Standard Bank of South Africa v Vermeulen, Standard Bank of South Africa v Vermeulen (1025/2011, 1027/2011) [2012] ZANWHC 6 (9 February 2012)

NORTH WEST HIGH COURT, MAFIKENG

CASE NO. 1025/2011

&

CASE NO. 1027/2011

In the matter between:

STANDARD BANK OF SOUTH AFRICA …................................................APPLICANT

and

H J VERMEULEN ….................................................................................RESPONDENT

(In Case No. 1025/2011)

MONJA VERMEULEN …........................................................................RESPONDENT

(In Case No. 1027/2011)

____________________________________________________________________________

JUDGMENT

GUTTA J.

A. INTRODUCTION

[1] The applicant applied in two separate applications, under case numbers 1025/2011 and 1027/2011, for the provisional sequestration of HJ Vermeulen (under Case No. 1025/2011) (“Mr Vermeulen”) and Monja Vermeulen (under Case No. 1027/2011) (“Mrs

Vermeulen”). Mr and Mrs Vermeulen are married out of community of property to each other. Both applications were argued simultaneously, hence I herewith deliver one judgment.

[2] The applicant’s case is based on the following, that:

2.1 Mr and Mrs Vermeulen committed an act of insolvency in terms of Section 8(g) of the Insolvency Act 24 of 1936 (“the Act”),

by applying for debt review in terms of Section 86 of the National Credit Act 34 of 2005 (“the NCA”);

2.2 the estates of Mr and Mrs Vermeulen is factually insolvent.

B. COMMON CAUSE

[3] Mr and Mrs Vermeulen are indebted to the applicant jointly and severally in the amount of R2 045 953.25 arising from

monies loaned and advanced by the applicant to Mr and Mrs Vermeulen, which was secured by means of a first covering bond over the property known as Portion 59, a portion of Portion 19 of the Farm Zuurplan No. 337, which property is registered jointly in the names of Mr and Mrs Vermeulen. Mr Vermeulen is further indebted to the applicant for loans secured by covering bonds in the amounts of R761 636.23 and R342 933.35.

[4] Mr and Mrs Vermeulen, during November 2010, applied for debt review in terms of Section 86 of the NCA. A prescribed form 17.1, namely, the notification to all credit providers and all registered credit bureaus, dated 24 November 2010, was delivered to the applicant by the Debt Rescue Counsellor, advising the applicant that Mr and Mrs Vermeulen have applied for debt review in terms of Section 86 of the NCA. Pursuant thereto, the applicant was notified by the debt counsellor that Mr and Mrs Vermeulen’s application for debt review was successful, and the debt rescue counsellor submitted a payment proposal plan to the applicant on or about 10 January 2011.

[5] Mr and Mrs Vermeulen’s minimum monthly obligation towards the applicant was R17 695.32. Mr Vermeulen offered to pay R5 519.96 and Mrs Vermeulen offered to pay R3 471.37, leaving a shortfall of R8 703.99.

[6] It is not disputed that Mr and Mrs Vermeulen are not in a position to pay their monthly debt obligations towards their creditors.

[7] The applicant terminated the debt review in terms of Section 86 of the NCA.

C. PROVISIONAL SEQUESTRATION

[8] The Court, in terms of Section 10 of the Act, must prima facie be of the opinion that the applicant has established against Mr and Mrs Vermeulen the following elements:

8.1 a liquidation claim for not less than R100.00;

8.2 that Mr and Mrs Vermeulen committed an act of insolvency or are insolvent; and

8.3 that there is reason to believe that it will be to the advantage of Mr and Mrs Vermeulen’s creditors if the estates of Mr and Mrs Vermeulen are sequestrated.

[9] Mr and Mrs Vermeulen’s indebtedness to the applicant, the cause and nature of the applicant’s claim appears to be common cause. Hence the first element (8.1) supra, is satisfied.

[10] The issues in dispute are whether:

10.1 Mr and Mrs Vermeulen committed an act of insolvency in terms of Section 8(g) of the Act;

10.2 Mr and Mrs Vermeulen are factually insolvent;

10.3 there is reason to believe that it will be to the advantage of creditors if Mr and Mrs Vermeulen’s estates are sequestrated.

D. ACT OF INSOLVENCY

[11] Section 8 of the Act has identified certain conduct by the debtor to constitute an act of insolvency. The relevant subsection in casu is Section 8(g).

[12] Section 8(g) of the Act reads as follows:

“A debtor commits an act of insolvency if he gives notice in writing to any one of his creditors that he is unable to pay any of his debts.”

