FirstRand Bank Limited v Master of the High Court (Pretoria) and Others

The insolvent owned two sectional title units, each bonded to different banks (Nedbank and FirstRand/FNB). The Body Corporate of one scheme, to which arrear levies were owed, applied for and obtained sequestration of the insolvent’s estate. After sequestration, both secured creditors proved claims but relied solely on their security. The Body Corporate did not prove a claim and recovered its arrear levies directly from the proceeds of the sale of the sectional title unit under statutory mechanisms. There was no free residue in the insolvent estate to cover the costs of sequestration. The trustees’ liquidation and distribution account required the secured creditors to contribute pro rata to the sequestration costs, excluding the Body Corporate. FirstRand objected, contending that as petitioning creditor the Body Corporate was solely liable for the contribution.

The appeal was upheld. The order of the High Court was set aside and replaced with an order directing that the trustees amend the liquidation and distribution account to reflect that the Body Corporate is solely liable to pay the contribution of R46 663.16. No order as to costs was made.

The judgment authoritatively resolves a long-standing academic and practical controversy in South African insolvency law regarding liability for sequestration costs where there is no free residue. It clarifies the interaction between ss 106, 89(2) and 14(3) of the Insolvency Act, confirms the protection afforded to secured creditors who rely solely on their security, and underscores the special statutory responsibility of petitioning creditors. The decision provides important guidance for trustees, creditors and the Master in the administration of insolvent estates.