximity of the relationship between lender and the borrower.  Again a company is a distinct entity from its members.  The business relationship cannot be confused with the personal relationship.  Besides the applicant has no right to undermine the value in existence of an independent company more especially that when the loan was made it was not with Company Worx to put bear to the applicant who is the third party, with no interest to its existence, their income and expenditure (sic). 

In my view applicant should have made an enquiry and / or investigation to respondent’s financial status before approaching this Court on an urgent basis for a provisional order of sequestration.  This application is based on suspicions on the part of the applicant that should have been investigated before bringing the application.  As the suspicions and / or inferences stand, they cannot even amount to probabilities, that they can be ascertained from affidavits and be balanced to tilt the scales.”  paras13-14

Mr Tredoux also contended, on the strength of this passage from Mantame, J’s judgment, that respondent’s valuation of the loan buttressed by the relevant loan agreements should be accepted without more.  If this is indeed what the learned Judge said (and I am by no means certain that this description does represent her finding) it cannot be an accurate exposition of the law.  On the basis of the general approach to affidavit evidence (see Plascon Evans Paints v Van Riebeeck Paints [1984] ZASCA 51; 1984 (3) SA 623 (A)) and towards provisional applications for sequestration see Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A) at 980G-H, respondent must be able to dispute applicant’s contentions on a reasonable and bona fide basis.

This means his “say so” is insufficient, as manifestly would be the case in the present situation.  That approach can never be the basis by which Courts resolve disputes with regard to these matters.  If this was the case, any valuation claimed by respondent would (trump) applicant.  Accordingly, one must ask the question, what is the value of the loan.  Meskin at para 213 says the following:

“One may seek to establish actual insolvency directly by adducing evidence of the debtors’ liabilities and of the market value of his assets at the date of the application.  In relation to the valuation of the assets, it is submitted that the same principles obtained in the case of determining whether liabilities exceed the value of assets for the purposes of the application of section 26, 29 of the Insolvency Act.” 

>At the very least a ‘quick judicial peep’ is required into respondent’s claim.

In respect of these sections Meskin states:

“In this context as in those of section 29, 30 of the Insolvency Act, the issue is to whether the insolvent’s liabilities exceeded his assets at any particular date must be determined on a balance of probabilities.  Such a determination entails inter alia fixing at least the probable market value i.e. temporary value of each of the assets at such date…For the purpose of proving insolvent’s liabilities at the relevant date, reliance may be placed on the accepted proof of debt which are admissible as prima facie proof of the liabilities as at the date of sequestration and as such affording some evidence for the amount of the liabilities at the former date.  Reliance may be placed also on the insolvent’s books and records which are admissible insofar as they afford prima facie evidence of his liabilities.  In evaluating evidence in this context one may not presume that an insolvent’s financial position at the one date was unchanged at another.  It is submitted that in this context as in those sections of 29, 30 of the Insolvency Act the liabilities envisaged are exclusively actual and contingent liabilities i.e. a liability which by reason of existing vinculaum juris between the creditor and the debtor may become an enforceable liability on the happening of some future event.  Hence liability under a suretyship would qualify as an actual liability in this context.”

What is the value of this loan?  In an application to Investec Bank Limited for a loan in a document which appeared somewhat later in the papers, respondent generated the following in an email to Mr Samsodien of 14 October 2014:

“Hi Hashiem.  I can confirm a meeting for 14h00 at Investec.  Please can you arrange parking for me in the interim, this is my thinking.  I have been banking with Investec Private Bank since 2002 (12 years).  All my personal banking is with Investec and I have no debt or accounts as of today (one may ask what all happened to the debt owing to applicant).  As you are aware I have started Company Worx (Pty) Ltd, a private company, which provides a suite of simplified accounting and administrative services ... Company Worx does bank with Nedbank because the commercial service that are offered are in line with our strategy and requirements.  I want to take out a personal loan of R3 million in a secured manner.”

Respondent then lists his assets and liabilities and significantly includes the following:

“Loan to CW, that is Company Worx, of R1,400.00.  This is a loan to Company Worx.  The company has about R325 000.00 in cash.  The remainder of the loan is goodwill and start-up expense funding.”

Respondent continues:

“I am seeking R3 million personal loan finance repayable monthly over 20 years at an interest rate of 9.25% (prime) and I am offering the following security and in return.”

