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IN THE HIGH COURT OF SOUTH AFRICA (EASTERN CAPE DIVISION, GRAHAMSTOWN)

Case no. 3532/13 Dates heard: 22-23/6/15; 29/9/15

Date delivered: 28/1/15 Not reportable

In the matter between: Jacobus Marthinus Abraham Louw NO First plaintiff Punithan Quentin Naidoo NO Second plaintiff and Sobabini CC First defendant Charles Joseph Linus Hobson Second defendant Andre Julian Meiring NO Third defendant Dale Meiring NO Fourth defendant Jeffery John Every NO Fifth defendant Donald George Duke Jackson Sixth defendant E and O Ranches (Pty) Ltd Seventh defendant John Buhr Eighth defendant Ken S McEwan Ninth defendant

JUDGMENT

PLASKET, J

[1] The plaintiffs are the trustees of the insolvent estate of the Greenacres Trust

(the trust) which was placed under a provisional sequestration order on 29

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September 2011 and a final sequestration order on 17 November 2011. They

instituted an action against nine defendants for the return of 398 head of livestock

and, in relation to the sixth defendant, for the return of certain movable farming

equipment as well.

[2] The action is based on ss 29, 30 and 31 of the Insolvency Act 24 of 1936: the

plaintiffs allege that the delivery of the livestock and equipment by the trust to the

defendants constituted voidable dispositions in terms of s 29, undue preferences in

terms of s 30 and collusive dealings in terms of s 31. They sought the setting aside

of these dispositions and related relief.

[3] Eight of the nine defendants settled the claims against them. The settlement

agreement was made an order by me at the commencement of the trial. The sixth

defendant, Mr DGD Jackson (Jackson), did not settle and opposed the plaintiffs’

claims against him.

[4] The trustees of the trust prior to its sequestration were Mr Alistair Winfield and

his wife, Ms Jenny Winfield. The trust conducted business as a producer of milk and

livestock.

The pleadings

[5] At various times between 2002 and 2010, the defendants entered into

agreements to lease dairy cattle to the trust. Although the terms of the leases varied

to an extent, typically they included terms to the effect that the trust was entitled to

the progeny of the leased cattle, that, in the event of the loss, death or redundancy of

a leased animal, the trust was to substitute it with an animal of similar stature, breed,

age and value and that upon the termination of a lease the trust was to return to the

owner livestock of similar breed, age, condition and state of pregnancy as those

originally leased.

[6] The particulars of claim allege that at all material times the trust was in

possession of livestock that was the subject of leases with the defendants and the

progeny of that livestock, and that the trust failed to ‘adequately mark so as to

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identify the owners of the livestock and/or keep separate the livestock belonging to

each of the Defendants from that of the Trust and the livestock belonging to the

various Defendants and the Trust were indistinguishable from each other’.

[7] The crux of the plaintiffs’ case is that on or about 25 August 2011, at a time

when the trust’s liabilities exceeded the value of its assets, a number of the

defendants, with the knowledge of the other defendants, resolved and colluded with

Winfield to take possession of all of the cattle on the trust’s farm and to ‘divide and

distribute the cattle in the possession of the Trust between them as they saw fit’. This

agreement was given effect to, it was alleged, on 7 September 2011. The particulars

of claim continue to say: ‘The appropriation and distribution by the Defendants of the livestock was not an

appropriation and distribution of the livestock owned by the Defendants but included

livestock owned by the Trust in that none of the livestock appropriated and distributed was

identified, or capable of being identified as the livestock leased by the various Defendants to

the Trust.’

[8] The plaintiffs alleged that when the distribution occurred the defendants knew

that the trust was indebted to the Humansdorp Co-operative (the co-operative) in the

amount of R1.3 million; that the trust was insolvent; that the co-operative held a

statutory pledge over all of the trust’s livestock and a special notarial bond in the

amount of R1 050 000 over 150 dairy cows owned by the trust; that the defendants

were aware that proceedings for the sequestration of the trust were imminent; and

that the livestock in the possession of the trust included livestock ‘which was the

progeny of livestock leased from Defendants and was owned by the Trust’.

[9] Jackson entered into an agreement to lease livestock to the trust in 2009. In

terms of this agreement, he leased 244 head of cattle to the trust. It is not in dispute

that a total of 163 head of cattle were allocated to him on 7 September 2011 when

the distribution of the cattle took place. In addition, it is common cause that on 31

August 2011, Jackson and the trust concluded an agreement in terms of which the

trust disposed of various pieces of farming equipment to Jackson in part payment of

the trust’s indebtedness to him.

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[10] The appropriation of the livestock and the disposal of the equipment to

Jackson had the effect, so the plaintiffs alleged, of preferring the defendants as

creditors of the trust over other creditors; was done with the intention of preferring

them over other creditors; was consequent upon collusion between the trust and the

defendants; and were not transfers in the ordinary course of business.

