FirstRand Bank Ltd v Evans

• Jurisdiction: South Africa
• Judge: Wallis J
• Judgment Date: 18 March 2011
• Citation: 2011 (4) SA 597 (KZD)
• Docket Number: 4229/10
• Hearing Date: 11 February 2011
• Counsel: AWM Harcourt SC (with WN Shapiro) for the applicant. KJ Kemp SC (with E Crots) for the respondent.
• Court: KwaZulu-Natal High Court, Durban

Wallis J:

[1] Mr Evans borrowed substantial amounts from FNB, a division of the I applicant, First Rand Bank Ltd. In April 2005 he acknowledged his indebtedness, in an amount of R1 200 000, in a mortgage bond registered over the property in which he and his family reside. On 13 September 2006 he acknowledged a further indebtedness of R1 000 000, in a subsequent mortgage bond over the same property. On 28 November 2007 he entered into a Commercial Property Finance Loan Agreement, J under which he borrowed a further amount of R724 500. That

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amount, together with an additional R2 000 000 in respect of his existing A indebtedness, was secured by way of a sectional mortgage bond over a section in a development situated in Umhlanga Rocks. Overall, by June 2009 he owed FNB some R2 800 000. It is that indebtedness that gives rise to this application for the provisional sequestration of his estate. The application was brought on two bases. First, it was said that B Mr Evans had committed the act of insolvency described in s 8(g) of the Insolvency Act, by giving written notice of his inability to pay his debts. Second, it was said that he was factually insolvent.

[2] The grounds upon which Mr Evans resists the application for his sequestration flow from his invocation of the debt-review provisions C under the National Credit Act 34 of 2005 (the NCA), and from certain events that have occurred subsequent to the commencement of these proceedings. To appreciate his contentions it is necessary to set out a history of the relevant events.

[3] The starting point is an application for debt review made by D Mr Evans on 29 January 2009. FNB was advised that he was under debt review. On 17 April 2009 Mr Evans addressed the letter to FNB that is alleged to be a s 8(g) notice. I will revert to this in due course. Thereafter, on 18 May 2009, FNB gave notice in terms of s 86(1) of the NCA that it was terminating the debt review in respect of the 'account/s in our books which are now in arrears'. It appears to be accepted that, notwithstanding E this rather vague description, the notice applied to all the debts owed by Mr Evans to FNB. There is, however, a dispute as to its effectiveness, in the light of its terms and the address to which it was sent.

[4] On 16 July 2009 FNB issued summons, claiming a little over R2 000 000 under the two mortgage bonds. Service was effected on F 22 July 2009, but at the wrong address, and default judgment was taken on 18 August 2009. Mr Evans only learnt of this on 12 March 2010, when the sheriff served a notice of attachment at his residence. In terms of the notice of attachment, a sale in execution of the residential property was to take place on 28 May 2010. G

[5] On 8 April 2010 FNB launched this application for the sequestration of Mr Evans' estate. It relied on both the judgment and on the then outstanding indebtedness of R841 940,99 in respect of the loan agreement. It contended that Mr Evans had committed an act of insolvency by sending the letter of 17 April 2009, and also that he was in any event H factually insolvent. The sequestration application made no mention of the attachment order and the sale in execution of the residential property.

[6] On 6 May 2010 attorneys representing Mr Evans wrote to FNB's attorneys, claiming that the judgment was void because it was obtained I without proper service. The letter indicated that an application for the rearrangement of Mr Evans' debts had been issued in the Durban Magistrates' Court on 3 July 2009, and an order made on 24 July 2009. Contrary to the allegation in the founding affidavit, that very few payments had been made, details were given of regular monthly payments in respect of both the two mortgage bonds and the loan J

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A agreement, from 28 August 2009 to 29 April 2010 in terms of the debt-rearrangement order. In those circumstances, Mr Evans' attorneys said:

'We cannot understand your client's persistence in prosecuting its claim against our client. In this regard we also refer to the ill-conceived B sequestration application. . . .'

There being no response to that letter, Mr Evans launched an urgent application to stay the sale in execution and seek the rescission of the judgment. An opposing affidavit was delivered in the sequestration C application, relying on these matters as grounds for resisting a sequestration order, and contending both that there was a valid defence to the claims under the bonds and the loan agreement, and that the NCA precluded resort to sequestration.

