Absa Bank Ltd v Scharrighuisen

• Jurisdiction: South Africa
• Judge: Griesel J
• Judgment Date: 15 December 1999
• Citation: 2000 (2) SA 998 (C)
• Docket Number: 6891/99
• Hearing Date: 30 November 1999
• Counsel: M J Fitzgerald SC (with him B J Manca) for the applicant. R P Hoffmann SC for the respondent.
• Court: Cape Provincial Division

Griesel J: D

[1] This is the extended return day of a provisional sequestration order, granted herein by Knoll J on 19 October 1999. The background to the matter, including the basis for the application and the grounds of opposition thereto, appears fully from the judgment of my colleague. It is accordingly unnecessary for me to repeat such background information herein and I shall assume that the reader is conversant with the aforesaid judgment. E

[2] On the return day it was argued on behalf of the respondent that the provisional order ought to be discharged. Supplementary affidavits by the respondent and his financial adviser, Mr Krecklenberg, were also filed. The applicant responded with a supplementary affidavit by the joint liquidator of F some of the companies which previously formed part of the so-called Scharrighuisen Group, one Walters, as well as affidavits by two appraisers, who had previously valued some of the properties in question. To these affidavits the respondent, in turn, replied in a further brief affidavit. G

[3] The respondent's grounds of opposition to the granting of a final order herein may be summarised as follows:

(a)

The applicant has not discharged the onus of proving on a balance of probabilities that the respondent has either committed an act of insolvency or is factually insolvent. H

(b)

The applicant has not shown that it will be to the advantage of the respondent's creditors if his estate is sequestrated.

(c)

The Court, in the exercise of its discretion, ought to refuse a final order.

Factual insolvency I

[4] The main issue debated before me on the return day revolved around the question whether the applicant has proved that the respondent's liabilities exceed the value of his assets. The major disputes between the parties relating to the respondent's alleged factual insolvency fall into the following broad categories: J

Griesel J

A.

The extent of the respondent's liabilities, as set forth in annexure CS/1. A

B.

The respondent's right of recourse (if any) against the principal debtors for whose debts he stood surety and the value (if any) to be placed thereon.

Liabilities B

[5] A full analysis of the respondent's statement of assets and liabilities (annexure CS/1) appears in the judgment by Knoll J. [1] She concluded [2] that annexure CS/1 was 'clearly not very reliable'. Based on her analysis Knoll J assessed the respondent's total liabilities to amount to R149 129 813, instead of R104 939 599, as stated by the C respondent. She was satisfied, therefore, that his liabilities exceeded the total value placed on his assets by the respondent, viz R139 811 692.

[6] On the return day the approach by Knoll J was criticised in a number of respects by the respondent. It was pointed out in the supplementary affidavits filed on behalf of the respondent that D certain of the items included by Knoll J in the respondent's list of liabilities amounted to duplication, more specifically the amounts of R8 288 000 and R5 000 000, as set out in the judgment. [3] The respondent also showed that the amounts of R20 900 000 and R7 500 000, added to his total liabilities by Knoll J, have in fact already been accounted for in E annexure CS/1. I have considered the explanations advanced by the respondent in his supplementary affidavit and, without coming to any final finding in that regard, I am prepared to accept for present purposes that they are reasonable.

[7] In re-assessing the full extent of the respondent's liabilities I find it more convenient and logical to tabulate these F in a format slightly different from the one adopted by the respondent in annexure CS/1 and by Knoll J in the judgment. Such liabilities, which are uncontested or emanate from respondent himself, add up to R111 297 905, made up as follows: G

T Scharrighuisen	13 000 000
H Scharrighuisen	4 500 000
ABSA	18 246 460
Nedcor	52 117 361
Cape of Good Hope Bank	21 659 535
Sundry creditors H (excluding ABSA, Nedcor & CGHB):
Annexure B	1190 966
Annexure B	2967 955
Annexure I B	34 200
Annexure B	4611 428
Total liabilities	R111 297 905

Griesel J

Assets A

[8] The crucial question is whether or not the value of the respondent's assets exceeds the aforesaid amount of R111 million. In this regard the respondent valued his assets excluding any right of recourse in an amount of R73 170 000, made up as follows: B

Investments in property development (as per annexure CS/1, but excluding the debt of R7 200 000 referred to in Note 3, which amount is already reflected in the above total owing to Cape of Good Hope Bank)	55 300 000
Investments in trading ventures C (as per annexure CS/1)	870 000
Farm - Somerset West (ditto)	4 500 000
Vintage car collection (ditto)	12 500 000
Total	D R73 170 000

[9] In attempting to demonstrate that the value of his assets exceeds the aforementioned total liabilities of R111 million, the respondent included among his assets a right of recourse in an amount of R73 841 692. This figure was arrived at by adding up the total value of the assets of the principal debtors for whose debts the respondent stood surety. It appears to be countered on the E debit side by the liabilities of those same debtors.

[10] There was 'a massive dispute' (according to the respondent) between the parties as to the true value of the assets, both those belonging to the respondent personally and those belonging to the various entities in liquidation. For reasons which will appear, I find it unnecessary to attempt to resolve those disputes F or to refer them for the hearing of oral evidence, as was suggested by the respondent as an alternative.

[11] As is apparent from the aforegoing analysis, the value (if any) to be placed on the respondent's right of recourse against the G principal debtors is pivotal to this application. If such right were to be included as an asset at the value placed thereon by the respondent, ie some R73,8 million, this will result in a clear excess of assets over liabilities. Conversely, if a value of less than R38 million were to be placed on such right, the respondent would clearly be factually insolvent. It is to a consideration of this H central issue that I now turn.

Right of recourse

[12] It is trite law that a surety that has paid the debt of the principal debtor to the creditor has a right of recourse against the debtor. He is entitled to recover from the principal debtor whatever he I was in law obliged to pay to the creditor. Ordinarily a surety is only entitled to enforce a right of recourse against the principal debtor once he has discharged the principal debt and by such discharge secured the release J

Griesel J

of the debtor. [4] Based on this principle, it was submitted on behalf of the applicant that no right of A recourse has yet accrued to the respondent herein for the simple reason that he has not yet paid the debts of the principal debtors.

[13] The correctness of this general principle was conceded on behalf of the respondent. It was B contended on his behalf, however, that in certain circumstances a right of recourse may accrue even prior to the discharge by the surety of the principal debt (or part thereof). In the heads of argument filed on behalf of the respondent this submission was formulated as follows (by counsel who did not appear on behalf of the respondent on the return day): C

'Although a surety and co-principal debtor has not satisfied the debt...