[11] The claim against Jackson is for orders: (a) declaring that the disposal of the

cattle to him is a voidable disposition, alternatively an undue preference, a collusive

dealing and a voidable transfer; (b) declaring any claim Jackson may have against

the trust forfeit; (c) directing him to return the cattle or pay their value; and (d)

directing him to pay the value of the cattle as a penalty in terms of s 31(2) of the

Insolvency Act. Similar relief is claimed in respect of the equipment. The usual costs

order is sought.

[12] Essentially, Jackson’s defence is that as the trust owned no cattle itself and

was not entitled to the progeny of his herd, the cattle that he took on 7 September

2011 were his cattle. In respect of the equipment, he pleaded that as the trust had no

livestock when the lease was concluded, a special notarial bond was passed over

movable property owned by the trust as security for any future indebtedness. When,

on 31 August 2011, the trust owed him in excess of R310 000 as a result of not

being able to meet its obligations in terms of the lease he, with the consent of the

trust, took possession of the equipment, as he was entitled to do.

Jackson’s lease

[13] Jackson first entered into a lease of cattle with Winfield in his personal

capacity in 2005. That lease was replaced with a lease of cattle to the trust that

commenced on 1 July 2009. It was terminated on or about 25 August 2011.

[14] Effectively, the 2009 lease replaced Winfield with the trust as the lessee of

what were described as an initial herd and a supplementary herd of dairy cattle, as

contemplated in the 2005 lease. In clause 7.2, Winfield acknowledged being in

possession of the herd. Clause 7.3 stated:

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‘ALISTAIR and the TRUST undertake to tag the left ear of the cattle forming part of the

HERD with such tag and such additional identification markings as DONALD may

reasonably prescribe from time to time.’ Clause 7.4 provided that ownership of the cattle remained with Jackson.

[15] Clause 13 provided for the provision of security for the trust’s obligations to

Jackson in terms of a bond over ‘the movable property reflected in Schedule 2’ to the

agreement.

[16] Clause 14 dealt with the augmentation of the herd and the identification of

animals. It provided: 14.1 If and to the extent that any of the dairy cows comprising the HERD or SECURITY dies,

is considered or becomes unsuitable for dairy stock, the TRUST shall augment the HERD or

SECURITY by substituting such animal with a pregnant heifer of a similar race. To the

extent that the suitable animal did not die, the TRUST shall, against augmentation, be

entitled to dispose of the animal for the benefit, profit or loss of the TRUST.

14.2 The TRUST shall be obliged to ensure that:

(a) the HERD and SECURITY shall at all times remain clearly marked and identifiable as

being the property of DONALD, by tagging or branding the HERD or SECURITY in

accordance with such means or methods as DONALD may reasonably prescribe from time

to time;

(b) a comprehensive record is kept of all cattle comprising the HERD and SECURITY and

such record is regularly updated to reflect all changes (“the RECORD”);

(c) the RECORD is available for inspection or the making of copies by DONALD at all

reasonable times;

(d) the TRUST provides DONALD with an updated written copy of the RECORD at six

monthly intervals following the EFFECTIVE DATE.’

[17] The termination of the agreement is dealt with in clause 16. Clause 16.1

provided that, on termination, the trust was to return the herd to Jackson ‘augmented

where necessary in compliance with the provisions of Paragraph [14]’.1

The evidence

1 The agreement refers erroneously to clause 12. As that clause concerned interest and clause 14 concerned augmentation, clause 16 should obviously refer to clause 14.

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[18] Winfield testified about the decline of the trust, the disposal of the livestock in

its possession and the disposal of the equipment. Jackson also testified.

The cattle

[19] The story commences in October 2008 when Winfield’s partnership with one

Mukheiber came to an end after a falling-out between them. Winfield left the farm

with about 600 head of dairy cattle. Of these, about 500 were leased animals and

about 100 belonged to him.

[20] He moved the cattle to the farm Dieprivier in the Humansdorp district where

his farming operations continued until the sequestration of the trust. Throughout the

split with Mukheiber and the move to Dieprivier, Winfield kept the lessors of the 500

head of cattle fully informed.

[21] Farming operations on Dieprivier did not run smoothly for various reasons.

When faced with a drought in 2010, Winfield, with the consent of the lessors,

reduced the size of the trust’s herd in order to try to survive the drought. The trust

was not able to pay the rental for leased animals and the lessors agreed to give him

a ‘rental holiday’. While most agreed to write-off unpaid rental, two, including

Jackson, insisted that the trust would remain liable for arrear rental. The effect of the

reduction in numbers was that the trust had less animals in its possession than it had

leased. Winfield stated that Jackson was aware of this.

[22] Winfield decided that, given various adverse circumstances, including the

location of Dieprivier, dairy farming was not viable. He wanted instead to terminate

the leases and change his farming operation to the raising of heifers for other

farmers. He spoke to the lessees about this option in July or August 2011.

[23] At this stage, the financial position of the trust was, as Winfield described it,

dire. It was not able to pay what it owed its creditors and it was not able to restore

cattle to the lessors. It was, in fact, insolvent and the lessors were aware of this.

