Case Notes: Furnishing employees with the petition for sequestration—constitutional and related issues: Stratford & others v Investec Bank Ltd & others 2015 (3) SA 1 (CC)

• Jurisdiction: South Africa
• Published date: 20 August 2019
• Citation: (2017) 29 SA Merc LJ 153
• Date: 20 August 2019
• Author: Howard Chitimira
• Pages: 153-171

FURNISHING EMPLOYEES WITH THE

PETITION FOR SEQUESTRATION —

CONSTITUTIONAL AND RELATED ISSUES:

STRATFORD & OTHERS V INVESTEC BANK

LTD & OTHERS 2015 (3) SA 1 (CC)

HOWARD CHITIMIRA

Associate Professor, North-West University

I INTRODUCTION

The consistent application of s 9(4A) of the Insolvency Act 24 of 1936

(Insolvency Act) has, to date, been sometimes impeded by various

interpretational challenges in the South African courts. For instance, the

courts have grappled to determine whether the furnishing of the petition

in terms of s 9(4A) of the Insolvency Act is peremptory or directory in

nature. The courts have also struggled to consistently determine whether

the provisions of this section are applicable to both business and

domestic employees of the debtor. Section 9(4A) stipulates that a

petitioner must furnish a copy of the petition for the sequestration of the

debtor’s estate to the employees of that debtor. The confusion regarding

the interpretation and application of s 9(4A) was addressed by the recent

Constitutional Court judgement in Stratford & others v Investec Bank Ltd

& others 2015 (3) SA 1 (CC) (Stratford). This case also dealt with the

requirement concerning advantage to creditors in terms of s 12(1)(c) of

the Insolvency Act. The court held that the concept of advantage to

creditors should be f‌lexibly and widely interpreted to include any

reasonable prospect that some pecuniary benef‌it will accrue to the

debtor’s creditors after the sequestration proceedings (Stratford paras

43–46 and 49). The court further held that s 9(4A) of the Insolvency Act

should be broadly interpreted to include both business and domestic

employees of the debtor (Stratford para 50). Thus, in order to correctly

comply with s 9(4A) of the Insolvency Act, the petitioner must furnish a

copy of the petition to both business and domestic employees of the

debtor. A sequestration order is an order of court which could give rise

to the sequestration of the insolvent’s estate (s 2 of the Insolvency Act).

This order may be granted as a provisional sequestration order if the

court is satisf‌ied that: (a) the debtor committed an act of insolvency or is

insolvent; (b) all the relevant creditors have established a liquidated

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claim; and (c) there is reason to believe that the sequestration of the

debtor’s estate will be to the advantage of the creditors (s 10 read with

s 9(1) and (2) of the Insolvency Act). Likewise, a subsequent f‌inal

sequestration order may then be granted if the court is satisf‌ied that

these three requirements have been met (s 12 read with s 9(1) & (2) of

the Insolvency Act).

The granting of a f‌inal sequestration order suspends all contracts of

service of employees of the insolvent (s 38 of the Insolvency Act). Thus,

both the domestic and business employees of the debtor’s contracts of

service are negatively affected by the sequestration proceedings. In this

regard, Stratford has usefully exposed the legislative and constitutional

interpretational f‌laws that are sometimes associated with the application

and serving of a sequestration order on the employees of the insolvent

under the Insolvency Act (see s 9(4A), which deals with the petition for

sequestration; s 11(2A) regarding persons that must receive the rule

nisi; s 11(4) regarding the duties of the sheriff when serving the rule nisi;

s 12(1) regarding f‌inal sequestration read with ss 38 and 17 on the effect

of sequestration on contracts of service and notice of sequestration

respectively; Stratford paras 6–50; see, also, Gungudoo & another v

Hannover Reinsurance Group Africa (Pty) Ltd 2012 (6) SA 537 (SCA)

(Gungudoo) paras 33–43, which held the opposing view that s 9(4A) of

the Insolvency Act only requires the petition to be served on the

insolvent’s business employees). Against this background and in light of

Stratford, this case note investigates whether the serving of a petition as

contemplated in s 9(4A) of the Insolvency Act includes domestic

employees (the term ‘petition’ is employed as an equivalent of a notice of

motion and/or founding aff‌idavit in the Insolvency Act). The case note

further discusses whether the differentiation between domestic employ-

ees and business employees could give rise to s 9(4A) of the Insolvency

Act being inconsistent with the Constitution of South Africa, 1996

(Constitution). In addition, the question whether compliance with

s 9(4A) read with ss 11(2A) and 11(4) of the Insolvency Act is peremp-

tory or directory will be addressed. Moreover, the concerns regarding

the granting of a f‌inal sequestration order by the high court (HC) as well

as the interpretation of the concept of advantage to creditors in

s 12(1)(c) of the Insolvency Act by the courts are brief‌ly outlined

(Stratford paras 16 and 17 read with paras 6–15).

Legislative f‌laws and constitutional interpretational challenges asso-

ciated with other related cases such as Gungudoo, are also mentioned.

Furthermore, relevant legislation that deals with equity and labour-

related rights of employees are brief‌ly discussed in light of Stratford. This

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