[13] It is the applicant’s case that by virtue of the fact that Mr and Mrs Vermeulen applied for debt review in terms of the NCA, this constituted an act of insolvency in terms of Section 8(g) of the Act.

[14] The applicant relied on the Section 17(1) and 17(2) notices, which were delivered by the debt review counselor to the applicant. Mr De Beer, counsel for the applicant, submitted that the debt review counsellor was mandated by Mr and Mrs Vermeulen’s to bring the debt review proceedings and to enter the commercial community and to inform creditors of the debtors’ inability to pay his debts, and the Section 17(1) and 17(2) notices that were delivered to the applicant constituted written notice within the ambit of Section 8(g) of the Act.

[15] Counsel for the applicant relied on the recent decision of Firstrand Bank v Evans 2011 (4) SA (KZN), where a debtor wrote a letter to his creditors informing them of his intention to apply for debt review. Wallis J, as he then was, held that such a letter is an act of insolvency as envisaged by Section 8(g) of the Act.

[16] Mr Van Wyk, counsel for Mr and Mrs Vermeulen, in summary submitted:

16.1 that Mr and Mrs Vermeulen did not write the letter informing the applicant of their inability to pay their debt;

16.2 that the Section 17(1) and 17(2) notices and the application for debt review cannot be construed as an inability to pay but is merely payment renegotiation on behalf of the Vermeulens.

[17] Mr and Mrs Vermeulen in their opposing affidavits also alleged that the debt review process in terms of the NCA will be rendered futile if restructured payment proposals made to creditors are construed as an act of insolvency in terms of the Act. The NCA provides for a consumer to approach the creditor to enter into a compromise, composition or arrangement by making restructured payment.

[18] This last point was laid to rest in the Supreme Court of Appeal’s decision of Naidoo v ABSA Bank Limited 2010 (4) SA 597 (SCA). Also see Investec Bank Limited & Another v Millenium & Another 2010 (1) SA 256 (GSJ); Firstrand Bank v Evans supra.

[19] What is clear from the above decisions is that debt review proceedings in terms of the NCA, including payment proposals made to creditors, do not bar the applicant from applying for the sequestration of Mr and Mrs Vermeulen, provided that the requirements

of the Act are met.

[20] Returning to the question of whether Mr and Mrs Vermeulen gave the applicant written notice, it is clear that only in instances where a debtor notifies his creditor in writing that he is unable to pay all his debts or any one of his debtors, does that constitute an act of insolvency as defined in Section 8(g) of the Act.

[21] However, a debtor may commit an act of insolvency through an agent provided the latter acts with the former’s knowledge and consent. See Chenille Industries v Voster 1953 (2) SA 691 (O) at 698; Walsh v Kruger 1965 (2) SA 756 (E) at 759; Standard Bank of South Africa Limited v Van Zyl 2009 JDR 1102 (WCC) at 6 (unreported).

[22] A debtor commits an act of insolvency through his agent where the latter is authorized accordingly, expressly or implicitly. See Eli Spilkin (Pty) Ltd v Matter 1970 (4) SA 22 (ECD) at 22–24.

[23] A mere manager of an undertaking does not have implied authority to commit an act of insolvency binding his principal. See Gulblatt’s Wholesale (Pty) Ltd v Damalis 1953 (3) SA 730 (O) at 733–734.

[24] A party relying on a mandate must allege and prove the existence and scope of the debt review counsellor’s authority. See NBS Bank Limited v Cape Produce Co. (Pty) Ltd & Others 2001 (2) SA 1048 (W); Glotinco v ABSA Bank Limited t/a United Bank 2002 (6) SA 470 (SCA) at 479.

[25] The applicant relies on a written notice sent by the debt counsellor and not by Mr and Mrs Vermeulen.

[26] The debt counsellor’s mandate was not referred to in the applicant’s founding affidavit and only raised for the first time in Court. Accordingly, the applicant failed to allege and prove the existence and scope of the debt counsellor’s mandate. There is no proof before me that Mr and Mrs Vermeulen gave notice in writing to the applicant or that the debt counsellor was mandated by Mr and Mrs Vermeulen.

[27] Accordingly, I am of the view that the applicant failed to prove the requirements for Section 8(g) of the Act and there is accordingly no reason to consider the second leg of the enquiry, namely, whether the Section 17(1) and 17(2) notices and the application for debt review constitute proof of the debtor’s inability to pay his debts. This issue was dealt with in the case of Firstrand Bank v Evans supra at paragraph 13D–E, page 602.