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[24] It was in this context that at least two meetings and various exchanges of

correspondence occurred involving Winfield and the lessors. At a meeting attended

by Winfield and four of the lessors, including Jackson, on 25 August 2011 the idea

was mooted of selling all of the cattle in the possession of the trust by auction. The

minutes of this meeting record that once Jackson had taken advice on the

consequences of the trust’s security in favour of the co-operative, preparations could

commence for the auction which could then take place in October 2011. The minutes

also record that ‘Alistair in NOT selling the cows’ but that the ‘group’ – made up of

the lessors – ‘is selling the cows’ and that the ‘surplus of the last milk cheque’ would

be ‘split pro rata amongst the shareholders’.

[25] Winfield explained the thinking behind the idea of selling the animals as

follows: ‘Well the auction was meant to pool the animals, get them into good condition round about

October which gave me time, a chance to tie up with my milk buyer and make sure I can still

pay my leases and the farm and all the rest of it, so it then revert back to raising heifers, and

then in October we would have had an auction and then the cow owners would have split

that, the proceeds of that auction.’

[26] As it happened, the idea of an auction was abandoned in favour of the herd

on Dieprivier being split between the various lessors. On 31 August 2011, Jackson

proposed that the lessors ‘meet on the farm on Wednesday the 7th September and

do the split’. It appears that this suggestion was accepted by the lessors. On 6

September 2011, every dairy animal on Dieprivier was driven onto a neighbouring

farm by Winfield. On the following day, the cattle were split in terms of a method

agreed to by the lessors.

[27] On 6 September 2011, Jackson came to Dieprivier. According to Winfield, he

wanted to count the number of cattle on the farm for the purposes of the allocation

that was to take place the following day. A total of 149 cows were counted. Jackson

denied that this was the purpose. His evidence was that the exercise identified his

animals but he ‘put them in the pot’ for allocation among the lessors, even though he

could have taken them all.

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[28] A total of 598 heifers had been leased to the trust by all of the lessors. A total

of 398 animals were available for allocation among them on 7 September 2011.

They comprised of cows, steam-up cows (cows about to calve), dry cows/heifers,

bigger heifers, small heifers, smallest heifers and ‘hokke/yard’ (calves from one day

old to three months old.

[29] Jackson had leased 244 heifers to the trust and this represented 41 percent of

the total number of animals leased to the trust by all of the lessors. In terms of the

agreement between the lessors, he was allocated 163 animals made up of 55 cows,

11 steam-up cows, 26 dry cows or heifers, 25 bigger heifers, 12 small heifers, 16

smallest heifers and 18 calves.

[30] Jackson’s evidence accords largely with that of Winfield as to the sequence of

events that led to the allocation of the cattle. He differed, however, in two significant

respects: first, he testified that as the trust did not own any cattle, all of the cattle on

the property were owned by the lessors; and secondly, he testified that on 6

September 2011, Winfield identified 149 head of cattle as being Jackson’s cattle.

[31] Winfield’s evidence as to the trust’s ownership of cattle was that when his

partnership with Mukheiber ended, he left with about 500 head of cattle that were

leased and about 100 head of cattle that belonged to him. When he put up cattle as

security in favour of the co-operative in 2008, the trust owned cattle. It did not own

sufficient cows so he put up 150 heifers as security. They belonged to the trust: he

described them as ‘my livestock’.

[32] He disputed that all of the livestock on Dieprivier belonged to the lessors. As

most of the leases expressly provided that the progeny of leased cattle belonged to

the trust, it had a steady supply of new stock. Winfield was therefore able to testify

that on 7 September 2011, the herd consisted of milking cows, dry cows, heifers and

calves, and that the heifers fell into the category of animals that did not belong to the

lessors. So too, obviously, would the calves.

[33] Winfield testified that he had driven ‘all the cows, all the dry cows, all the dairy

cows’ onto his neighbour’s farm and was then instructed to drive the rest of the

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livestock there as well. (Jackson’s evidence was that all of the livestock was driven

there together, but nothing turns of this dispute.) Winfield was asked whether among

these animals there were animals that belonged to the trust. With reference to the

heifers in particular, he answered in the affirmative.

[34] In my view, it is more probable than not that the trust owned a large number of

the animals that were distributed among the lessors on 7 September 2011. First, tag

numbers indicated that some of the 150 heifers put up in 2009 as security in favour

of the co-operative were among the animals distributed to the lessors. Secondly, the

trust owned the progeny of the cattle leased from all of the lessors. Jackson asserted

that because his lease with the trust was silent on this aspect, the trust did not own

the progeny of his herd but he did. In my view, he is not correct in his view. It seems

to me that the essence of a lease such as this is that the lessee obtains the milk and

the progeny produced by the leased animals. In the absence of an express term, the

trust’s ownership of the progeny was, in my view, a tacit term of the agreement of

lease between the trust and Jackson. It is noteworthy that Jackson never sought the

delivery of the progeny of his herd, never enquired about them and never required

them to be identified. Jackson never sought payment for the expense of raising

them. These are strong indications that the parties considered the lease to include a

tacit term to the effect that the progeny of the leased cattle became the property of

the trust.

