Court a quo:
Firstrand Bank Limited (“Firstrand”) registered a general notarial bond (“GNB”) over all of the movable assets of Rubaco Boerdery (Edms) Bpk (“Rubaco”).
Prior to the liquidation of Rubaco, Firstrand obtained an order perfecting its GNB to the amount of R5,500,000.00 (Five Million and Five Hundred Thousand Rand). Thereafter, the sheriff of the High Court attached certain movable assets, which perfected the GNB and converted Firstrand’s security into a pledge.
Upon the liquidation of Rubaco, Firstrand was a secured creditor in respect of the attached movable assets. In terms of section 83 of the Insolvency Act No 24 of 1936 (“Act”), the assets were realised and the proceeds of which were paid to Firstrand, as secured creditor. The payment reduced the amount outstanding to Firstrand to R3,800,000 (Three Million and Eight Hundred Thousand Rand).
Firstrand contended that it was entitled to the free residue of the estate, which amounted to R1,900,000.00 (One Million and Nine Hundred Thousand Rand), by virtue of section 102 of the Act, which specifies as follows:
“any balance of the free residue shall be applied in the payment of any claims proved against the estate in question which were secured by a general mortgage bond”
The Land and Agricultural Development Bank of South Africa (“Land Bank”), the largest concurrent creditor, contended that Firstrand’s GNB only covered the movable assets of Rubaco and that as a result thereof, Firstrand’s claim was limited to the proceeds of the assets realized in terms of the GNB.
The High Court held that Firstrand was not entitled to any allocation from the free residue, as it had received payment as a secured creditor.
Firstrand took the matter on appeal to the Supreme Court of Appeal (“SCA”) to review the order granted by the court a quo.
The SCA held that section 102 of the Act affords the holder of a GNB with preference in respect of its claim to the free residue, which preference is limited to the portion of the free residue which was derived from the movable assets secured under the GNB.
The SCA further held that preference be afforded to Firstrand, as the holder of a GNB, as a portion of the free residue was derived from the proceeds of the sale of the movable assets of Rubaco.
As such, the SCA corrected the court order by deleting the incorrect paragraphs and renumbering the remaining paragraphs, and otherwise dismissing the appeal with costs.
The SCA held that section 102 of the Act affords the holder of a GNB with preference in respect of its claim (which is limited to the amount as secured in the GNB) to the free residue, which preference is limited to the portion of the free residue which was derived from the movable assets as secured under the GNB.
Written by Simone Jansen van Rensburg and checked by Pierre van der Merwe on 26 September 2018