JUDGMENT. July, [1] Rensco Motors S.A. (Pty) Ltd. ( Rensco Motors ) conducted the business

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1 IN THE HIGH COURT OF SOUTH AFRICA DURBAN AND COAST LOCAL DIVISION CASE NO.: 2867/2008 Ex parte: JOZEF MARKUS FOURIE JUDGMENT Delivered on: - July, 2008 NAIDU AJ :- [1] Rensco Motors S.A. (Pty) Ltd. ( Rensco Motors ) conducted the business of an authorised dealer in Mercedes Benz and other motor vehicles in Port Shepstone, on the South Coast. Rensco Motors had a dealership agreement with Daimler Chrysler South Africa (Pty) Ltd. ( Daimler Chrysler ). [2] Prior to 2002 the Applicant was a director and shareholder of Rensco Motors. The Applicant, his brother and two other persons were involved in the day

2 Page 2 to day running of this business. [3] So successful were their entrepreneurial endeavours, that in 2000 the Applicant and the other directors of Rensco Motors took the decision to raise the profile of the business by housing it in a brand new building specifically suited to the needs of the motor dealership. [4] Rensco Properties (Pty) Ltd. ( Rensco Properties ) which was then owned by the Applicant and his brother, put up this new building on property owned by it with money borrowed against the security of a mortgage bond. [5] As luck would have it, fortune did not favour the Applicant and the codirectors of Rensco Motors. The high cost of building and formidable challenges in the new motor vehicle market in 2001/2002, which the Applicant and his associates did not bargain for, resulted in severe cash flow problems. [6] The high rentals paid by Rensco Motors to Rensco Properties to enable the latter to fulfil its bond obligations compounded the problem. Lower than anticipated motor vehicle sales with substantial amounts of money being tied up in

3 Page 3 stock and spare parts added to the Applicant s woes. [7] Towards the end of 2001 the cash flow problems of Rensco Motors reached crisis proportions. With optimism, which later turned out to have been misplaced, the Applicant took a decision which he describes as the worst decision of his life. [8] Rensco Motors had a financing arrangement with Daimler Chrysler regarding the stock of new motor vehicles. The essence of the arrangement was that the new vehicles on the showroom floor were sold by Daimler Chrysler to its finance division which, in turn, sold these vehicles to Rensco Motors under an instalment sale agreement referred to as a floor plan. In terms thereof Rensco Motors had to pay Daimler Chrysler for a new motor vehicle upon that motor vehicle being sold by Rensco Motors to a customer. [9] The Applicant bound himself as surety for all the obligations arising from this arrangement with Daimler Chrysler in respect of stock, the floor plan and spare parts. [10] Rensco Motors also had an arrangement with Wesbank in regard to the

4 Page 4 financing of motor vehicle purchases, in terms of which arrangement, Wesbank, which also had a representative permanently stationed in the showroom, also offered motor dealers including Rensco Motors, the same sort of floor plan financing as was offered by Daimler Chrysler. [11] It was at this juncture that the Applicant abandoned his morality and decided to resort to crime to try and free himself from the shackles of the financial predicament in which he found himself. [12] He decided, as a temporary measure, so he says, to finance the new motor vehicles which had already been financed by Daimler Chrysler and then to finance the same vehicles through the Wesbank floor plan. Through this double financing, Rensco Motors was able to generate sufficient cash to pay its obligations. [13] This respite was short. In a matter of months the frauds were uncovered. The Applicant was confronted and he admitted his wrongdoing. The dealership agreement was cancelled by Daimler Chrysler and the business was immediately closed. Rensco Motors was liquidated. [14] Daimler Chrysler and Wesbank called upon the Applicant to pay what was owed to both by virtue of the suretyship. He was unable to do so. Then followed an application for his

5 Page 5 sequestration. [15] By an order of this Court, the Applicant s estate was sequestrated on 7 th June, [16] On 12 th December, 2002, the Applicant was convicted of fraud in the Regional Court in Port Shepstone. [17] The Applicant applies for his rehabilitation in terms of Section 124(2) (c) of the Insolvency Act No. 24 of 1936 ( the Insolvency Act ), on the following basis:- 17.1The fraud for which he was convicted had been committed in relation to his insolvency; 17.2More than five years have elapsed since the date of his conviction; 17.3More than four years have elapsed since the date of his sequestration. [18] Due notice of the application has been given to the Master and to the joint