[35] Thirdly, augmentation of the lessors’ herds had not taken place at all, so the

progeny would have remained the property of the trust, while the lessors’ herds

diminished. Fourthly, as there were no records kept, there was no way of knowing

that ownership may have passed from the trust to a particular lessor even if there

had been an augmentation. This also meant that there was simply no way of

knowing who owned which animals. This problem was highlighted in the evidence of

Jackson. When he claimed that 149 animals were identified as belonging to him on 6

September 2011, there were only four that could be connected to the herd identified

in his lease with the trust.

[36] It was Jackson’s evidence that on 6 September 2011, he went to Dieprivier

and Winfield identified 149 cows as belonging to him. Winfield’s evidence was that

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this was simply a stock count for purposes of the distribution that was to take place

the next day.

[37] In my view, for the reasons that follow, Winfield’s version is more probable

than that of Jackson. First, I can see no logical reason why Jackson would want to

identify his cattle when he had already agreed with the other lessors on a pooling of

all of the cattle in the possession of the trust and a pro rata distribution of them

among the lessors. His attempts to justify this did not make any sense.

[38] Secondly, it was only possible to connect four animals to the herd identified in

his lease and any of his animals that had died, been lost or become redundant – as

well as those that were sold in 2010 – had never been replaced. Jackson conceded

that because of the chaotic state of the trust’s affairs, Winfield never augmented the

lessors’ herds as animals became redundant.

[39] Thirdly, Jackson conceded that his animals were ‘probably not identifiable’.

He acknowledged too that Winfield ‘didn’t know what was going on, he didn’t know

what numbers were what’ and he had ‘no concept of what his records were and

whose cow was whose’. In other words, it would have been impossible to identify his

cattle.

[40] Fourthly, the animals that were allocated on 7 September 2011 were allocated

on the basis of the agreement between the lessors and his allocation differed

substantially from the animals that he said were identified as his on the previous day.

He was not allocated these 149 animals augmented by a further 14, as he

suggested. Rather, he was allocated only 55 cows in milk as well as dry cows,

steam-up cows, bigger heifers, small heifers, smallest heifers and calves.

[41] Fifthly, Jackson testified that all of the 149 animals supposedly identified as

his were all of the animals on the farm that were being milked. That is highly unlikely.

[42] My conclusion is that Jackson’s defence that he was the owner of the animals

that he took on 7 September 2011 has no merit and must fail. I shall deal in due

course with the consequences of this finding.

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The equipment

[43] When the trust and Jackson entered into the lease in 2009, Jackson required

the trust to provide security (just as he had required Winfield to provide security in

the 2005 lease). To this end, clause 3.1 made it a suspensive condition that the trust

enter into and register a special notarial bond in favour of Jackson in accordance

with clause 13. That clause provided: ‘As security for the obligations owing by the TRUST to DONALD in terms of this Agreement,

the TRUST agrees to register the BOND, securing all obligations owing by the TRUST to

DONALD in terms of this Agreement, over the movable property reflected in Schedule 2

(“the SECURITY”) on the terms and conditions reflected in Schedule 3.’

[44] Schedule 2 identified the security as being three tractors, a planter, a fertilizer

spreader and a trailer.

[45] Schedule 3 is the special notarial bond. In clause 1, the trust acknowledged

an indebtedness to Jackson of R2.1 million and R420 000 but the security was also

intended to cover ‘existing, future and contingent indebtedness’.

[46] The special notarial bond is one contemplated by the Security by Means of

Movable Property Act 57 of 1993. Section 1(1) of the Act provides: ‘If a notarial bond hypothecating corporeal movable property specified and described in the

bond in a manner which renders it readily recognizable, is registered after the

commencement of this Act in accordance with the Deeds Registries Act, 1937 (Act 47 of

1937), such property shall-

(a) subject to any encumbrance resting upon it on the date of registration of the

bond; and

(b) notwithstanding the fact that it has not been delivered to the mortgagee,

be deemed to have been pledged to the mortgagee as effectually as if it had expressly been

pledged and delivered to the mortgagee.’

[47] Clause 10 of the special notarial bond provided for Jackson’s rights in the

event of a default on the part of the trust. It provided:

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‘Upon the happening of an event of default referred to in [9] above, the MORTGAGEE shall,

without prejudice to any other right which it has in terms hereof or at law, be entitled –

10.1 Notwithstanding the terms and conditions of any indebtedness of the MORTGAGOR to

the MORTGAGEE arising before, simultaneously with or after the execution of this bond to

declare the full amount of the MORTGAGOR’s indebtedness to the MORTGAGEE from the

DEBT or whatever cause arising to be due and payable forthwith and to claim and recover

the same from the MORTGAGOR forthwith on demand;

10.2 To have the ASSETS excussed and/or attached by legal process;

10.3 To execute upon all or any of the ASSETS;

10.4 To employ such other remedies and to take such other steps against the

MORTGAGOR as are allowed by law.’