[7] FNB served a replying affidavit in which it contended that the NCA does not preclude an application for sequestration of a debtor's estate, D and that, insofar as the judgment debt was concerned, the debt-review process had been terminated. In effect therefore FNB contended that the debt-rearrangement order had been improperly made, insofar as it purported to cover Mr Evans' indebtedness to it. The point was also made that the amounts payable to FNB in terms of that order — some E R21 390 per month — were insufficient to service the loans, the aggregate monthly interest on which was approximately R25 270. In the result, payments in terms of that order would not discharge the indebtedness to the bank. Some criticism was directed at Mr Evans, on the basis that, according to the documents attached to his affidavit, he was making payment of R23 397 per month to his creditors, on a net income of F R22 408. In addition, it was alleged that he had expenses over and above this amount, of R58 791, but that is incorrect, as this figure included the bond instalment of R22 638. Nonetheless, even if one allows for this, his claimed income and expenses were impossible to reconcile.

[8] Had matters rested there, the outcome of this application would have G revolved around Mr Evans' contentions in regard to the effect of the NCA. However, they did not rest there. Shortly before the application was due to be argued in October 2010, Mr Evans delivered a further affidavit. In it he said that he had sold the sectional-title unit in Umhlanga for an amount of R1 400 000, which was significantly more H than the value of R600 000 attributed to it by FNB. His conveyancers were attending to the transfer, but this required co-operation from FNB, in view of its sectional mortgage bond over the property. Some issues had arisen in regard to FNB's guarantee requirements before they would consent to the cancellation of the mortgage bond.

I [9] This further affidavit brought forth a brief supplementary affidavit from FNB, in which it contended that the issues raised therein were irrelevant to the application. However, when the application came before the court on 15 October 2010 it was adjourned for further hearing on 11 February 2011. That delay enabled Mr Evans to file a further supplementary opposing affidavit on 17 January 2011. That affidavit J disclosed the following further information. Firstly, the judgment

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granted against Mr Evans had been rescinded by consent. Secondly, the A amount owing to FNB under the loan agreement had been fully discharged on 3 December 2010, after Mr Evans had brought an urgent application against FNB to compel it to cancel its bond, so as to enable the transfer to take place. A consent order had been granted in those proceedings on 19 November 2010. Thirdly, the amount paid to FNB B from the proceeds of the sale was R1 260 208,64, which was significantly more than was outstanding under the loan agreement. The difference was credited to the loan agreement secured by the two mortgage bonds. There is apparently some dispute between the parties as to the allocation of the surplus. Mr Evans says that an amount of R328 133,60 ought to have been credited to the two mortgage bonds, and that only C R122 529,62 has been credited. FNB has not responded to this.

[10] According to FNB, Mr Evans' indebtedness to it on 6 January 2011 amounted to R1 922 914,06. According to Mr Evans, if he is given proper credit for the balance of the proceeds from the sale of the sectional title unit, and certain debits to the account are reversed, his D indebtedness on that date was slightly more than R1 600 000. On that basis he calculates the current interest accruing on the two bonds as a little less than R12 000 per month, whilst the instalments provided for in the debt-rearrangement plan were some R15 500 per month. On FNB's figures the monthly repayments should be around R16 500 per month. E However, if Mr Evans were to take the full amount that he had been paying under the debt-rearrangement plan in discharge of both this indebtedness and the indebtedness under the loan agreement, he would have some R20 000 available to pay off the two bonds. This would cover the interest and repay the capital in less than the 16 years that would remain if the bonds were to run for the original term of 20 years. The F bank did not seek to challenge those figures.

[11] Against that background FNB continues to seek a provisional sequestration order, although counsel confined his argument to the contention that Mr Evans had committed the act of insolvency referred to in s 8(g) of the Insolvency Act. Mr Evans resisted the application on G three grounds. First, he contended that the letter of 17 April 2009 is not a s 8(g) notice. Second, he contended that the provisions of the NCA bar this application. Third, he contended that the court should exercise its discretion to refuse a provisional sequestration order.

[12] The act of insolvency contained in s 8(g) of the Insolvency Act H 24 of 1936 is committed if a debtor gives a notice in writing to any one of his creditors, that he is unable to pay any of his debts. The letter relied on by FNB as constituting this act of insolvency is that of 17 April 2009 addressed to FNB Commercial Loans by Mr...