6 Page 6 trustees. [19] The Applicant has complied with the provisions of Section 124(2) of the Insolvency Act regarding publication in the Government Gazette of the advertisement signifying his intention to bring the application for his rehabilitation. [20] Consequent upon receipt of the notice of the application the trustees reported to the Master in terms of Section 124(4) of the Act. In all, the trustees furnished three reports. The first report is dated 25 th April, The second report is a supplementary report and the third report is referred to by the trustees as trustees second supplementary report. The position adopted by the trustees towards the application is plain. They are of the view that it would be inappropriate for the Applicant to be rehabilitated at this stage. They propose, however, that should this Court nevertheless resolve to rehabilitate the Applicant, then there should be an order in terms of Section 219 of the Companies Act No. 61 of 1973, effectively barring him for a further period of not less than ten years from taking part in the management of any company without the leave of this Court.

7 Page 7 [21] The Master s report records that the trustees have duly reported in terms of Section 124(4) of the Insolvency Act. The Master refers only to the first report and notes that the trustees are not recommending the rehabilitation of the Applicant at this stage. The Master draws attention to sections in the Applicant s founding affidavit which sets out the circumstances which led to the conviction for fraud, the fine of R and the gaol term of two years suspended for five years. The Master makes no recommendation, admits lack of knowledge of further facts or information which could assist the Court and abides its decision. [22] The application is not opposed. I have a discretion to either grant or refuse the application or make such other order as I am empowered by section 127(2) of the Insolvency Act. This discretion I must exercise judicially and not arbitrarily. In this exercise, I shall bear in mind the remarks of Young, J. in Ex parte R (1) S.A. p.84 (S.R.) at p. 87G-H:- in the end the question must be whether in all the circumstances the applicant has satisfied the Court that he has rehabilitated himself in the

8 Page 8 sense that he is worthy of trust in carrying out the functions which he is seeking permission to undertake. The exercise of judicial discretion is a far roving enquiry in the fields of law and morality but ultimately it boils down to the exercise of what has been called judicial common sense. [23] In exercising its discretion a Court will be obliged to attach due and significant weight to the views expressed in the reports submitted by the Master and the trustee or trustees. 183E; Ex parte Goshalia 1957 (2) S.A. p. 182 (N) at p. Ex parte Isaacs 1962 (4) S.A. p. 767 (W) at p. 770 D. [24] Even if no recommendations are made, in a case such as this, where the application for rehabilitation is made after the expiration of a period of four years from the date of sequestration of the estate of the insolvent, the court is under a duty to itself closely examine the facts and circumstances and arrive at a decision. If there are other factors which warrant the refusal of the application, the lapse of time alone can never be a good ground for granting it.

9 Page 9 Ex parte Martens 1951(4) S.A. p.531 (N) at p. 532A. [25] The onus is of course on the Applicant to show that the discretion should be exercised in his favour. Ex parte Stegmann 1936 (OPD) p. 38 at p. 43; Ex parte Koch 1983 (3) S.A. p. 700 (SE) at p. 704D. [26] The Applicant has caused a supplementary affidavit to be filed in order to address the issues raised in the first report of the trustees. A further supplementary affidavit by the Applicant was filed to specifically address the remarks made by the trustees in their supplementary report regarding the Applicant s conviction and sentence for fraud. I shall revert to this matter later. [27] In the founding affidavit the Applicant claims, without any reservations, to have made a complete surrender of his estate. He even goes on to add that the trustees were satisfied that I have made a complete surrender of my estate and that there was nothing left uncovered nor was I accused of any other fraudulent acts after being thoroughly interrogated about his affairs.

10 Page 10 [28] The trustees have a completely different story to tell. It goes like this: 28.1 They are unable to say whether the Applicant made a complete surrender of his estate. They were unable to take the enquiry to finality because the principal creditor, being Wesbank, withdrew financial support and requested that no further enquiries be conducted They are not satisfied, however, that the Applicant voluntarily made a full and complete surrender of his estate. Such disclosures that had been made, they state, were not made without pressure They state that the Applicant denied the existence of cash although it emerged from certain records discovered in his office on 15 th May 2002 (after the provisional order of sequestration) that the Applicant had received a payment of R in cash on 23 rd February When he was confronted with the document and asked to disclose the whereabouts of the cash, he originally stated that these monies had