[48] Clause 14 deals with proof of indebtedness. It allows for such proof, in respect

of any indebtedness secured by the bond and the fact that it is due and payable, by

way of a certificate signed by ‘any director of the MORTGAGEE’. That certificate

would be ‘prima facie proof of the facts therein stated and shall constitute sufficient

evidence thereof unless and until contrary facts are proved by the MORTGAGOR’.

[49] On 31 August 2011, Jackson and Winfield signed a document, prepared by

Jackson, entitled ‘Voluntary Surrender’. In terms of this document, the trust and

Winfield acknowledged, in clause 1, an indebtedness to Jackson ‘for various

amounts in respect of, inter alia, rental owing in terms of written agreements of

lease’. Clause 2 recorded that a special notarial bond had been entered into by the

trust and it listed the property that served as security. Clauses 3 and 4 then provided: ‘3. We have fallen in default in the payment of the debt.

JACKSON, by virtue of the Bond, is entitled to take all or some of the movable assets

encumbered by the Notarial Bond into pledge.

4. JACKSON has agreed that in the event of the DEBT not being repaid by the due date

then the value of the items listed above, being agreed on as being R310 000, will be

deducted from the CAPITAL value of the herd outstanding.

Ownership of all items will pass to JACKSON.’

[50] The document ended with a statement to the effect that the trust and Winfield

‘hereby voluntarily deliver to JACKSON the assets to be held in pledge as security

for the payment of the DEBT’.

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[51] Soon after 31 August 2011, Jackson took possession of the tractors, planter,

fertilizer spreader and trailer, and removed them from the trust’s property. He has

sold some of the equipment and retains the rest.

[52] When Winfield was asked why he had made this arrangement with Jackson,

he stated that he had felt indebted to Jackson and Jackson ‘happened to come

forward with this proposal’ while none of the other lessors had done so.

[53] For his part, Jackson was not able to explain the debts of R2.1 million and of

R420 000 that are mentioned in the special notarial bond save to say that he thought

that these figures must have represented the value of the herd that he had leased to

the trust. Similarly, when he was asked about the extent of the trust’s indebtedness

to him on 31 August 2011, he was unable to quantify it.

[54] In his evidence in chief, Jackson explained his reasons for taking the

equipment as follows: M’Lord if you noticed the date of this document is the 31st of August, which was after the

meeting of the 25th of August when Mr Winfield informed us that he no longer wished to

continue with dairy hence the herd owners’ decision to deal with their cattle, and I had to

make a call as far as my movables were concerned in order to minimise my damages, so in

terms of the notarial bond which I held over these listed movables I notified Mr Winfield that I

wish to remove them and this document was drawn up, signed by Mr Winfield and the

movables were subsequently removed with Mr Winfield’s assistance.’

[55] When Jackson was cross-examined on whether he had submitted a claim

against the trust, his answer was that he had not but, he said, ‘I chose not to submit

a claim by agreement with Mr Winfield, he said take the stuff to be deducted off the

money the Greenacres Trust owes you, which is what we did’.

[56] In circumstances like these in which a creditor holds security in the form of

movables, on the insolvency of the debtor, s 83 of the Act provides for a procedure

for the creditor to follow. That involves the giving of notice to the Master and the

trustee; the handing over of the property to the trustee or its realisation in defined

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circumstances and the paying of the proceeds of the sale of the property to the

trustee; and thereafter, the lodging of a claim against the insolvent estate.

[57] In this instance, s 83 was not complied with at all. In Venter NO v Avfin (Pty)

Ltd,2 a case with strikingly similar facts to the present case, the creditor having failed

to give notice of its security and having sold the security, argued that it was not

obliged to pay the amount realised to the trustee because s 83 had not been

complied with and thus had no application. Scott AJA dealt with this argument as

follows:3 ‘The interpretation, I think, becomes all the more unlikely when the phrase is considered in

the broader context of the Act. The trustee is the person burdened with the task of

administering and winding up the insolvent estate. In terms of s 20 of the Act the effect of

insolvency is to divest the insolvent of his estate and to vest it in the trustee upon the latter's

appointment. The trustee, in turn, is required in terms of s 69 of the Act to take into his

possession or under his control all movable property, books and documents belonging to the

insolvent. At common law a creditor who held movable property as security for his claim

could not realise it himself. He had to deliver it to the trustee who had the right to administer

it subject to the preference of the creditor in relation to the proceeds derived from its

realisation (see National Bank of South Africa Ltd v Cohen's Trustee 1911 AD 235 at 250).

Section 83, however, permits a creditor who holds movable property as security for his

claim, subject to certain limitations, to retain possession of such property and to realise it

himself. But once the property is realised he must pay the proceeds to the trustee. The

provisions in s 83(10) requiring him to do so are consistent with the general scheme of the

Act and, to the extent that the trustee is entitled to receive such proceeds, with the common

law.

