The Eastern Metropolitan Substructure of the Greater Johannesburg Transitional Metropolitan Council v Gert Hendrik Johan Venter N.O.

The Eastern Metropolitan Substructure was the appellant, and Venter N.O. was the respondent liquidator of Etruscan Development Corporation CC (in liquidation). The corporation was liquidated on 21 September 1995. The liquidator sold 60 stands at Magaliesig for R3.8 million on 16 April 1996. To obtain clearance certificates required for transfer under section 50(1) of the Local Government Ordinance 17 of 1939 (Transvaal), the appellant demanded payment of R353,616.74 comprising assessment rates, re-zoning fees, basic water and sewerage charges, water consumption charges, sundries, and interest. The respondent paid R353,595.47 on 14 November 1996 to obtain the clearance certificates and effect transfer. The respondent conceded liability for R222,305.02 (rates and interest) but claimed repayment of R131,311.72, arguing these amounts were not "taxes" under section 89(5) of the Insolvency Act and therefore could not be demanded as a precondition for the clearance certificate.

• Whether a local authority is entitled to withhold a clearance certificate under section 50(1) of the Local Government Ordinance 17 of 1939 (Transvaal) for amounts that are not 'taxes' as defined in section 89(5) of the Insolvency Act
• Whether amounts paid to obtain a clearance certificate constitute part of the costs of realizing property under section 89(1) of the Insolvency Act
• Whether a liquidator can claim repayment of amounts that were due and owing but paid to facilitate transfer of insolvent estate property
• Whether the nature of creditors' claims changes upon liquidation such that amounts previously due become not due until a distribution account is finalized

The appeal was upheld with costs, including costs of two counsel. The order of the court a quo was set aside and substituted with an order that the respondent (appellant municipality) pay the applicant (liquidator) only R1,191.35 (sundries) plus interest at 15.5% per annum from 15 November 1996. The applicant (liquidator) was ordered to pay the respondent's costs in the court a quo.

Section 89(4) of the Insolvency Act, read with section 89(1), limits the quasi-lien created by embargo provisions only where the debt is a tax as defined, restricting it to the two-year period mentioned; it does not relieve trustees or liquidators from paying non-tax debts mentioned in section 50(1) of the Local Government Ordinance. After liquidation or sequestration, the whole of a pre-insolvency debt remains due and owing. Amounts paid to obtain a clearance certificate required for transfer of property constitute part of the costs of "maintaining, conserving and realising" property under section 89(1) of the Insolvency Act. Where amounts are due and owing and a local authority is entitled under section 50 to require payment as a prerequisite to issuing a clearance certificate, there is no legal basis for a claim for repayment of such amounts once paid, as they were necessary expenses in the process of realizing the properties.

The Court stated that if the respondent liquidator had wished to transfer the properties to the purchaser, he had to pay the amounts due in respect of the rezoning fee, basic water and sewerage charges, and water consumption charges to have the embargo lifted, if necessary taking a loan to do so. The Court noted that the respondent could have decided not to realize the properties immediately and to file a first liquidation account that was not a final account. The Court also noted that the fact that the liquidator hoped to recover the amounts paid does not detract from the fact that they were paid in order to enable transfer of the properties. The Court indicated that given the very small success achieved by the respondent relative to the total amount claimed, it would have been appropriate for the court a quo to order the respondent to pay costs despite the insignificant success on the sundries.

This case clarifies the interaction between section 50 of the Local Government Ordinance 17 of 1939 (Transvaal) and section 89 of the Insolvency Act 24 of 1936. It confirms that local authorities may refuse clearance certificates for non-tax debts listed in section 50(1), notwithstanding liquidation, as section 89(4) only limits the quasi-lien for taxes to a two-year period but does not deal with other debts. The case establishes that amounts paid to obtain clearance certificates necessary for property transfer constitute costs of realizing property under section 89(1). It affirms that debts remain due and owing after liquidation despite the concursus creditorum, and that liquidators must pay amounts required by valid embargo provisions to effect transfer. The case demonstrates the limits of liquidators' ability to reclaim payments made to lift statutory embargoes on property transfers.