Du Plessis v Majiedt N O and Others

Mr Tobias Du Plessis was the sole member of Full Circle Projects Twenty CC (in liquidation), which owned a farm property. In August 2018, Du Plessis entered into a 9-year lease agreement with Full Circle in respect of the property. Full Circle had previously registered a continuing covering bond over the property in favour of FNB in November 2013. Clause 3.3 of the bond required FNB's prior written consent before the property could be mortgaged, alienated, encumbered or occupation given up. No such consent was obtained before the lease was concluded. Full Circle was liquidated on 22 January 2021 with two liquidators appointed (Majiedt and Kaaba). Du Plessis was provisionally sequestrated on 18 March 2021, with provisional trustees appointed on 30 March 2021. In July 2021, while still under provisional sequestration, Du Plessis launched an application in his own name seeking to interdict the transfer of the property, which the liquidators had sold to the De Klerk Trust by private treaty without considering the lease. Du Plessis' provisional sequestration order was later discharged in December 2021. The provisional trustees never indicated they wished to continue the lease within three months of their appointment as required by the Insolvency Act.

• Whether an insolvent person has locus standi to institute legal proceedings in his own name while under provisional sequestration, without the knowledge and consent of the appointed trustees
• Whether the discharge of a provisional sequestration order retrospectively confers locus standi on an insolvent who instituted proceedings while sequestrated
• Whether a lease agreement entered into in contravention of the express provisions of a registered mortgage bond (without the mortgagee's consent) is void and unenforceable
• Whether the liquidators' sale of property by private treaty free from a lease agreement was valid
• Whether the requirements for interim interdictory relief were satisfied

The appeal was dismissed with costs. The orders of the Free State High Court dismissing the main application and granting the counter-application (declaring the lease agreement void and/or unenforceable) were upheld.

When a person is provisionally sequestrated, section 20 of the Insolvency Act divests the insolvent of his estate and vests it in the appointed trustees. The insolvent lacks locus standi to institute legal proceedings in his own name without the knowledge and consent of the trustees, save for the limited exceptions in section 23 of the Insolvency Act. The discharge of a provisional sequestration order does not retrospectively confer locus standi on an insolvent who instituted proceedings while under sequestration - what is relevant is whether a valid court order depriving the person of locus standi existed at the time proceedings were launched. A lease agreement entered into in contravention of a term in a registered mortgage bond (requiring the mortgagee's prior written consent) is void and unenforceable, as the mortgage bond creates a limited real right enforceable against third parties. Under section 37(2) of the Insolvency Act, if a trustee does not notify the lessor within three months of appointment that he desires to continue a lease on behalf of the estate, the trustee is deemed to have determined the lease at the end of those three months.

The court noted that even if Du Plessis had locus standi, he failed to satisfy the other requirements for interdictory relief, namely: (a) a reasonable apprehension of irreparable harm if the interdict was not granted; (b) that the balance of convenience favoured the granting of the interdict; and (c) that he had no other satisfactory remedy. The court also observed that it would have been impermissible to grant relief against only one liquidator when two liquidators had been appointed to administer the insolvent estate of Full Circle - both should have been cited. The court commented that the liquidators could not be criticized for selling the property by private treaty free from the lease, as there was no valid lease in place when the sale was concluded, and the amount realized from the sale to the De Klerk Trust was far more than would have been realized from alternative offers. The court declined to grant punitive costs de bonis propriis against the appellant as no proper basis for such an order had been shown.

This judgment clarifies important principles regarding locus standi of insolvent persons in South African law. It confirms that the discharge of a provisional sequestration order does not retrospectively confer locus standi on an insolvent who instituted proceedings while under sequestration. The case distinguishes current insolvency law under the Insolvency Act 24 of 1936 from the previous provincial statutes. It also emphasizes that upon sequestration, an insolvent is divested of all estate property and rights, which vest in the trustees, who alone have standing to litigate on behalf of the estate (subject to limited exceptions in section 23). The judgment also confirms that a registered mortgage bond creates a limited real right enforceable against third parties, and that contractual provisions in such bonds (requiring consent for leasing) must be complied with. The case reinforces the automatic determination of leases under section 37(2) of the Insolvency Act when trustees do not elect to continue them within three months.