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SOUTH GAUTENG HIGH COURT

JOHANNESBURG

 

CASE NO:  29608/12

NOT REPORTABLE

 

In the matter between

DU RANDT RICHARDS INC. ATTORNEYS	Applicant
and
JACOBUS FREDERICK SCHEEPERS NO..	First Respondent
WENDA SCHEEPERS NO	Second Respondent
and
ABSA BANK LIMITED	Intervening Creditor

Neutral citation: Du Randt Richards Inc Attorneys v Scheepers NO and another and ABSA Bank Ltd 2012 SA (GSJ)

Coram:  SATCHWELL J

Heard:  17th October 2012, further argument on 12th November

Delivered: 29th November 2012

Summary: Different approach to “Advantage to creditors” argued but not decided; practical implementation as opposed to hypothetical evaluation preferred; sequestration is intended to be for the benefit of creditors not for the benefit of the insolvent(s).

 

JUDGMENT

SATCHWELL J:

 

INTRODUCTION

 

[1]  In an application for a final order of sequestration, an extremely interesting argument emerged between a creditor applicant and an intervening creditor on the approach to and the manner in which “advantage to creditors” is to be computed for purposes of determining whether or not the opposed sequestration should be granted.

 

THE FACTS

 

[2]  In November 2010, ABSA (the intervening creditor) instituted action against respondents, judgment was obtained in August 2011, immovable property situate at Oak Tree Agricultural Holdings was declared executable and a sale in execution was arranged for 8th August 2012. Notice of such sale resulted in respondents’ erstwhile attorneys instituting these sequestration proceedings on the basis of inability to pay fees owing for professional services rendered.

 

[3]  The sums of money involved in this matter are as follows: the applicant is owed R107,209.00 in respect of professional services; the intervening creditor took judgment for the amount of R2,135,214.00; valuations indicate that the property would secure a sale price ranging between R1,400,000.00 on a forced sale in execution and perhaps R2,300,000.00 if sold as part of the winding up of the estates;  administration costs ranging from R215,384.00 to R307,724.00 depending on the amount realised from the sale of the property.

 

“ADVANTAGE TO CREDITORS”

 

[4]  Applicant and intervening creditor are in dispute as to the meaning of the term “advantage to creditors” as used in section 12(c) of the Insolvency Act 24 of 1936. I am enormously indebted to both Mr Bishop who appeared for the applicant and Mr Swanepoel who appeared for the intervening creditor for the great deal of thought and hard work both put into their most informative heads of argument which were prepared at my request. I must apologise to both of them that, by reason of the view I have taken of the practicalities of the situation, I have not found it necessary to determine the dispute as formulated and argued.

 

[5]  Mr Bishop contended that, when evaluating whether or not there is an “advantage to creditors”, no distinction should be drawn between creditors who should be viewed as a single entity. All assets, secured or otherwise, should therefore be placed in one imaginary pot. After deducting the costs of sequestration, the remainder available for the benefit of the “general body”, i.e. all creditors, should then be determined. No creditor should be excluded from this arithmetical calculation which should include all assets, secured or otherwise.

 

[6]  It is important to note that Mr Bishop did not argue that the prioritised rights of a secured creditor, such as the holder of a mortgage bond, should be ignored when it comes to the actual distribution. His submissions as regards the computation of “advantage to creditors” were only for purposes of the evaluation by the insolvency court as to whether or not a sequestration should be granted and not as regards the actual distribution to be made.

 

[7]  Mr Swanepoel contends that those assets of the estate which are secured, inter alia by reason of special mortgage, have first to be removed from the computations for the benefit of the secured creditor. Only then can one determine the “free residue” remaining in the estate in order to calculate the dividend payable to concurrent creditors and, of course, that portion of the secured creditor’s claim which has not been satisfied. 

 

[8]  These opposing arguments boil down to the following financial computations. 

 

[9]  On applicant’s argument, the sale price of the property[1] less costs of administration[2] is weighed against the debts of both applicant and intervening creditor[3] in order to determine whether or not it is to the 殿dvantage of creditors・ for the sequestration to be finally ordered. On this basis the potential dividend would range between 53 cents and 89 cents in the Rand. Mr Bishop called in aid a host of authorities[4] which he carefully analysed and then asked this court to find that a number of earlier judgments were clearly wrong in law and that the Practice Manual of this Division has followed an incorrect approach.

 

[10] On the intervening creditor’s argument, the sale price of the property[5] is set against sequestration costs[6] and then the secured debt of the intervening creditor.[7] This would not cover the secured intervening creditor痴 claim. It would also not leave any 吐ree residue・ available for distribution to the applicant creditor. Mr Swanepoel referred the court to additional authorities asking the court to follow the approach taken earlier in judgments of this Division and as understood by our Practice Manual.

 

[11] I do not think that it is necessary in the present case to pronounce on the correctness or otherwise of the jurisprudential history to which I have been referred. I am sitting as a single judge and believe that I should only do so if such a step cannot be avoided and the interests of justice require this.

 

CONCLUSION

 

[12] However, in the present case the arithmetic involved and the practicalities of the situation direct me towards a view which does not require such jurisprudential exegesis.

 

[13] There is no suggestion that there would be any advantage to creditors other than the possible distribution of a dividend. No investigation is required or unearthing of additional assets is expected.

 

[14] I must confess that I see no benefit to this or any other insolvency court in embarking upon an exercise which would rewrite the law of South Africa solely in order to establish a hypothetical “advantage to creditors” which is not intended to be carried  out in practice. On applicants’ submissions, the court would be concerned with one process in evaluating “advantage to creditors” while the administrator would adopt an entirely different process in first paying the secured creditor from the bonded property and thereafter calculating any dividend available to concurrent creditors.

 

[15] However, in the present case I do not need to engage in these hypothetical legal and arithmetical gymnastics.

 

[16] Whatever the sale price (forced or otherwise) (R1,400,000.00 to R2,300,000.00) received for the immovable property, it seems to be common cause that this would be insufficient to meet both the costs of sequestration (R215,384.00 to R307,724.00) and the debt owed to the only secured creditor, ABSA (R2,135,214.00).  If a final sequestration was ordered then the costs of sequestration would do no more than decrease the amount to be paid to the secured creditor. I can see no “advantage” to any creditor to incur these costs of sequestration when all that means is that less money is paid to the secured creditor who is the only creditor who will receive any funds anyway.

 

[17] It may well be that the debtor respondents in this matter would prefer to have the “advantages” of sequestration of their estates if they are obliged to endure the loss of their immovable property. However, contrary to the approach of the majority of debtors who approach the insolvency court in this Division, that is not a consideration.[8]

 

ORDER

1. In the result an order is made as follows:

 

a. The application for final sequestration is dismissed with costs.

The provisional order of sequestration of 8th August 2011 is discharged.

 

DATED AT JOHANNESBURG ON THIS 29th DAY OF NOVEMBER 2012.

 

SATCHWELL J

JUDGE OF THE HIGH COURT

 

APPEARANCES:

APPLICANT:   A Bishop

Instructed by Du Randt Attorneys, Roodepoort 

INTERVENING CREDITOR: J Swanepoel

Instructed by Smit Sewgoolam Inc, Johannesburg

 

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