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Insolvent after selling

5 June 2014

Relebipi Properties CC v De Wet N.O. and Others (36209/2012) [2014] ZAGPPHC 87 - Whether a buyer is entiled to the transfer of a property when the seller is declared insolvent after the agreement was entered into.

Here the law is well settled. According to the law as it stands, a purchaser who bought land under such conditions runs the risk of losing, both the land and any money he or she may have paid, in the event the estate of the registered owner is sequestrated as insolvent.

[9] [As] there is no legislative provision (neither the Insolvency Act nor the Companies Act deals with sequestration/liquidation under such circumstances) providing for such a situation and as a result the common law principles are applicable. Under the common law, should the estate of the seller of an immovable property be sequestrated before transfer of the property is passed to the purchaser of that property, the property vests in the liquidator/trustee of the seller’s insolvent estate. And in so far as the purchaser may have fully or partially performed in terms of the agreement of sale concluded prior to the insolvency by payment of the whole or portion of the purchase price, he or she (the purchaser) is in a position of a creditor with a concurrent claim against the insolvent estate. See Catherine Smith: The Law of Insolvency 2nd ed at 151; Glen Anil Finance (Ptv)Ltd v Joint Liquidators, Glen Anil Development Corporation (in liquidation) 1981 (1) SA 171 (A) at 182D - H and Sarrahwitz v Maritz Case No. (819/2012) [2013] ZAECGHC 10 (1 February 2013).

Insolvency however [at 10], as enunciated in Bryant & Flanagan (Ptv) Ltd v Muller & Another NNO 1977 (1) SA 800 (N) at 804F - H:

"... does not automatically terminate an executory or partly performed contract lying outside the categories specifically covered by the Act (The Alienation of Land Act 108 of 1986). Whether or not the contract continues to operate depends on the decision of the trustee, who is allowed and indeed required to choose which shall happen. He is, of course, responsible to the creditors for his choice. But as between himself and the other party to the contract, the decision is his alone. It must be made within a reasonable time. The results of the trustees’ decision to bring the contract to a halt are that he may not insist on its further performance by the other party, and he is not himself expected to fulfil the insolvent’s outstanding obligations under it. Like any other creditor owed an ordinary debt which the insolvent incurred before sequestration, the other party is left with nothing more than a concurrent claim against the estate, entitling him to share in the distribution of its free residue.”

In this case Kubushi J found that the trustees had indeed elected to preserve the agreement due to the numerous communications between the applicant and the trustees’ attorneys and they were accordingly ordered to sign all documents necessary for the transfer of the property.

Full judgment

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