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IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE LOCAL DIVISION, PORT ELIZABETH

CASE NO: 1858/2014

In the ex parte application of

LYNNE ANNE BEZUIDENHOUT

(For the voluntary surrender of her estate)

and

CASE NO: 1859/2014

In the ex parte application of

JAN HENDRIK PIETERSE

(For the voluntary surrender of his estate)

Date heard: 17 June, 1 August 2014

Date delivered: 19 August 2014

Insolvency – voluntary surrender – inquiry in terms of s3(3) of Insolvency Act 24 of 1936 – circumstances in which applications came to be brought considered – evidence of arrangement between attorney and sworn appraiser which undermines reliability of evidence of appraiser – relationship persisted in despite prior adverse findings of court – constituting failure of attorney in duty to court and client – applications dismissed – matter referred to Law Society, National Credit Regulator and Master of High Court for investigation.

JUDGMENT

GOOSEN, J.

[1] These two applications for voluntary surrender in terms of section 4 of the Insolvency Act 24 of 1936 came before me in the unopposed motion court on 17 June 2014. Both applicants were represented, on the papers, by P. A. Markgraaf Attorneys, a Pretoria-based firm of attorneys. I had noted a number of difficulties on the papers to which I shall refer briefly hereunder. Prior to the hearing however, Mr. de Vos who was instructed by the local correspondent attorneys, drew to my attention, for reasons which will become apparent hereunder, a recent unreported judgment in the Western Cape Division delivered by Binns-Ward J on 13 February 2014.[1] In that judgment learned judge was similarly faced with applications for voluntary surrender in which the applicants were represented by Philip Markgraaf Attorneys and in which, as in these matters, reliance was placed upon a sworn valuation of assets undertaken by a Mr. Koos Styger of Status Valuations, apparently also based in Pretoria.

[2] After considering the judgment and, after hearing counsel for the applicants in both matters regarding certain difficulties on the papers I made an order on 19 June 2014 in which I granted leave to the applicants to file such supplementary affidavits as they may be advised to file in order to address the deficiencies in the application by 18 July 2014. I thereafter postponed the application for the purposes of an examination in terms of section 3 (3) of the Insolvency Act that to be held on 1. August 2014 and I directed that the applicants, attorney Markgraaf and the valuer Styger appear in person and be examined by this court on 1. August 2014.

[3] Subsequent to the postponement of the applications attorney Markgraaf filed an affidavit, dated 10 July 2014, in which it was stated that he holds no funds in trust from his clients and that his fees and expenses would only be paid if the applications are successful and upon payment of a taxed bill of costs. For this reason he stated that he would not be able to attend the enquiry on 1 August 2014 and requested to be excused from such enquiry. He said he would answer any questions which the court may have on affidavit should it be required.

[4] I directed that attorney Markgraaf be informed that he is not excused from attending the enquiry and this was communicated to the local instructing attorney. Subsequent thereto each of the applicants filed a short supplementary affidavit to deal with some of the deficiencies noted in the applications.

[5] On 1 August 2014 both of the applicants were present at the enquiry as was attorney Markgraaf and Mr. Styger. The local correspondent attorney also formally appeared as representing the applicants together with Mr. de Vos. Mr. de Vos pointed out, however, that he held no specific instruction to appear on behalf of the applicants in the enquiry, but that he was in attendance to provide such assistance to the court as it may require.

[6] It is appropriate at this juncture to commend Mr. de Vos for the manner in which he conducted himself in relation to these applications. In the first instance his conduct in drawing to the attention of the court the judgment of Binns-Ward J was in accordance with the highest standards of ethics required of legal practitioners who appear before our courts. He acted consonant with his duty to his clients and to the court. In addition, by making himself available and appearing at the enquiry, albeit without a specific instruction to do so, he similarly acted properly and in accordance with the standards of ethics demanded of legal practitioners. The local correspondent attorney is, in similar vein, to be commended for the manner in which this matter was conduct.

