Case Comments: Some judicial guidelines for establishing the value of immovable property in friendly sequestrations
| Jurisdiction | South Africa |
| Author | Alastair Smith |
| Pages | 437-458 |
| Date | 25 May 2019 |
| Published date | 25 May 2019 |
GUIDELINES FOR ESTABLISHING THE VALUE OF IMMOVABLE PROPERTY
437
Some Judicial Guidelines for Establishing
the Value of Immovable Property
in Friendly Sequestrations
ALASTAIR SMITH
University of South Africa
Immovable property owned by the debtor usually forms the chief asset
in his estate. How should the value of such property be established in
proceedings for the friendly sequestration of that estate? Some guidelines
were provided by Leveson J that emphasize the need for gathering and
presenting detailed and reliable information about the prospects of an
advantage to creditors (see
Ex parte Steenkamp and related cases
1996 (3)
SA 822 (W);
Nel v Lubbe
1999 (3) SA 109 (W)). Sequestrating creditors
will accordingly have to take a hard look at the information and property
which they allege prove the requirement of reason to believe that
sequestration will be to the advantage of creditors. For even if they do
not carry out this examination, the courts, made sceptical by worrying
statistics and reports on sequestrations, will. The time for unsubstan-
tiated guesswork about the value of immovable property in this situation
has passed.
In a friendly sequestration the debtor seeks to obtain the benefit of an
application for the compulsory sequestration of his estate. (The probable
source of the tag 'friendly sequestration' is not, as Leveson J thought
(Ex
parte Steenkamp
(supra) at 825D—E)), the judgment of Nicholas J in
Klemrock (Pty) Ltd v De Klerk
1973 (3) SA 925 (W) but that of Curlewis
JP in
Kerbel v Chames
1925 WLD 72 at 76-77, quoted by Conradie J in
Craggs v Dedekind; Baartman v Baartman & another; Van Jaarsveld v
Roebuck; Van Aardt v Borrett
1996 (1) SA 935 (C) 936H—I. For other
earlier instances, see also Holmes J in
Jhatam & others v Jhatam
1958 (4)
SA 36 (N) at 39-40, quoting
Yenson & Co v Garlick
1926 WLD 53 at 57
and
Johns v Crye
1927 WLD 268 at 270, and referring to
R v Meer &
others
1957 (3) SA 614 (N).) Where the debtor applies for the voluntary
surrender of his own estate, he must comply with requirements stricter
than those which a creditor must meet when applying for the compulsory
sequestration of the debtor's estate. So the debtor must comply with the
preliminary formalities (by publishing a notice of intention to surrender
his estate, by giving notice to each creditor, and by preparing and lodging
a statement of his affairs), and prove not only that his estate is insolvent
but that the sequestration will be to the advantage of his creditors (ss 4,
and 6(1) of the Insolvency Act 24 of 1936). The creditor in an application
for compulsory sequestration, on the other hand, need not comply with
those formalities. Instead, he must prove a liquidated claim for the
required amount, an act of insolvency by or the insolvency of the debtor,
(2000) 12 SA Merc LJ 437
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438
(2000) 12 SA Merc LJ
and reason to believe that the sequestration will be to the advantage of
the debtor's creditors (ss 10, and 12(1);
Ex parte Steenkamp
(supra) at
830D—E; Catherine Smith
The Law of Insolvency
3 ed (1988) 74-75). To
benefit from these lesser responsibilities of the creditor, the debtor often
arranges with a 'friendly' (at least an accommodating) creditor that he
will commit an act of insolvency enabling the creditor to apply for
compulsory sequestration. Almost invariably this act of insolvency takes
the form of the debtor's written acknowledgement of inability to pay his
debts (s
8(g)),
scribbled with insouciant ease (compare
Dunlop Tyres
(Pty) Ltd v Brewitt
1999 (2) SA 580 (W) at 581-582). Once the
sequestration order is granted, execution against the debtor's assets is
stayed and he is no longer hounded by his creditors.
The danger of friendly sequestrations is collusion between the parties
(see
Craggs
(supra) at 937D;
Dunlop Tyres
(supra) at 582D—E; Smith op
cit at 76-77). Although it is not in itself wrong for a debtor to find a
friendly creditor to bring the application for compulsory sequestration, it
is wrong of the friendly creditor to show an excessive care for the debtor's
interests at the other creditors' expense, particularly if he acts with
deception (see Smith op cit at 77).
A decade ago Leveson J drew attention to the worrying statistics
suggesting the abuse of friendly sequestration (see
Hillhouse v Stott,
Freban Investments (Pty) Ltd v Itzkin; Botha v Botha
at 586F—I). In
Ex parte Steenkamp
(supra) at 826-827, he explained this
malaise. The friendly creditor seldom proves a claim in the sequestration;
he already knows that the cupboard is bare, or he helps his needy debtor
as far as the sequestration order, then sits back (compare Sanchia Temkin
'A Friendly Warning for Would-be Bankrupts: The Courts Looking
Closely At Collusion with Debtors'
Financial Mail,
25 June 1999).
According to the Master of the High Court, in these cases the creditors
seldom prove claims at the first meeting (or perhaps the later ones), nor
do they elect a trustee. After the necessary period, the insolvent then
applies for his rehabilitation, often because creditors have not proved
claims against the estate, and he is freed of his debts. Since
Hillhouse
the number of cases in which creditors prove no claims has risen. As the
liquidated claim of R100 amounts to no more than the price of a few
cinema tickets, say, and the 'Dear Dad' letter under s 8(g) (as Mr Justice
Zulman once described it at a conference on insolvency law; compare the
'Liewe Ma' letter in
Streicher v Viljoen
[1999] 3 All SA 257 (NC) at
261 a—b, and Conradie J's reference to the people who bring such
applications for friendly sequestration
(Craggs
(supra) at 837D)) can be
dashed off in favour of one's nearest and dearest, the obtaining of a
friendly sequestration appears all too easy.
The antidote to this abuse, it has long been reiterated, is judicial
insistence on the requirement of proving an advantage to creditors (see
Ex parte Steenkamp
(supra) at 825E;
Klemrock
(supra) at 927A;
Campher
v Campher
1978 (3) SA 797 (0) at 798E;
Epstein v Epstein
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