E. ACTUAL INSOLVENCY

[28] The applicant stated that both Mr and Mrs Vermeulen are factually insolvent. They allege that they do not know the full extent of Mr and Mrs Vermeulen’s assets and liabilities, but after conducting a deed search, they found the following properties, which are all bonded by covering bonds of security:

28.1 Portion 59, a portion of Portion 19 of the Farm Zuurplan No. 337, Registration Division JQ, Rustenburg. This property is registered

jointly in both Mr and Mrs Vermeulen, in equal shares.

28.2 Unit 2, 31 Oostraat with Sectional Tille Scheme 924, Registration Division JQ, North West, registered in Mr Vermeulen’s name.

28.3 Portion 1 of Erf 780, Rustenburg, Registration Division J.

[29] The applicant relies on Mr Vermeulen’s own budget payment proposal, wherein Mr Vermeulen has an amount of R8 975.44 per month for the payment of all his debts, including the applicant’s debt in casu and Mrs Vermeulen has R3 471.37 per month for the payment of her debts. Mr Vermeulen is obliged to pay all his creditors R28 860.17

per month.

[30] In so far as Mr and Mrs Vermeulen’s indebtedness to the applicant is concerned, Mr Vermeulen is only in a position to pay R5 519.96 per month, while Mrs Vermeulen can only contribute R3 471.37, while Mr and Mrs Vermeulen are obliged to pay the amount of R17 695.32 per month, leaving a shortfall of R8 703.99.

[31] The applicant submitted that Mr and Mrs Vermeulen’s budget proposals do not cover their minimum monthly payment to the

applicant, not to mention their indebtedness to the other creditors.

[32] Mr and Mrs Vermeulen admit their indebtedness to the applicant but dispute the amount.

[33] In their opposing affidavit they allege that they have been making regular payments and attached proof of payment. This was denied by the applicant in reply, who alleged that the proof of payment attached were payments made to either to the Erasmus Roets Attorneys, Debt Rescue or the NPDA DCM and not to the applicant. That the payments relied upon by Mr and Mrs Vermeulen are not regular monthly payments, but appear to be payments in respect of their entire monthly debt obligations and not in respect of their indebtedness to the applicant in casu and that it in any event falls short of the extent of their liabilities.

[34] Mr and Mrs Vermeulen admitted that all their properties are fully bonded and averred that they are over-indebted and not financially

insolvent. Mr and Mrs Vermeulen deny that they are factually insolvent and that they are unable to pay their debts. In so doing,

they rely on the fact that the applicant re-financed two of their assets, which was conveyed to them on 11 August 2011. They question

why the applicant would grant them further credit on the one hand and on the other seek to sequestrate them. They also allege that the payment proposal relied upon by the applicant is defective as it does not include particulars such as their signatures and personal details, and because the applicant only attached the second page when the document consists of 30 pages.

[35] The applicant, in reply, alleges that:

35.1 the two accounts that were re-financed are separate accounts from the claim forming the basis of the applicant’s application, in which Mr and Mrs Vermeulen’s indebtedness exceeds R2 000 000.00;

35.2 the present application was launched in June 2011, long before the arrangements were made in respect of the other two accounts;

35.3 Mrs Motshidisi (one of the applicant’s employees) was not aware of the present application when addressing the extension of the term on the other two accounts.

[36] The applicant alleged that Mr and Mrs Vermeulen elected to approbate and reprobate as it suits them, on the one hand, they rely on steps taken by their debt counselor in terms of Section 86(11) of the NCA, and on the other hand they attempt to dispute the debt review documentation annexed to the founding affidavit.

[37] Mr and Mrs Vermeulen allege that the applicant failed to attach proof of delivery of the notice in terms of Section 86 of the NCA, terminating the debt review.

[38] The applicant alleged that Mr and Mrs Vermeulen do not deny that they did not receive the Section 86(10) notices and that the denial was of no substance. The applicant attached proof of delivery of the Section 86(10) notice to their replying affidavit.

[39] The applicant, in reply, averred that Mr and Mrs Vermeulen failed to provide any information regarding their financial position.

[40] Actual insolvency denotes that the debtors’ liabilities actually exceed the value of the respondent’s assets. There

must be clear proof of actual insolvency. See Hugo N.O v Lipkie 1961 (3) SA 66 (O) at 67.

[41] 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 or indirectly by adducing evidence of circumstances indicative thereof, e.g. debts remain unpaid. See Insolvency Law by Meskin, pages 2–17, paragraph 2.1.3.

[42] Evidence of ‘commercial insolvency’ may enable the Court to conclude that the debtors’ liabilities exceed the value of his assets.

[43] An applicant must make a prima facie case. It is not necessary to prove this on a balance of probabilities.

