Section 8 (b) of the Insolvency Act is not as simplistic as it seems at first glance

In terms of Section 8 of the Insolvency Act 24 of 1936 (“the Act”) there are 8 grounds when a creditor may apply for the sequestration of a debtor they believe to be insolvent or has committed an act of insolvency. These acts of Insolvency are set out in section 8 (a) to (h) of the Insolvency Act 24 of 1936. Section 8(b) deals with the situation where a potential insolvent is unable to satisfy a judgment obtained against him and such is recorded by the sheriff in a document called a return of service. Section 8(b) states:

if a court has given judgment against him and he fails, upon the demand of the officer whose duty it is to execute the judgment to satisfy it or to indicate to that officer disposable property sufficient to satisfy it, or if it appears from the return made by that officer that he has not found sufficient disposable property to satisfy the judgment.

Two separate acts in section 8(b)

This section often leads to legal uncertainty and confusion which largely can be attributed to the fact that this section actually comprises of two separate acts of insolvency and not one.

The first act is where the debtor upon demand by the sheriff fails to satisfy the judgment or to indicate disposable property sufficient to satisfy the judgement amount. The second act is where the sheriff fails to find sufficient property to satisfy the judgment, and accordingly states such in his return. The inability to satisfy the judgement results in a nulla bona return. It is important to remember that even though these two acts are separate they are not independent of each other. The second act will only apply when the first act cannot be established and that is to say that the sheriff will only be able to make the calling in respect to the debtor’s ability to satisfy the judgment if the sheriff cannot serve personally on the debtor. No act of insolvency is considered to have been committed if the sheriff on serving the writ fails to demand from the debtor that the judgment amount is satisfied and thereafter simply states in his return of service that there was insufficient disposable property. Furthermore if the debtor, when the sheriff demands satisfaction of the judgment, fails to satisfy such judgment or to indicate sufficient disposable property, it is immaterial afterwards if the sheriff finds sufficient disposable property to satisfy the judgment.

The meaning of disposable property

Another perplexing part of this section is what the correct interpretation of disposal property is. The term “disposal property” includes both movable and immovable property which may be attached and sold in execution even if it is situated in some other locality than where the sheriff attends on the debtor. Should the debtor be residing in Pretoria but owns a bond free immovable property in the Western Cape then the debtor could refer to such property as part of the disposable property he has to satisfy such judgement.

There are divergent views as to whether immovable property which is bonded, and even more so when the creditor is the first mortgagee of such immovable property, can be considered disposable property for the purposes of section 8(b).

In the matter of Van Der Pool vs Langeman, immovable property which Van Der Pool held a first mortgage bond over was seen to constitute disposable property, and accordingly the debtor could dispose of such immovable property to satisfy the judgement and if he told the sheriff such, then the sheriff could not issue a nulla bona return. Great emphasis was put on the fact that the creditor was the first mortgagee and there was not a third party mortgagee.

In the matter of De Waard v Andrew & Thienhaus (PTY) Ltd, the court dealt with the situation where the immovable property was bonded to a third person and not the creditor. In this situation he said that because of the bond to a third party it was not freely disposable. The rationale behind such was that the consent of the mortgagee would have to be obtained before the debtor could deal with the immovable property as he saw fit, and accordingly the debtor could not tell the sheriff he could utilize the bonded immovable property to satisfy the judgement debt. In this situation, the nulla bona return of service, by the sheriff would be correct as the potential insolvent would not be able to freely dispose of this property as they would need the consent of the mortgagee.

In the matter of ABSA Bank Limited v Collier, the court confirmed the original (court a quo) decision, that the debtor’s immovable property, could be considered disposable property even though such was mortgaged, as the creditor was the first mortgagee in respect of such property. This was notwithstanding the fact that Mr. Collier was only an owner of an undivided half share of the property with his wife the other co-owner. Mr Collier’s undivided half share of the immovable property was disposable property in the eyes of the court, and accordingly as he had told the sheriff of such property to satisfy the judgement the sheriff’s nulla bona return was invalid.

Before launching any application to sequestrate a debtor careful consideration should be given to the above or one litigates at one’s own peril.

By
Natalie Bailey
natalie@dyason.co.za