Standard Bank of South Africa Limited v Van den Berg NO and Others (4972/2019) [2020] ZAFSHC 169 (9 April 2020)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISION, BLOEMFONTEIN

Case number: 4972/2019

In the matter between:

THE STANDARD BANK OF SOUTH AFRICA LIMITED Applicant

And

JONATHAN BENJAMIN B. VAN DEN BERG N.O First Respondent

HENDRIENA CORNELIA VAN DEN BERG N.O Second Respondent

MADELEIN NIELSON NO. Third

Respondent

(in their capacities as Trustees of the trust

JB VAN DEN BERG FAMILY TRUST –IT 955/2003

HEARD ON: 20 FEBRUARY 2020

JUDGMENT BY: DANISO, J

DELIVERED ON: 09 APRIL 2020

[1] In this matter the applicant seeks an order for the provisional sequestration of the estate of the trust known as JB Van Den Berg Family Trust (“the trust”). The respondents are the trustees of the trust.

[2] The application was opposed by the respondents. In limine, the following orders were granted by concurrence of the applicant and the respondents, the joinder of Willem Frederik Smit N.O as the third respondent. The condonation of the late filing of the respondents’ answering affidavit and the applicant’s replying affidavit. No order was made in respect of costs.

[3] Section 10 of the Insolvency Act[1] confers a discretion on the court to grant a provisional sequestration order provided the following requirements have been met;-

3.1. The applicant must satisfy the court on a prima facie basis that it has a claim against the trust;

3.2. That the trust has committed an act of insolvency or is in fact insolvent; and

3.3. That there is reason to believe that it will be to the advantage of creditors that the trust is sequestrated.

[4] The trust’s indebtedness to the applicant is premised from credit agreements concluded by the trust duly represented by the first respondent, namely, a home loan account in respect of an apartment known as Lazy Lizard situated at unit […] in Kwa Zulu Natal in the sum of R2 230 473.15. A medium term loan for R7 000 000.00 and a suretyship agreement for the sum of R18 706 195.22 in terms of which the trust bound itself as surety and a co-principal debtor for the obligations of an entity known as Berg Foods Farming (Pty) Ltd (“Berg Farming”). According to the applicant the total indebtedness amounts to R27 936 668.37.

The Applicant’s claim

[5] The applicant’s claim is not disputed except for the extent of the indebtedness. According to the respondents the home loan account should not form part of the trust’s obligations as the property relating to the said account has since been sold by the trust for R3 500 000.00. The outstanding amount of R2 230 473.15 is therefore available for settlement of the account. The total amount of the trust’s indebtedness must therefore be reduced to R25 706 195. 22 which comprises of the R7 000 000.00 medium term loan and the R18 706 195.22 suretyship agreement.

[6] This presumption cannot be correct. The fact that the property which was held as security for a home loan has been sold does not extinguish the debt unless payment is made to the bond holder (the applicant) to discharge the debt. As of the date of these proceedings no payment had been made to the applicant therefore the debt still forms part of the trusts’ obligations to the applicant.

[7] I accordingly conclude that the applicant has established its claims against the trust on the balance of probabilities.

Factual insolvency

[8] Mr van der Merwe who appeared for the applicant averred that the trust is experiencing financial difficulties to an extent that the home loan and the medium term loan accounts have been in arrears since August 2017 and May 2019 respectively. Berg Farming the co-principal debtor in the owing suretyship agreement has been liquidated.

[9] He argued that the trust is factually insolvent. Its assets, portion 1 and portion 5 of the Farm […] in Bothaville are exceeded by its liabilities. The total value of these assets combined is a mere R19 800 000.00 whereas the debts amount to R27 936 668.37. The trust then proposes to settle its indebtedness by also utilizing the funds that may be recouped by the liquidators of Berg Farming from other insolvent trusts Rucon Boerdery (Pty) Ltd (“Rucon”) and Lizette Payne trust (“Payne CO”) who are indebted to Berg Farming. There is no evidence that these entities possess adequate funds for distribution. Rucon and Payne CO also have their own debtors however the amounts owed to Rucon and Payne CO is meagre it will not cover the debt due by the trust to the applicant.