[7] I turn now to the evidence as it emerged at enquiry. Each of the applicants was examined. Although the circumstances giving rise to the financial hardship that they now find themselves in differ, their evidence as to as to how these applications came to be brought did not. Mrs. Bezuidenhout explained that she had worked as a sales representative. She had, however, become unemployed and as a result found herself in significant financial difficulties. In her affidavit in the application she stated that as a result of these difficulties she had entered into several loan agreements borrowing money in order to make ends meet. At the enquiry however, she explained that it was her husband, to whom she is married out of community of property, who had entered into these credit agreements. Mrs. Bezuidenhout said that she had subsequently obtained employment and was presently working as a brand representative. She was embarrassed, she said, by her parlous financial circumstances and did not know what to do about it. It emerged in her evidence that she had on a previous occasion approached a debt counsellor and that she was, for a period, under debt review. No application had been made for a formal debt restructuring it seems. Her financial situation deteriorated but her attempts to contact the debt counsellor came to naught. As a result of this, she said, she resorted to an Internet-based search to see what she could do about her situation. This search led her to a website operated by an entity called Green Debt which promised a debt free resolution of the problem. In essence it offered sequestration by way of voluntary surrender. She made telephonic contact with a person by the name of Lorraine at the offices of Green Debt in Cape Town and after explaining her circumstances she was encouraged to fill in an application for assistance which she did. She paid a fee of R6800.00 to Green Debt and was informed that an attorney would contact her in due course.[2]

[8] A short while thereafter she was contacted by Esmeraldo Attorneys[3], a firm of attorneys based in Witbank on the East Rand. She gathered from Esmeraldo that he had access to the application which she had submitted to Green Debt because he asked her to confirm certain details in the document. The payment of fees was not discussed and she was told that an application would be made on her behalf for voluntary surrender.

[9] Mrs. Bezuidenhout was also requested by Esmeraldo to provide him with a detailed list of assets as well as information about her immovable property situated at Colchester, outside of Port Elizabeth. This she did. She thereafter received certain documents which she was required to sign before a commissioner of oaths. She was told to forward the signed documents to the address appearing on those documents, namely P. A. Markgraaf Attorneys in Pretoria. She deposed to the affidavit and sent the documents to that address. She had no contact with Markgraaf attorneys at all. No arrangement was made in respect of the payment of Markgraaf’s fees and she assumed that everything was taken care of on the basis of the amount that she had paid to Green Debt.

[10] She was next contacted by Mr. Esmeraldo who informed her that the application had been postponed by the court for the purposes of an enquiry and he requested her to sign a further affidavit. This, it seems is the supplementary affidavit referred to above.

[11] Mr. Pieterse confirmed that his application had originated in exactly the same manner. He had become indebted and was in significant financial difficulty. In his case, however, he had made no attempts to approach a debt counsellor pursuant to the provisions of the National Credit Act, Act 34 of 2005. He however had also conducted an Internet-based search and come across the same entity called Green Debt. He too spoke to Lorraine. He was required to pay a fee of R7200.00. He submitted an application form to Green Debt and was thereafter contacted by Esmeraldo Attorneys. Mr. Esmeraldo requested him to furnish him with a detailed list of his movable assets, the age of the assets and estimated values. He also supplied photographs. He at no stage had any contact with Phillip Markgraaf or with the sworn appraiser Mr. Styger.

[12] He received certain documents which he was required to sign and to return to Markgraaf Attorneys. These constituted the founding papers in his application. He was also again contacted by Mr. Esmeraldo after the postponement of the application and was required to depose to a supplementary affidavit and send that on to Markgraaf.

[13] Phillip Markgraaf was also examined at the enquiry.  He explained that his practice involves mainly insolvency work, including applications for voluntary surrender. He stated that he had been involved in a number of applications before the Western Cape High Court, this court and the Free State High Court. His primary practice area however is in Gauteng. In his affidavit dated 20 July 2014 he states that he utilises the services of Styger of Status Valuations because Styger is prepared to undertake the valuation required for such an application without insisting on immediate payment of his fees. The fee is only paid if the application is successful. That fee is then recovered from the sequestrated estate, along with Markgraaf’s own fees.