Viewed against this background it could not, I think, have been intended that a creditor by

his own non-compliance with the provisions of the Act could notionally place himself in a

more favourable position vis-à-vis the trustee and avoid his statutory obligation to pay over

the proceeds to the trustee. That the trustee may himself have failed earlier to recover the

property in terms of s 83(6) does not detract from the obvious anomaly which would result

from such a construction. Indeed, the non-compliance by the creditor may occur prior to the

second meeting of creditors.

In my view, therefore, the reference in the phrase in question to the preceding provisions

was intended to be no more than a general reference to the realisation of securities as 2 Venter NO v Avfin (Pty) Ltd 1996 (1) SA 826 (A). 3 At 833F-834B.

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contemplated in the earlier subsections of s 83. It was not intended to import into s 83(10) a

requirement of compliance with those subsections as a precondition to the obligation of the

creditor to pay over the proceeds of his security to the trustee.’

[58] The effect of s 1(1) of the Security by Means of Movable Property Act and the

special notarial bond was that the equipment mentioned in the special notarial bond

was pledged to Jackson. The ‘voluntary surrender’ recorded Jackson’s entitlement to

‘take all or some of the movable assets encumbered by the Notarial Bond into

pledge’. It then stated, however, that the value of the equipment would be deducted

from the value of Jackson’s herd and that ownership of the equipment would pass to

Jackson.

[59] Jackson’s case was that he was simply acting in accordance with his rights

under the special notarial bond when he assumed ownership of the equipment. In

this he was incorrect. He was entitled to attach the equipment and then, on the

trust’s insolvency, to deal with it and to claim in terms of s 83 of the Act. In truth, the

‘voluntary surrender’ had nothing to do with the special notarial bond, even though it

referred to it: the ‘voluntary surrender’ recorded the terms of a scantly disguised sale

and set-off. The trust sold the equipment to Jackson for R310 000 which was set off

against the amounts the trust owed him.

Conclusion

[60] Section 2 of the Insolvency Act defines a disposition as ‘any transfer or

abandonment of rights to property and includes a sale, lease, mortgage, pledge,

delivery, payment, release, compromise, donation or any contract therefor, but does

not include a disposition in compliance with an order of the court’. It also defines the

word ‘property’ to mean both movable and immovable property situate within the

country and it includes ‘contingent interests in property’.

[61] Section 29 of the Act concerns voidable preferences. Section 29(1) provides: ‘Every disposition of his property made by a debtor not more than six months before the

sequestration of his estate or, if he is deceased and his estate is insolvent, before his death,

which has had the effect of preferring one of his creditors above another, may be set aside

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by the Court if immediately after the making of such disposition the liabilities of the debtor

exceeded the value of his assets, unless the person in whose favour the disposition was

made proves that the disposition was made in the ordinary course of business and that it

was not intended thereby to prefer one creditor above another.’

[62] Section 30 deals with undue preferences. Section 30(1) provides:

‘If a debtor made a disposition of his property at a time when his liabilities exceeded

his assets, with the intention of preferring one of his creditors above another, and his

estate is thereafter sequestrated, the court may set aside the disposition.’

[63] Section 31 is concerned with collusive dealing. It provides: ‘(1) After the sequestration of a debtor's estate the court may set aside any transaction

entered into by the debtor before the sequestration, whereby he, in collusion with another

person, disposed of property belonging to him in a manner which had the effect of

prejudicing his creditors or of preferring one of his creditors above another.

(2) Any person who was a party to such collusive disposition shall be liable to make good

any loss thereby caused to the insolvent estate in question and shall pay for the benefit of

the estate, by way of penalty, such sum as the court may adjudge, not exceeding the

amount by which he would have benefited by such dealing if it had not been set aside; and if

he is a creditor he shall also forfeit his claim against the estate.

(3) Such compensation and penalty may be recovered in any action to set aside the

transaction in question.’

[64] Section 32(1) empowers the trustee of an insolvent estate to institute

proceedings to ‘set aside any disposition of property under section 26, 29, 30 or 31,

or for the recovery of compensation or a penalty under section 31’. In terms of s

32(3), a court that sets aside a disposition under ss 29, 30 or 31 ‘shall declare the

trustee entitled to recover any property alienated under the said disposition or in

default of such property the value thereof at the date of the disposition or at the date

on which the disposition is set aside, whichever is the higher’.

[65] I turn now to whether the requirements of ss 29, 30 and 31 have been

established, commencing with s 29.

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[66] I have found that the cattle that Jackson took were not his but, for the most

part, the property of the trust. They were disposed of by the trust to Jackson.4 It was

common cause that the equipment belonged to the trust and was given to Jackson

by the trust. Dispositions have been proved in respect of both the cattle and the

equipment. Those dispositions were in favour of Jackson, a creditor of the trust.5 The

disposition of the equipment occurred on 31 August 2011 and the disposition of the

cattle occurred on 7 September 2011. The trust was provisionally sequestrated on

29 September 2011 and finally sequestrated on 17 November 2011. It has thus been

established that the dispositions occurred within six months of the trust’s

sequestration.

