The Body Corporate of Empire Gardens v Nobuhle Gloria Sithole and Nedbank Limited

The Body Corporate of Empire Gardens (appellant) established under s 36 of the Sectional Titles Act 95 of 1986, sought the compulsory sequestration of Ms Nobuhle Gloria Sithole (first respondent), the joint registered owner of unit 12. Ms Sithole and her sister (co-owner) defaulted on their levy payments, resulting in two default judgments totaling R112,684.50. Attempts to execute against movable assets realized only R3,237, which was insufficient to cover even the Sheriff's fees. A further attempt to execute against the immovable property (the unit) failed when a sale was abandoned as Nedbank (second respondent), which held a mortgage bond over the unit, did not accept the selling price of R170,000. The Body Corporate then applied for Ms Sithole's sequestration, alleging factual insolvency and an additional unsatisfied judgment by Amazing Properties CC for R31,008. Nedbank intervened, stating that its bond instalments were up to date and objecting on grounds that advantage to creditors was not proven.

• Whether a body corporate of a sectional title development must prove that a compulsory sequestration order will be to the advantage of the whole body of creditors as contemplated in s 10(c) of the Insolvency Act 24 of 1936
• Whether bodies corporate should be exempted from the requirement to prove pecuniary benefit to the general body of creditors
• Whether the sequestration would provide advantage to creditors in circumstances where the major preferential creditor (Nedbank) objected and was receiving regular payments

The appeal was dismissed.

In an application for compulsory sequestration by a body corporate of a sectional title development, the body corporate must prove that the sequestration order will be to the advantage of the whole body of creditors as contemplated in s 10(c) of the Insolvency Act 24 of 1936. 'Advantage to creditors' means there must be a reasonable prospect of pecuniary benefit to the general body of creditors as a whole, or to a substantial proportion of creditors reckoned by value. Bodies corporate are not exempt from this requirement and cannot be distinguished from other creditors in this regard. The Court cannot usurp the legislative function by creating exemptions or immunities from the Insolvency Act that the legislature has not provided. The principle of concursus creditorum requires that the rights of creditors as a group are preferred to the rights of individual creditors, and sequestration cannot be used merely as a debt collection mechanism for a single creditor.

The Court observed that the difficulty experienced by bodies corporate in collecting arrear levies is part of a socio-economic problem. The Court noted that since 1986 the legislature has effected several amendments to the Sectional Titles Act but has not deemed it fit to accord bodies corporate preferential treatment beyond that provided in s 15B(3)(a)(i)(aa) of the Sectional Titles Act (clearance certificate requirements) and s 89(1) of the Insolvency Act (treating outstanding levies as part of the cost of realization). The Court commented that any change to grant bodies corporate immunity from the standard Insolvency Act requirements would require an amendment of the statutes, which is a matter for Parliament, not the courts. The Court also noted that although 'advantage to creditors' is not a rigid concept (citing Stratford v Investec Bank), it still requires proof of a tangible benefit to the general body of creditors.

This case is significant in South African insolvency law as it confirms that bodies corporate of sectional title schemes are not entitled to special treatment when applying for the compulsory sequestration of members who default on levy payments. Bodies corporate remain subject to the standard requirement under s 10(c) of the Insolvency Act 24 of 1936 to prove advantage to the general body of creditors. The judgment reinforces the fundamental principle of concursus creditorum and the requirement for tangible pecuniary benefit to creditors as a whole. It clarifies that despite the practical difficulties faced by bodies corporate in collecting arrear levies, the Court cannot create exemptions from statutory requirements - such amendments are a matter for Parliament. The judgment also emphasizes that sequestration is not a debt collection mechanism for individual creditors but a process designed to protect the collective interests of all creditors.