I should add that he then writes as follows:

“I am a 100% shareholder of Company Worx (Pty) Ltd which has a 100% of the Company Worx entities.  I will provide an irrevocable option to Investec to acquire the shares in company Worx in the event of my default on the personal loan.”

This last claim is clearly incongruent with that which we now know when the papers are read as a whole.  By now respondent was no longer a shareholder.  The fact that the loan was set out at R1.4 million clearly created some level of justified concern.  As a result I afforded respondent an opportunity to file a further affidavit to explain the discrepancy between the R1.4 million and the R4.5 million which is claimed by him in these proceedings as being the value of the loan.  Respondent provided a further answering affidavit in which he said:

“In the email to Investec the value of the loan from me to CWJ was disclosed at R1.400.000.  I was referred to the cash that CWJ had valuable at the time and the goodwill being the intangible assets consisting of Intellectual Property.  At the date of drafting the email it was prudent for me to assess the value of the loan for recoverability of the following reasons:

The majority of the R4351067.23 loan balance was made up of R350000.00 constituting the purchase price of Intellectual Property ... 

The companies in the Group had only been training from 1 March 2014 which is less than 9 months at the time and the revenue and the costs of the business when considered prudently and conservatively could not support the full valuation of R3500 000.00 as on 14 October 2014. 

I believe that disclosing the loan of my estimated recoverable value was the honest and open approach that would be expected of a chartered accountant in preparing proposed notes for discussion with Investec and further detail would have been discussed later should Investec have been interested in pursuing the proposed loan facility. 

The assessment of the loan value and recoverability was considered informally as this email was simply a proposal, therefore I did not perform detail calculations to support such an assessment at the time.  There are therefore no contradictions as alleged by the applicant.  The applicant has decided to draw inferences from this email without thorough investigation consistent with the theme in this case. 

I have requested the management of CWG to provide me with a report on the recoverability of my loan to CWG as it is repayable on 1 March 2017.”

As a result, there is a further affidavit deposed to by Mr Kronk, who described himself as the general manager of Company Worx.  He provides a report in which he estimates that by March 2017 Company Worx will have generated R5.9 million of profit after tax and hence if one takes these calculations, this would then mean that by this date the full amount of respondent’s loan could be repayable.

There are many different ways in which to respond to this argument.  In the first place these are only calculations, admittedly based on a relatively conservative 11% growth rate consistently through a period of leading up to 2017.  These are however figures which are based on nothing more than speculation.  There is no guarantee that a few months of growth will be reproduced consistently.  With start-up companies it is notorious that to evaluate them at an early stage is extremely difficult; hence the risky nature of such on investment.

Leave this observation aside; if one looks at the position at November 2015, then between October and November on figures which I presume are more accurate, the company finally made a profit of R20 807.00 in October and R141 998.00 in November.  If the approach is followed, which the respondent, as a responsible accountant adopted with Investec, the loan would have to be valued today for the purposes of an insolvency calculation.  One could not value the loan in March 2017.  In short, respondent has, in effect, given two contradictory versions, only one of which can be correct.

That one which is correct is most likely the one he adopted with Investec, namely a value of the loan in terms of its prospects of recovery today, not in a year and a half time on speculative figures.  Manifestly there is no basis by which Company Worx can repay the loan today nor tomorrow.  Its value for the purposes of insolvency can never be R4.9 million.  It must be vastly less. 

This therefore means that if the loan is reduced drastically, it is clear that respondent is factually insolvent.  According to the figures/assets which will be recoverable, the amount of assets will be R1 235 736.00.  This is the probable financial picture as at December 2016. It means that, as Mr Irish has described the position of respondent, he is in a hopelessly insolvent state.

As a result it must follow that the only question is whether there is an advantage to creditors.  On the basis of the figures offered by applicant there would be a dividend of something around 27c in the rand.   Given the mendacity which has been shown in this case, even on respondent’s own version, there is an obvious and pressing need for an independent enquiry into respondent’s estate which can be done by trustees who would be empowered to so do.

IN THE RESULT THEREFORE, ALL OF THE DEFENCES MUST BE REJECTED.  THE PROVISIONAL ORDER IS MADE FINAL.

DAVIS, J

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