[67] In Klerk NO v Kaye6 Scott AJ held that when deciding whether a disposition

had the effect of preferring one creditor over others, the ‘true enquiry’ is whether the

disposition involved one creditor ‘being paid proportionately more than the other

creditors or being paid in advance of the others’. The effect of the disposition of the

cattle was to prefer Jackson and the other lessors over the rest of the trust’s

creditors, particularly the co-operative, in both of these senses. The effect of the

disposition of the equipment was to prefer Jackson over the trust’s other creditors

including the other lessors and the co-operative, also in both sense referred to by

Scott AJ: in Jackson’s own words, he ‘had to make a call as far as my movables

were concerned in order to minimise my damages’ and he ‘chose not to submit a

claim’ but instead to take the equipment, with its value to be deducted from what was

owed by the trust.

[68] Jackson took an active interest in the financial position of the trust. He had

done so since about April 2011 at least. He was aware at all material times – on 31

August 2011 and on 7 September 2011 – that the trust did not have the cattle to

return to the lessees when the leases ended. He knew that the shortfall was

substantial. He also knew that Jackson was unable to pay rental to the lessors,

himself included, and that it owed them all money that it could not pay. Once all of

4 The facts of this case are similar to those of Meyer NO v Transvaalse Lewendehawe Koȍperasie Bpk & andere 1982 (4) SA 746 (A). 5 See generally, Ensor NO v Nedbank Ltd 1978 (3) SA 110 (D). 6 Klerck NO v Kaye 1989 (3) SA 669 (C) at 675E. See too Simon NO & others v Coetzee [2007] 2 All SA 110 (T), para 20.

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the cattle on the trust’s farm had been taken by the lessors, its source of income no

longer existed. Jackson also knew, before 31 August 2011, that the trust owed

money to the co-operative and that it held security for the debt owed to it. On 6

September 2011, he knew that the amount owed was in the region of R1.3 million.

He was aware that the co-operative was contemplating bringing an application for

the sequestration of the trust. All of these facts establish objectively7 on a balance of

probabilities8 that the trust’s liabilities exceeded the value of its assets both before

the dispositions and immediately after the dispositions were made.

[69] It was Jackson’s case that he was entitled to take both the cattle and the

equipment. It was not pleaded by him, and consequently was also not proved by

him, that the dispositions of the cattle and the equipment were made in the ordinary

course of business and that they were not made with the intention of preferring him

over other creditors. Indeed, the facts viewed holistically compel one to the

conclusion that the dispositions occurred precisely because of the insolvent

circumstances of the trust.

[70] The requirements of s 29 have thus been established by the plaintiffs.

[71] I now proceed to consider whether the plaintiffs have established the

requirements of s 30. For the reasons stated in relation to s 29, I accept that the

plaintiffs have established the dispositions that they rely on; that, at the time the

dispositions were made, the trust’s liabilities exceeded its assets; that the

dispositions were made to Jackson with the intention of preferring him over other

creditors, particularly the co-operative; and that the trust was sequestrated

thereafter. It is pointed out by Bertelsmann et al that when these requirements have

been established, judgment in favour of the trustees must follow because ‘there are

no defences available to the person benefitted by the disposition’.9

[72] I turn now to s 31. Once again, I accept that the plaintiffs have established, for

the reasons stated in relation to s 29, the dispositions of the trust’s property in favour

7 Venter v Volkskas Ltd 1975 (3) SA 175 (T) at 178H-179A. 8 Lipschitz & another NNO v Landmark Consolidated (Pty) Ltd 1979 (2) SA 482 (W) at 494D. 9 Bertelsmann et al Mars: the Law of Insolvency in South Africa (9 ed), para 13.21.

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of Jackson and that the dispositions had the effect of preferring Jackson over other

creditors, particularly the co-operative. That the dispositions had the effect of

prejudicing the trust’s creditors is self-evident.

[73] I turn now to the central question of whether the dispositions were made by

Winfield in collusion with Jackson. In Finn’s Trustees v Prior10 Kotze AJP defined

collusion as ‘a conniving together between two persons . . . to practise a fraud on the

creditors’. It was argued in Gert de Jager (Edms) Bpk v Jones NO & McHardy NO11

that, in order to establish collusion, a person had to prove that the intention of the

parties to collusion was to defraud the insolvent estate. This argument was rejected

by Rumpff JA who held that ‘as die partye tot die samespanning weet dat die

skuldenaar insolvent is en ook weet dat die vervreemding die gevolg sal hê wat in

art. 31(1) genoem word, dan volg dit dat die samespanning bedrieglik is ten opsigte

van die skuldeisers in die sin dat die oogmerk daarvan is om hulle tekort te doen’.12

[74] It is clear that Winfield colluded with the lessors, including Jackson, in relation

to the disposition of the cattle and with Jackson in relation to the disposition of the

equipment: he co-operated fully with the lessors who had decided to take all of the

cattle in the possession of the trust and divide them among themselves, he agreed to

this arrangement and helped to facilitate it; he agreed with Jackson to transfer

ownership of the equipment in return for a set-off of its value against whatever the

trust owed Jackson, and he then delivered the equipment to Jackson. I have found

already that both Winfield and Jackson knew that the trust was insolvent and that

their conduct had the effect of preferring Jackson over other creditors of the trust and

of prejudicing those other creditors. It follows therefore that their intention was to do

those other creditors out of their rights and that they acted fraudulently in this sense.