[44] A Court hearing an application for provisional winding-up should refuse such an application where the debt is disputed on bona fide and reasonable grounds. See Badenhorst v Northern Construction Enterprises Ltd 1956 (2) SA 346 (T).

[45] In Kalil v Decotex (Pty) Ltd & Another 1988 (1) SA 943 (A) at 980B–D, Corbett JA, as he then was, stated that:

“Where the respondent shows on a balance of probability that its indebtedness to the applicant is disputed on bona fide and reasonable grounds, the court will refuse a winding up order. The onus on the respondent is not to show that it is indebted to the applicant, it is merely to show that the indebtedness is disputed on bona fide and reasonable grounds.”

[46] In Investec Bank Limited v Lewis 2002 (2) SA 111 (C) at 116F–G, Griesel J stated that the same principle in the Kalil v Decotex (Pty) Ltd & Another case supra, applies to sequestration applications.

[47] Although there is no onus on the respondents to establish that they are solvent, the respondents’ case should be met in an adequate and reasonably convincing manner in order that the dispute can be said to be bona fide and predicated on reasonable grounds. See the unreported decision of Hannover Groups Reinsurance (Pty) Ltd v Gungudoo 2010 JDR 0983 (GSJ).

[48] Corbett JA, in the Kalil v Decotex (Pty) Ltd & Another case supra, stated that the Court must do its best to decide the probabilities by taking into account the full conspectus of allegations and decide as they appear on the affidavits, read as a whole, which are placed before it. See Kalil v Decotex (Pty) Ltd & Another case supra, at 976C–980A.

[49] Corbett JA, in the Kalil v Decotex (Pty) Ltd & Another case supra, refers to a balancing act that the Court must perform in applications for provisional sequestration, where there is doubt as to whether:

49.1 the respondent’s indebtedness is disputed on bona fide and reasonable grounds;

49.2 the respondent is, in fact insolvent.

That the balancing requires the exercise of a judicial discretion after taking everything into account.

[50] As Willis J, in Hannover Groups Reinsurance (Pty) Ltd v Gungudoo supra at paragraph 16, stated:

“Where the applicant is abusing the process of application for a provisional order of sequestration, it will often not be difficult for a respondent to show this: the respondent demonstrates, in a reasonably convincing way, that even if the applicant’s claim is proven, the surplus of the respondent’s assets over liabilities can comfortably meet the claim. Further clues will be provided where the quantum of the uncertain portion of the applicant’s claim, relative to the surplus of the respondent’s assets over liabilities,

suggests that justice will best be served by leaving the claim to be played out in its usual course.”

[51] The applicant, on his own version, has insufficient information in respect of Mr and Mrs Vermeulen’s assets and liabilities, and relied on Mr and Mrs Vermeulen’s inability as per the payment proposal to pay their monthly debt obligations towards the creditors as well as the fact that they have other bonded property and are unable to pay the agreed instalment on those properties, to prove actual insolvency.

[52] Mr and Mrs Vermeulen did not demonstrate in any reasonably convincing and bona fide manner that their assets exceed their liabilities and that they can meet the applicant’s claim.

[53] Furthermore, I accept the explanation proffered by the applicant for why it re-financed the assets and nothing turns on this point.

[54] Accordingly, I am of the view that the applicant has made out a prima facie case and that Mr and Mrs Vermeulen are factually insolvent. The order is only provisional and Mr and Mrs Vermeulen will have an opportunity on the return date to provide greater clarity.

F. ADVANTAGE TO CREDITORS

[55] The applicant alleged that it is clear that Mr and Mrs Vermeulen are unable to pay their monthly instalments and debts and it would be in the best interest of all the creditors that Mr and Mrs Vermeulen are provisionally sequestrated, and that a liquidator be appointed to take control of their assets, investigate their affairs and liquidate the assets in order to distribute the proceeds thereof to all the relevant creditors. Reference was also made to the annual escalations which Mr and Mrs Vermeulen are liable for and its impact on the rights of other unsecured creditors.

[56] Mr and Mrs Vermeulen elected not to disclose their assets and liabilities and simply denied that the sequestration will be to the advantage of the creditors.

[57] The Court may not grant the provisional order unless it is established that there is reason to believe that it will be to the

advantage of creditors of the debtor if his estate is sequestrated, that is “a reasonable prospect – not necessarily a likelihood, but a prospect that is not too remote – that some pecuniary benefit will result to the creditors. See Meskin & Co. v Friedman 1948 (2) SA 555 (W) at 559.

[58] In laymen’s terms, there should be a reasonable prospect of actual payment of a dividend 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 large payment. See Gardee v Dhanmanta Holdings & Others 1978 (1) SA 1066 (N) at 1069–1070; Nedbank Ltd v Thorpe [2005] JOL 13772 (D) at 14.

