Boe Bank Ltd v Bassage

• Jurisdiction: South Africa
• Judge: Mpati DP, Scott JA, Zulman JA, Navsa JA and Cloete JA
• Judgment Date: 31 March 2006
• Citation: 2006 (5) SA 33 (SCA)
• Docket Number: 445/2004
• Hearing Date: 10 March 2006
• Counsel: C E Puckrin SC (with him G M E Lotz) for the appellant. M J D Wallis SC (with him P J Wallis) for the respondent.
• Court: Supreme Court of Appeal

Zulman JA:

[1] The issue in this appeal is whether the appellant has a claim against the A respondent as surety for the balance of a debt of Zandills Shoe Manufacturers Ltd (in liquidation) (the company), when payment of the balance cannot be enforced against the company by the appellant because it has elected to follow the procedure set out in s 89(2) of the Insolvency Act 24 of 1936 (the Insolvency Act). The B High Court of the Natal Provincial Division (Niles-Duner J) dismissed the claim. The appeal is with the leave of the Court a quo.

[2] The issue arises in the following manner: C

1.

The company was indebted to NBS Bank Ltd (NBS), the predecessor in title of the appellant, in terms of two action bond agreements.

2.

The indebtedness was secured by two covering mortgage bonds over immovable property owned by the company.

3.

On 3 July 1996, the respondent bound himself in writing as surety and co-principal debtor, renouncing the benefits of excussion and division, to NBS for the debts of the company. D

4.

The company was finally wound up on 12 May 2000. On 18 May 2000, three joint liquidators were appointed.

5.

On 26 October 2000 the appellant deposed to an affidavit in terms of s 44(4) of the Insolvency Act, in accordance with Form C to the First Schedule of the Insolvency Act, in proof of a claim E against the company of R1 972 721,06 plus interest at a margin of 0,50% above the prime rate to date of payment. The affidavit states:

'(3)

That no other person besides the said company is liable (otherwise than as surety) for the said debt or any part thereof. F

(4)

That the said creditor has not, nor to my/our knowledge on my/our behalf received any security for the said debt or any part thereof save and except: first and second mortgage bonds over Rem of Lot 1571 Pietermaritzburg situate in the city of Pietermaritzburg which security has been valued at R800 000.

(5)

. . . G

(6)

That the said creditor relies solely on the realisation of its security for satisfaction of its claim.'

6.

OBy virtue of resolutions adopted at a second meeting of creditors of the company held on 27 October 2000, the liquidators were:

'(A)uthorised and empowered to abandon any assets which are subject to any right of security to the creditor concerned, in full H settlement of the creditor's claim or at an agreed valuation as the case may be, provided the liquidators are satisfied that no benefit could accrue to the concurrent creditors of the company were the asset in question to be realised in the ordinary course, subject to the creditor concerned paying the costs of realisation attributable to its security in terms of s 89(1) of the Insolvency Act.' I

7.

On 14 November 2000 the liquidators and the appellant concluded an agreement entitled 'Deed of abandonment' in terms of which the company's immovable property was abandoned by the liquidators to the appellant for a consideration of R800 000 including value-added tax. J

Zulman JA

8.

At a special meeting of creditors held on 26 January 2001, the appellant proved its claim of R1 972 721,06 plus interest. The A appellant submitted the affidavit dated 26 October 2000 which is referred to in subpara 5 above in support of the claim.

9.

On 24 April 2001, the appellant sued the respondent as surety for payment of the sums of R623 891,13 and R385 897,40 plus interest on these amounts which represented the net shortfall of the B amounts which the appellant had recovered from the company in liquidation.

[3] By virtue of s 366(1) of the Companies Act of 1973 (the Companies Act), the provisions of the Insolvency Act regarding the proof of claims are mutatis mutandis applicable to the proof of claims against companies in liquidation. In terms of s 342 of the C Companies Act, the provisions of the Insolvency Act regarding contributions by creditors towards any costs incurred in the winding-up of a company, apply to the winding-up of a company.

[4] Section 44(4) of the Insolvency Act requires that a claim must be proved by affidavit in a prescribed form corresponding D substantially with Form C or D of the First Schedule to the Insolvency Act. It must, inter alia, be stated in the affidavit whether the creditor holds security for his claim, the nature and particulars of that security and the amount at which the security is valued by the creditor. E

[5] Section 89(2) of the Insolvency Act provides that:

'If a secured creditor (other than a secured creditor upon whose petition the estate in question was sequestrated) states in his affidavit submitted in support of his claim against the estate that he relies for the satisfaction of his claim solely on the proceeds of the property which constitutes his security, he shall not be liable for any F costs of sequestration other than the costs specified in ss (1), and other than costs for which he may be liable under para (a) or (b) of the proviso to s 106.'

[6] The respondent's counsel submitted that, once the appellant proved its claim and relied solely on its security, it had no further claim that was enforceable against the company; and that it followed that the respondent, as surety, was discharged from any G liability to the appellant on the claim. For this submission, the respondent's counsel relied in particular on the following dictum of Galgut AJA in Bank of Lisbon and South Africa Ltd v The Master and Others:[1]

'A creditor seeking to prove his claim has to comply with s 44(4). If he alleges he holds security he must, in terms of that H section, furnish the nature and particulars thereof to prove that his security exists. If he then acts in terms of s 89(2), and declares that he relies for the satisfaction of his claim solely on the proceeds of the...