The requirements of s 31(1) have been established.

[75] Having found that Jackson had engaged in collusive dealing with the trust, s

31(2) of the Act becomes of application. It provides that a party to a collusive

10 Finn’s Trustees v Prior 1919 EDL 133 at 137. 11 Gert de Jager (Edms) Bpk v Jones NO & McHardy NO 1964 (3) SA 325 (A). 12 At 330H-331A. (‘. . .if the parties to the collusion know that the debtor is insolvent and also know that the disposition will have the effect specified in s 31(1) then it follows that the collusion is fraudulent in relation to creditors in the sense that the object thereof is to do them out of their rights’.)

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disposition ‘shall be liable to make good any loss thereby caused to the insolvent

estate in question and shall pay for the benefit of the estate, by way of penalty, such

sum as the court may adjudge, not exceeding the amount by which he would have

benefited by such dealing if it had not been set aside; and if he is a creditor he shall

also forfeit his claim against the estate’.

[76] First, on the setting aside of the dispositions, s 31(2) envisages Jackson

having to make good any loss occasioned to the trust by his actions. In this matter,

that is simple enough. I shall order him to return the cattle and equipment that he

took or pay their value.

[77] Secondly, s 31(2) makes provision for a penalty to be imposed on the person

guilty of collusive dealing. The use of the word ‘shall’ in this respect, followed close

on the heels of the same word used in relation to making good any loss occasioned

by the collusion indicate to me that the imposition of a penalty is not discretionary.

The quantum of the penalty, however, lies within the discretion of the court but may

not exceed the value of the benefit which would have accrued to the person had the

disposition not been set aside. In my view, Jackson’s conduct was particularly

reprehensible, such was his contempt for other creditors and the law. He helped

himself to as much as he could lay his hands on. I can see nothing that mitigates his

conduct. I intend to impose a penalty equal to the value of the cattle, which has been

agreed upon, and of the equipment, which was agreed to be R310 000 between

Jackson and Winfield.

[78] Thirdly, s 31(2) makes provision for the forfeiture of the creditor’s claim

against the insolvent estate – and that means any claim which the creditor may have

against the insolvent estate. This is an automatic consequence of the finding of

collusive dealing. The court has no discretion in this regard.13 Accordingly, I shall

make an order to this effect in respect of any claim that Jackson may have had

against the insolvent estate of the trust.

The order 13 Gert de Jager (Edms) Bpk v Jones NO & McHardy NO (note 11) at 337E-F; Mahomed’s Estate v Khan 1927 EDL 478 at 488..

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[79] For the reasons set out above, I make the order that follows.

(a) The disposition of the Greenacres Trust to the sixth defendant of 55 cows, 11

steam-up heifers, 26 dry cows, 25 large heifers, 28 small heifers and 18 yard heifers

on 7 September 2011 is set aside in terms of ss 29, 30 and 31 of the Insolvency Act

24 of 1936.

(b) The disposition of the Greenacres Trust to the sixth defendant of a Holland

56304X4 tractor, a Ford 66104X4 tractor, a Duncan 15 row planter, an Aguirre twin

disc fertiliser spreader and a blue tip trailer with drop sides on 31 August 2011 is set

aside in terms of ss 29, 30 and 31 of the Insolvency Act.

(c) The sixth defendant is directed to return to the plaintiffs the livestock

described in paragraph (a) and the equipment described in paragraph (b) and, in the

event that he cannot do so or does not do so within ten days of the date of this order,

he is directed to pay to the plaintiffs the amounts of R660 000, being the value of the

livestock described in paragraph (a), and R310 000, being the value of the

equipment described in paragraph (b), together with interest on these amounts

calculated at the legal rate from date of judgment to date of payment.

(d) The sixth defendant is ordered to pay to the plaintiffs, as a penalty in terms of

s 31(2) of the Insolvency Act, the amounts of R660 000 and R310 000, together with

interest on these amounts calculated at the legal rate from date of judgment to date

of payment.

(e) The sixth defendant’s claims against the insolvent estate of the Greenacres

Trust are declared forfeit.

(f) The sixth defendant is directed to pay the plaintiffs’ costs.

______________________

C Plasket

Judge of the High Court

APPEARANCES

For the plaintiffs: D De La Harpe instructed by De Jager & Lordan Inc

For the sixth defendant: A Byleveld SC instructed by NN Dullabh & Co

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