11 Page 11 been paid to an attorney to hold as a deposit to deal with any criminal proceedings which might be brought against him and for the payment of bail, should such a need arise When pressed to disclose the name of the attorney he changed his story and requested to be allowed a short period within which to retrieve the funds. He left the premises with his wife and shortly thereafter handed the trustees a sum of R in cash which, they gathered, had been hidden in the ceiling of an adjoining house occupied by the Applicant s in laws When pressed to explain what happened to the balance of the cash, the Applicant eventually explained that R had been paid to an attorney in Margate; R to another attorney and R to his brother. The Applicant has not accounted fully for the balance of the funds During their enquiries, the trustees discovered that an account had been opened with Absa Bank in Margate under the name of Marburg Taxi Association. Funds from Rensco Motors had been regularly paid into that

12 Page 12 account without any apparent causa or justification. On 3 rd March 2002, the Applicant withdrew a sum of R from that account. Of this amount, the Applicant revealed, he had paid approximately R to a Mr. Vogel, a previous director of Rensco Motors. The Applicant was unable to account for the balance. The trustees have established from the Applicant himself and from enquiries made that there is no such organisation as the Marburg Taxi Association. In the light thereof, they conclude, the particular account was patently fraudulently created and that all payments thus made into the account were unlawful The trustees also established that the Applicant had moved large sums of money, inter alia, into an account with the H.S.B.C. Bank in Jersey. This amount of approximately R was not originally disclosed by the Applicant. [29] In the supplementary affidavit the Applicant admits handing over the sum

13 Page 13 of R to the trustees, and admits having done so only under pressure from them. He states that he hoped to retain that cash to support his family in the months following the collapse of Rensco Motors. He admits that he initially lied to try and protect that cash. He does of course deny that he did not fully explain how the sum of R had been dealt with. [30] With regard to the bank account in the name of Marburg Taxi Association, his response is simply startling. He admits that Rensco Motors operated a banking account under the name of Marburg Taxi Association. According to him there was nothing unlawful about Rensco Motors depositing money into that account. Significantly, he neither makes any effort to address the complaint that there is no such entity as Marburg Taxi Association, nor does he provide any reason why it was necessary for Rensco Motors to have deposited money into the bank account of a non existent entity. His response displays either a shocking lack of appreciation of the gravity of the matter and its implications concerning the Directors of Rensco Motors (of which he was one), or a shameful thriftiness with the truth. In either event, it does not speak well of a person who is aspiring to take up the position of the director of a company, once rehabilitated. [31] A close and careful reading of the Applicant s supplementary affidavit,

14 Page 14 particularly in those respects where he responds to the trustees complaint that he had to be pressurised into surrendering cash and providing information, reveals a picture substantially different from the bold and confident stance adopted in the founding affidavit to the effect that the trustees were satisfied that he had made a complete surrender of his estate and that there was nothing left uncovered. [32] A further disquieting feature in this application is that relating to the Applicant s conviction and sentence for fraud. In the founding affidavit, the Applicant states that, having pleaded guilty on 12 th December 2002, he was sentenced to pay a fine of R and to a gaol term of two years, which was suspended for five years. Completely unsolicited, he adds despite an intensive search I have been unable to locate documentary evidence of my conviction and sentence as the records of the clerk of the criminal court are presently in a state of disarray. [33] After submitting their first report, the trustees managed to obtain a copy of the proceedings relating to the appeal which had been brought by the Director of Public Prosecutions, KwaZulu Natal, against the sentence that had been imposed upon the Applicant. It seems that the Appeal had been instigated by some

15 Page 15 of the creditors who appeared to have been upset by its leniency. [34] From the record of these proceedings the Trustees established that the Applicant had pleaded guilty to thirty-nine counts of fraud. In consequence thereof he had been sentenced to pay a fine of R or in default of payment, eight years imprisonment, half of which had been suspended for five years on condition that the Applicant was not convicted of an offence of fraud, attempted fraud, theft or attempted theft committed during the period of suspension. A further term of five years imprisonment had been imposed, all of which was totally suspended for five years on condition that the Applicant was not convicted of an offence of fraud, attempted fraud, theft, attempted theft or any offence involving dishonesty committed during the period of suspension and for which he was sentenced to imprisonment without the option of a fine. The sentence had actually been imposed on 10 th January 2003, which means that the period of suspension of the sentence had expired only in January this year, about a month before the Applicant brought this application.

