Cohen v Absa Bank Limited

Absa Bank advanced substantial loan facilities to A Million Up Investments 105 (Pty) Ltd (AMU) to develop a hotel in Cape Town. Mr Chaim Cohen, a director and controlling mind of AMU’s holding company, executed a deed of suretyship in favour of Absa, binding himself as surety and co‑principal debtor up to R20 million plus interest and costs. Due to construction delays and cost overruns, AMU defaulted on its obligations. The parties attempted to restructure the debt through a 2010 term sheet and an amended and restated loan agreement in 2011, which included the acquisition by AMU of Protea Hotel Group’s shareholding and loan account in the hotel operating company, partly funded through Absa’s facility and the transfer of a penthouse. AMU ultimately failed to meet restructuring requirements and was placed into liquidation in 2012. Absa’s claim was admitted in the liquidation, leaving a substantial shortfall. Absa sued Mr Cohen under the suretyship for R40 million (capital and interest). Mr Cohen defended the claim by invoking s 31(2) of the Insolvency Act, alleging that Absa colluded with AMU in a disposition of property that prejudiced creditors, thereby forfeiting its claim against the insolvent estate and releasing him as surety.

The application for condonation and reinstatement of the appeal was dismissed with costs, including the costs of two counsel, and the appeal was struck from the roll with costs.

The case clarifies that the remedies under s 31(2) of the Insolvency Act are available only after a collusive disposition has been set aside at the instance of a liquidator (or a creditor acting in the liquidator’s name), and cannot be invoked by a surety to defeat a creditor’s claim. It reinforces the principles of concursus creditorum and confirms the limited standing of third parties in insolvency avoidance proceedings.