Wellington Retreading (Pty) Ltd and Another v Swart and Another

The First Respondent, sole director of Concorde (Pty) Ltd ('the Company'), signed two separate suretyship agreements binding herself as surety and co-principal debtor for the Company's debts to the First and Second Applicants. The First Applicant provided a R2,000,000 credit facility, resulting in an unpaid debt of R351,992.72. The Second Applicant provided a R700,000 credit facility, resulting in an unpaid debt of R477,347.47. Despite a settlement offer by the Company admitting the debt and proposing instalment payments, nothing was paid. The Company was placed in final liquidation on 16 July 2024. The First Respondent owned immovable property with an estimated value of R3,595,000 but had total liabilities, including a bond of R2,876,000, exceeding R3,705,340, creating a shortfall. The Applicants sought sequestration of the First Respondent's estate.

• Whether the Applicants established a liquidated claim for not less than R100 (or R200 in aggregate) as required by section 9(1) of the Insolvency Act 24 of 1936.
• Whether the First Respondent was factually insolvent (her liabilities fairly valued exceeding her assets), and whether such insolvency could be established inferentially.
• Whether the First Respondent discharged the evidential burden to rebut the inference of insolvency once a prima facie case was made.
• Whether there was reason to believe that sequestration would be to the advantage of creditors as contemplated by section 10(c) of the Act.

1. The First Respondent's estate is placed under provisional sequestration. 2. A rule nisi is issued returnable on 19 November 2024 calling upon interested parties to show cause why a final sequestration order should not be granted and why costs should not be costs in the sequestration. 3. Service directions were given for publication in the Cape Times and Die Burger, and for service on the First Respondent, the Master, SARS, known creditors, employees, and trade unions.

In sequestration proceedings based on factual (de facto) insolvency under the Insolvency Act 24 of 1936, a creditor may establish a prima facie case of the debtor's insolvency inferentially, without setting out a complete and finite calculation of assets and liabilities. A strong indicator of insolvency is the debtor's failure to pay debts when due. Once a creditor establishes such a prima facie case, the evidential burden shifts to the debtor to rebut the inference by placing acceptable evidence before the court demonstrating solvency or the ability to pay debts. A debtor's sparse, unsubstantiated denials are insufficient to discharge this burden.

The court noted in passing that the First Respondent attempted to 'needlessly muddy the waters' by raising the 'just and equitable' standard, observing that this phrase is typically associated with liquidation applications rather than sequestration proceedings, but acknowledged that it essentially refers to an outcome that is objectively just and fair.

This judgment reinforces the well-established principles governing 'unfriendly' sequestration applications in South African insolvency law. It underscores that factual insolvency can be inferred from a debtor's inability to pay debts and the presentation of a prima facie asset-liability shortfall, without requiring exhaustive detail. The case highlights the evidential burden that shifts to a debtor once a prima facie case is made, and confirms the broad, non-rigid interpretation of 'advantage to creditors' as a reasonable prospect (not too remote) of pecuniary benefit, consistent with the Constitutional Court's guidance in Stratford v Investec Bank.