16 Page 16 [35] The Applicant responds to this revelation by the trustees as follows: 35.1 As I said in paragraph 13.2 of my founding affidavit in this matter, I was unable to obtain court documents to confirm what I said about the sentence which was imposed upon me, when I was convicted The documents now provided by my trustees confirm that I was sentenced to a fine of R or eights years imprisonment, half of which was suspended, upon conditions, for five years, as well as a further five years imprisonment which was wholly suspended, on conditions, for five years I cannot really explain my lapse of memory in recording my sentence as I did in paragraph 13.2 of my founding affidavit At the time of my criminal trial, and for a good while thereafter, I was in a state of extreme anxiety and depression and I can only think that is why my recollection about my sentence, six years later, was obviously incorrect I had also completely forgotten that half of the first part of my sentence had been suspended and the other half not.

17 Page I apologise to the Court for my error There was certainly no intention on my part to mislead the Court about the details of my sentence. It would have been foolish to do so because it would be so easy for my trustees to report the correct position. [36] Mr. King, who appeared for the Applicant, adopted very much the same position in argument as that of Applicant. He submitted that it is unlikely that the Applicant was being deliberately untruthful because the trustees were bound to expose that falsity in their report. [37] I am of the view, for the reasons set out hereunder, that the Applicant was not being candid when he recounted the sentence imposed upon him when he dealt with it in the founding affidavit According to the Applicant, that was the only criminal case in which he had been involved. So it is difficult to imagine that having pleaded guilty to such serious charges and having received a relatively heavy

18 Page 18 sentence, he would give such a substantially different account of the fine and gaol sentence, (even though these had been totally suspended), from that which had actually been imposed, when he has to speak of it a little over 5 years later He made no mention in his founding affidavit of the fact that the sentence had been taken on appeal by the Director of Public Prosecutions of KwaZulu-Natal. According to the trustees the appeal had come before the Court and with the information which had been placed before the Court, the Court was unable to interfere with the sentence. No genius was required of the Applicant, if he was in fact experiencing difficulties in connection with locating the records at the criminal court, to request his attorney to obtain these records from the attorney who represented him at the trial, or to obtain the record of the appeal from the attorney who handled his appeal. These records could easily have been obtained from the High Court in Pietermaritzburg, where the Appeal was heard. His failure to even mention the appeal in his founding affidavit

19 Page 19 is telling I have no hesitation in rejecting the explanation he provides in the further supplementary affidavit for not correctly stating the number of counts he had pleaded guilty to and the actual sentence imposed upon him. That he was, at the criminal trial, and for a good while thereafter, in a state of extreme anxiety and depression and this accounts for why his recollection was obviously incorrect is an explanation which is manifestly unworthy of credit. Whilst it is true that he might have been in this state that he complains of during and after his trial, it is unlikely in the extreme that he was labouring under this condition when he was instructing his lawyers at the time his application was being prepared According to the trustees they had not even been aware of the Court proceedings at the time that the Applicant had pleaded guilty and had been sentenced. The trustees also appeared not to have known about the appeal which had been brought by the Director of Public Prosecutions against the sentence. There is also nothing in the founding affidavit to suggest that the Applicant was even aware that the trustees had either attended the Court proceedings in the Magistrate s Court and in the High Court or that they had even been aware of the criminal proceedings at the time it occurred. The trustees say that they only got to

20 Page 20 know of the criminal proceedings after it had been completed. It is likely that the Applicant assumed that the Trustees would either not be in a position to dispute his account of the criminal charges and its consequences or that they might have lacked the enthusiasm to investigate it. [38] The trustees also make some serious allegations about the Applicant, inter alia, regarding his involvement in the conduct of the affairs of Rensco Motors and go so far as to suggest that he probably contravened the provisions of Section 226 of the Companies Act of 1973 by making loans or advancing money to other companies in which and parties with whom he had either a direct or indirect interest. [39] An application for rehabilitation is not a formality. It requires frankness and a full disclosure of all relevant facts. Particularly in a case where there is a direct link between the insolvency and the criminal conduct of the insolvent, there is a greater obligation to ensure that there is a full and complete disclosure of the details of the resultant conviction and sentence. The number of counts for which an insolvent had been convicted and the gravity of the