[59] Reason to believe predicates facts which engender belief, which must be proved by the applicant; prima facie at the stage when a provisional order is sought.

[60] Other grounds to establish the advantage to creditors have been held to include the avoidance of unfair distribution of assets,

interrogation of their affairs, coupled with a not unreasonable prospect that assets may be revealed or recovered as a result of the investigation. See Meskin & Co. v Friedman 1948 (2) SA 555 (W) at 559.

[61] As Leveson J, in the Dunlop Tyres (Pty) Ltd v Brewith 1999 (2) SA 580 (W) case stated at 583B/C–G/H, stated:

“Where there had been an ordinary and proper commercial transaction or series of transactions between the sequestrating creditor and the respondent, the facts giving rise to advantage to creditors were not usually, as in the case of friendly sequestration, available to the sequestrating creditor. When dealing with such --- lengthy transactions, it was not required of the sequestrating creditor that he provide in his founding affidavit the detail and --- of averments required in the case of friendly sequestrations. It was sufficient if he was able to show, for example, that there existed reasonable grounds for concluding that, upon a proper investigation by way of an enquiry under Section 65 of the Act, a trustee might be able to unearth assets that could be distributed to the creditors.”

[62] In circumstances where other creditors are preferred above the applicant, the mere fact that prima facie sequestration will be to their disadvantage does not preclude the Court from granting a sequestration order at the invitation of the applicant. See Moldenhauser v De Beer 1959 (1) SA 890 (E) at 891.

[63] The fact that Mr and Mrs Vermeulen own immovable property, that they both have offered to pay reduced amounts towards their indebtedness, that Mr Vermeulen is employed, leads me to conclude that there a reasonable prospect of payment of a dividend to their creditors and that there are reasonable grounds for concluding that upon an investigation of Mr and Mrs Vermeulen’s affairs, there is reason to believe that there will be a pecuniary benefit to Mr and Mrs Vermeulen’s creditors.

[64] By virtue of the fact that at this stage only a provisional order is sought and the onus is on the applicant merely to make out a prima facie case, I am of the view that the applicant has discharged the onus of establishing that there is reason to believe that the sequestration will be to the advantage of the creditors.

G. DISCRETION

[65] It is trite that once the applicant has established, on a prima facie basis, the requirements for provisional sequestration, the Court has a discretion whether to grant the order.

[66] In this instance, it is for Mr and Mrs Vermeulen to establish special or unusual circumstances that warrant the exercise of the Court’s discretion in their favour. See C/f Cargo Ladaen & Lately Laden on Board the MV Thalassini Augi v MV Dimitris 1989 (3) SA 870 (A) at 833C–F.

[67] Mr and Mrs Vermeulen failed to address the Court on this issue and to put forward any facts justifying any special circumstances why the Court should exercise its discretion against the applicant. See Equisec (Pty) Ltd v Rodriquez & Another 1999 (3) SA 113 (W) at 117.

[68] Accordingly, I exercise my discretion in the applicant’s favour.

H. CONCLUSION

[69] In the circumstances, I am satisfied that the applicant has made out a prima facie case for a provisional order.

I. ORDER

[70] In the result, I make the following order:

1. Mr and Mrs Vermeulen are provisionally sequestrated and their estate is placed in the hands of the Master of the High Court.

2. This provisional order serves as a rule nisi, returnable on 20 April 2012, on which date Mr and Mrs Vermeulen or any other interested party may show cause as to why a final order for the sequestration of their respective estate should not be granted.

3. A copy of the provisional order is to be published once in the Government Gazette and the Citizen newspapers.

4. A copy of the provisional order is to be served on:

4.1 Mr and Mrs Vermeulen;

4.2 all known creditors of Mr and Mrs Vermeulen by pre-paid registered post;

4.3 the South African Revenue Services.

5. Costs of this application are costs in the sequestration of Mr and Mrs Vermeulen.

_________________

N. GUTTA

JUDGE OF THE HIGH COURT

APPEARANCES

DATE OF HEARING : 24 NOVEMBER 2011

DATE OF JUDGMENT : 09 FEBRUARY 2012

COUNSEL FOR APPELLANT : ADV L.W. DEBEER

COUNSEL FOR RESPONDENT : ADV A. VAN WYK

ATTORNEYS FOR APPELLANT : VAN ROOYEN TLHAPI WESSELS INC.

(Instructed by VEZI & DE BEER INC.)

ATTORNEYS FOR RESPONDENT : SMIT STANTON ATTORNEYS

(Instructed by STOLTZ ATTORNEYS)