[14] He stated that he has no relationship with Green Debt and is not aware of the arrangement that exists between Green Debt and Esmeraldo Attorneys. Esmeraldo is known to him and he has an arrangement with Esmeraldo to undertake insolvency type matters referred to him by Esmeraldo.  Esmeraldo is a conveyancer and apparently his practice is solely focused on conveyancing and property related transactions.

[15] When asked why he had persisted in making use of the services of Styger, notwithstanding the seriously adverse findings made by Binns-Ward J,[4] he stated that he did not consider it to be problematic since in these matters the valuations were conducted on the basis that the immovable and movable assets of the applicants were not inspected by Styger, whereas, in the matters before Binns-Ward J the valuations had been conducted on the basis that the properties had been inspected.  This explanation is, if not disingenuous, bizarre. In the matters before Binns-Ward J it was precisely the fact that the valuations were done without inspection of the properties whilst the affidavits stated that they had been inspected that gave rise to the adverse findings.  Markgraaf’s answer seemed to suggest that as long as it was not claimed that the assets had been inspected no problem could arise.

[16] He also stated that he did not consider that the adverse findings in any way affected the veracity or reliability of Styger. When asked whether he considered it necessary to draw to the attention of either his client or the court the existence of the judgment of Binns-Ward J he said that he did not but accepted now that he ought to have done so. He conceded that he had failed in his duty to his client and the court in that regard.

[17] He was asked about the outcome of the disciplinary matter which had been referred to the Law Society of the Northern Province pursuant to the matters that came before the Western Cape Division. He said that there had been some correspondence, but that to date nothing further had transpired. He was aware however that Mr. Esmeraldo had apparently had dealings with the Law Society, but was not aware of what had transpired.

[18] Mr. Styger was also examined.  He holds no formal qualification. He is a sworn appraiser of the High Court. He insisted that the valuations presented by him were entirely reliable and he stood by them. He did so, notwithstanding the fact that in the Bezuidenhout matter the valuation of the immovable property was based upon an assessment of comparable sales where one such “comparable sale” was in respect of a property situated in an entirely different area, North End in Port Elizabeth, located approximately 50 km away from the subject property. He conceded that it was not comparable at all. He sought to suggest that the inclusion of that property in the report was a function of an error by “my lady”, presumably referring to administrative personnel in his office and that it was an error regarding the address. I found the explanation to be disingenuous. His flight to “error” mirrored the situation before Binns-Ward J where it was suggested that the “wrong” dates were inserted in the valuations done in those matters.

[19] The inclusion of the property situated in North End as a comparable sale clearly had the effect of establishing a benchmark valuation with which to justify the market valuation of the subject property.  The data of other sales in the immediate vicinity of the subject property did not support the derived value of the subject property. Notwithstanding this, Mr. Styger had deposed to an affidavit confirming the correctness and reliability of his valuation without any inspection of the property and based solely upon an assessment of unreliable comparable sale.

[20] When asked whether his contingency fee arrangement with Markgraaf did not impact upon his independence as an appraiser and constitute a potential conflict of interest in the successful outcome of the application, he claimed that he “did not even know what the purpose of the valuation was”. He knew only that he was undertaking a valuation for Markgraaf. Again, I found this explanation entirely unconvincing. Markgraaf stated that his practice was solely an insolvency practice involving, as it would, voluntary surrender applications. He stated in his evidence and in the affidavit filed by him that he makes use of the services of Styger in all these applications because Styger is prepared to operate on a contingency fee agreement. In the face of this evidence it is inconceivable that Styger would not know that a valuation undertaken on a contingency fee basis for Markgraaf involved the determination of value in a voluntary surrender application where the assessment of value would determine whether he was paid a fee or not.

