BOE Bank Limited v J J Bassage

Zandills Shoe Manufacturers Ltd was indebted to NBS Bank Ltd (later BOE Bank Ltd) under two mortgage bond agreements secured by immovable property. The respondent bound himself as surety and co‑principal debtor for the company’s debts. The company was liquidated. BOE Bank proved its claim in the liquidation in terms of s 44(4) read with s 89(2) of the Insolvency Act, electing to rely solely on its security, which was valued at R800 000 and abandoned to it by the liquidators. After realisation of the security, a shortfall remained. BOE Bank then sued the respondent as surety for the shortfall. The High Court dismissed the claim, holding that the election under s 89(2) extinguished the balance of the debt and released the surety. BOE Bank appealed to the Supreme Court of Appeal.

The appeal was upheld with costs. The High Court’s order was set aside. It was declared that the respondent was liable as surety and co‑principal debtor. The respondent was ordered to pay BOE Bank R550 000 plus interest at 0.5% above prime from 12 May 2000, together with costs including costs of two counsel and costs of a prior postponement.

The case authoritatively clarifies that a secured creditor’s election under s 89(2) of the Insolvency Act to rely solely on its security does not extinguish the underlying debt and does not release a surety from liability for any shortfall. It confirms the commercial purpose of suretyships in insolvency contexts and limits the reach of earlier dicta suggesting that a creditor ‘ceases to be a creditor of the estate’.