[10] On the other side it was Mr Snellenburg’s contention that the trust is not insolvent. Portion 1 of the farm has already been sold to an entity known as Chet Yahsen Trust for R10 000 000.00. The proceeds of this sale together with the surplus from the sale of the apartment are adequate to settle the loan account. The remaining suretyship debt will be paid off from the funds which the trust’s co-debtor’s (Berg Farming) liquidators will recoup from the estates of Berg Farming’s debtors Rucon and Payne CO. These entities were also placed under provisional sequestration at the instance of Berg Farming on 12 December 2019. They are indebted to Berg Farming in the sum of R29 518 772.26 which will be sufficient to extinguish the applicants’ claim for which the trust stands

surety.

[11] Mr Snellenburg was of the view that the application should rather be postponed for three months to enable the trust to utilize the

proceeds of the sale of the portion 1 to settle the R7 000 00.00 loan account, thereafter, the application should further be postponed for a period of twelve months for the trust to receive the funds from the liquidators of Berg Farming. The trust may also sell the remaining portion 5 of the farm, in the interim, the respondents are willing to pay the proceeds of the sale of the apartment into an interest bearing account.

[12] I’m inclined to agree with Mr van der Merwe. On the available facts there is already evidence of the trust’s inability to pay its debts as and when they fell due. The trust has defaulted on the payments for the home loan account since August 2017 and despite having sold the property relating to this home loan account, the trust has still not settled the account. The trust also defaulted on the repayment of the medium term loan as of May 2019. On 16 May 2019 Landbank issued summons against the trust and others for the repayment of the amounts of R21 899 441.70 and R198 892.97. Then on 14 October 2019 another credit provider, First Rand Bank sued the trust for a balance of R1 102 629.66.

[13] The failure to pay creditors on its own is not evidence of insolvency, regard must be had to the trust’s assets and financial position. On the facts germane to this matter the trust owes the applicant R27 936 668.37 the amount will be

reduced to R25 706 195.22 if the trust pays over the sum of R2 230 473.15 from the purchase price of R3 500 000.00.

The explanation is that from the said purchase price there is surplus of R1 269 526.85 and the proceeds of the sale of the farms which the trust can utilize to settle the applicant’s claims. I should point out that the sale of these immovable properties will merely diminish the estate of the trust not the debts. On the trust’s version portion 1 has been sold for a mere R10 000 000.00 though it was valued at R10 800 000.00. Portion 5 is valued at R9 000 000.00. These amounts are not sufficient to satisfy the applicant’s claims. There is a glaring shortfall of about R5 436 668.37.

[14] The trust’s assets are exceeded by its liabilities with approximately R5 436 668.37. According to the trust the shortfall can be defrayed from the debt of R29 518 772.26 due to be collected by the liquidators of Berg Farming, however, the said debtors are also experiencing financial distress. They have been placed under provisional sequestration, it can therefore not be said that the trust has sufficient disposable property to satisfy its obligations.

Advantage to creditors

[15] The trust has already embarked on a process of disposing of its immovable assets, an apartment and two farms. The apartment was sold and transferred to the purchaser on 16 October 2019. The trust is in the process of selling one of the farms and has indicated that there is a possibility that the remaining farm will also be sold. The applicant holds security of the trust’s indebtedness in the form of mortgage bonds covering all these properties. The applicant is clearly prejudiced by the sale as the trust has still not settled the home loan account despite the fact that the apartment was sold for an amount enough to cover the debt due to the applicant.

[16] There is a sizeable asset in the form of a cession of a lease agreement valued at R36 129 721.00 which was identified by the liquidator of the Berg Farming trust as part of the trust’s assets. The trust has however denied that this asset forms part of its estate. Mr van der Merwe pointed out that this irregularity requires an investigation by trustees.

[17] I’m in agreement. The sequestration of the trust will advantage the creditors where there is no clarity regarding the full extent of its assets. The appointed trustees will take control of the trust’s estate and unearth any assets of the trust which will yield a pecuniary benefit for all the creditors.

[18] In the circumstances, I’m satisfied that a proper case has been made out for a provisional order of sequestration.

[19] The following order is granted;

(1) A provisional sequestration order returnable on 14 May 2020 is granted as prayed for in the notice of motion dated 25 October 2019.

________________

NS DANISO, J

APPEARANCES:

Counsel on behalf of Applicant: Adv. R. van der Merwe

Instructed by: Stander & Green Attorneys

BLOEMFONTEIN

Counsel on behalf of Respondents: Adv. N. Snellenburg(SC)

Instructed by: Blair Attorneys

[1] 24 of 1936.