21 Page 21 sentences imposed upon that insolvent for past criminal conduct, especially offences involving dishonesty, are matters which are fundamental to a proper assessment of the extent to which rehabilitation has been accomplished. It is not without significance that in those cases where the insolvent has been convicted of a fraudulent act in relation to his insolvency, i.e., an offence which includes all forms of falsitas which affected the insolvent estate, the Legislature has deemed it necessary to impose a restriction for the longest period for which an insolvent is precluded from applying for his rehabilitation, namely, five years. An insolvent who falls into this category cannot, therefore, content himself or herself with a half-hearted and feeble attempt to place all relevant facts relating to his or her criminal conduct, conviction and sentence before the Court hearing the application for rehabilitation. It must follow that there is a greater duty on such an insolvent to ensure that all such relevant and material information which will enable the Court to make an informed decision regarding his rehabilitation, is placed before it. Ex parte Koch (Supra) at 705 (C).

22 Page 22 [40] Of the reasons given by the Applicant for wanting to be rehabilitated is that which relates to an intention to occupy a marketing position in a business started by his brother which is engaged in selling immovable property in the United Kingdom. According to the Applicant the demands of the position and the market place are such that he would be required to become a director of the marketing company. [41] I am not satisfied that the Applicant has made a full and frank disclosure in his application. I am further not satisfied that he has been entirely candid about the extent to which he has made a complete surrender of his estate and the extent to which the trustees had been satisfied that he has made a complete disclosure. [42] The fact that the Applicant wishes to return to operating in the commercial world in a position and to an extent not dissimilar to that in which he had been involved at the time of the commission of the offences for which he had been convicted, is a matter which causes me some consternation. The effect of the rehabilitation of the Applicant would be to restore him completely and fully to the market place and, more significantly, to the obtaining of credit. In the circumstances and having regard to what the Applicant expects to achieve upon

23 Page 23 being rehabilitated, I am as concerned with the Applicant s probable future conduct as I am with his past. [43] This is appropriately a case in which I must enquire is he a person who ought to be allowed to trade with the public on the same basis as any other honest man? That depends entirely on how he conducted his trade before he became insolvent. If he conducted it in a negligent manner, or so as to deceive others, he is not a person who ought to be rehabilitated until it is clear that he intends to adopt better methods. His rehabilitation ought to be withheld from him, or at any rate it ought to be postponed for such a time that he will receive a severe lesson as to the necessity of trading honestly. Per Wessels J. in Ex Parte Heydendreich 1917 T.P.D. p.657 at p. 658 [44] I must ask also myself the same question that Slomowitz, A.J. posed in the case of Kruger v. The Master and Anor. NO., Ex parte Kruger 1982 (1) S.A. 754 (W) at p. 761H 762A. As I have been at pains to point out, what the Master should have asked himself was not whether the applicant s insolvency causes him hardship,

24 Page 24 which it patently does, but rather whether the applicant had shown that he was indeed a man who had rehabilitated himself in the sense that he understood his obligations to society in general and the business world in particular, or whether, in all the circumstances, he needed the lesson of time. [45] Finally, I can do no better than to quote the remarks of the learned author Meskin in Insolvency Laws, para on page :-. the discretion exists only to enable the Court, in each case, to accommodate, not only the applicant s interests, but the interests of his creditors, whether or not they have proved claims, of the State in relation to any prosecution of him, and of the public and, more particularly, the commercial public; and that in the exercise of the discretion, in a particular case, the essential enquiry is whether, in the light of its facts, and taking all relevant interests into account, the applicant is a fit person again to participate in the commercial life of the community free of the constraints and disabilities affecting an insolvent. [46] I am mindful of the need not to avoid ascribing too much weight to the past criminal conduct of the Applicant for which he has already been punished. To do so will be to punish him twice, so to speak, although a court in appropriate cases could still

25 Page 25 further punish an insolvent by refusing his or her rehabilitation. Mars: The Law of Insolvency in South Africa Fourth Edition by H. E Hockly p. 482 [47] In the exercise of my discretion I feel obliged to afford some prominence to the interests of those engaged in the commercial world and who are likely to become involved with the Applicant upon his rehabilitation. In my view the Applicant needs and will likely benefit from the lesson of time. I accordingly make the following order: The application for rehabilitation is refused.

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