[21] The dividend calculated on the basis of the valuations and after provision is made for the attorney’s fees and other administration costs was 24c/Rand and 21c/Rand respectively in these matters.  This coincides with a similar dividend calculation in the matters that came before Binns-Ward J. The target of 20c/Rand as an acceptable dividend reflective of some advantage to creditors appears to derive from the work of Joffe[5]. I cannot, on the evidence as it is before me, find as a matter of fact that the values were adjusted to ensure success in the application. There is, at best, a suspicion in this regard. What I am able to find however, in the light of the findings of the court in the Western Cape and the admitted “errors” in at least one of the valuations presented in the matters before me, that the valuations presented by Styger are wholly unreliable and little or no weight can be attached to them in these matters.

[22] Before turning to the merits of the application it is appropriate to comment on the circumstances in which these cases came to be brought and the manner in which they were conducted. The applicants in these two matters were clearly desperate people heavily burdened by debt and desperate to resolve their situation. These are precisely the sort of people for whom the machinery created by the National Credit Act exists. Their desperation led them to a web based entity which, it appears, is not a registered debt counsellor in terms of the provisions of the National Credit Act. They were made to pay a fee, R6800 in the one case and R7200 in the other, in order to “resolve” their financial difficulties. The result was an application for voluntary surrender initiated via a complex web of relationships in which dubious evidence is placed before a court in order to persuade that court to grant the relief. Provision is made in the calculation of the possible dividend payable to creditors for the payment of the attorney’s fees out of the estate. The result in effect is a further depletion of the financial resources available to creditors.

[23] Binns-Ward J saw fit to refer his judgment and the proceedings of the enquiry conducted in the matters before him to the Law Society of the Northern Province, the Director of Public Prosecutions, the National Credit Regulator and the Master of the High Court Pretoria so that those parties might investigate the conduct of the professionals involved. I do not know what the outcome of those investigations are if any. What I do know is that the same dramatis personae have continued to conduct themselves in essentially the same way in the two matters that have come before me, seemingly with impunity despite the investigations apparently underway. For that reason I intend again to direct that this judgment as well as the transcript of the enquiry be forwarded to those entities. It is to be hoped that those public entities charged with responsibility for monitoring the conduct of professionals in the interests of the public will act as they are obliged to act with due and proper expedition to ensure that the arrangements described in this judgment are fully and properly investigated and the public interest is properly served.

[24] I deal now with each of the applications. It is in my view not necessary to dwell upon the detail as disclosed in each of the applications, and whether in the particular circumstances of each case an appropriate case is made out for the order sought. That is so because, as will be apparent from what is set out above, I cannot accept as reliable the evidence relating to the value of the assets held in each of the applicant’s estates and therefore cannot on the evidence before me determine that there is indeed an advantage to creditors in these matters. In addition to this neither application deals in any manner with the question as to why the machinery of the National Credit Act cannot be utilised or why, in the face of the existence of that machinery, there is an advantage to creditors to grant the order of voluntary surrender (cf. Ex parte Ford and two similar cases 2009 (3) SA 376 (WCC)). It follows that the applications must be dismissed.

[25] I make the following order:

(a)  The applications for voluntary surrender under case number 1858/2014 and case number 1859/2014 are dismissed.

(b)  The Registrar of this Court is directed to provide a copy of this judgment together with a copy of the transcript of the examination conducted in terms of s 3(3) of the Insolvency Act on 1 August 2014 to the Law Society of the Northern Provinces; the Chief Executive Officer of the National Credit Regulator and the Master of the High Court, Pretoria and to request said entities to conduct enquiries into the conduct of the persons or entities named in this judgment.

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G. GOOSEN

JUDGE OF THE HIGH COURT

 

Appearances:                     For the Applicants

                                                P. A. Markgraaf Attorneys

                                                c/o DTS Attorneys

                                                Port Elizabeth

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