A Gauteng High Court in Pretoria has ruled that simply trying to sell a property at the last minute is not enough to avoid being declared insolvent.
In this case, a couple who owed money to their complex’s Body Corporate of Parkview argued that they could settle their growing debt by selling their home. But the court found that the proposed sale was not legally solid or guaranteed to go through, and therefore could not be relied on to pay what they owed.
The couple’s unpaid levies — monthly fees paid by owners in sectional title schemes — had grown significantly over time, from about R15,000 in 2017 to more than R385,000 by mid-2024.
Acting Judge MM Mojapelo ultimately granted a provisional sequestration order, meaning the couple’s estate is now under legal process that could lead to their assets being sold to pay creditors.
Can’t cut off power
The Community Schemes Ombud Service has said “Levy contributions are the lifeblood of all community schemes. Owners who fail to contribute towards the levy fund are being subsidised by those who pay their monthly contributions”.
CSOS’ presentation says body corporates cannot disconnect or reduce electricity supply, terminate or reduce water supply or deny or limit access to the scheme due to outstanding levies. “The act of disconnecting a person’s electricity without a court order is unlawful, notwithstanding the fact that the unit owner may be owing levies.”
An article published on legal e-zine De Rebus, Ernst Serfontein pointed out that levies do prescribe after three years and a homeowner can use that as a defence when tackled.
However, there are differing views including a complex one around the fact that someone can not sell a property in a complex without receiving a clearance certificate stating that all levies are up to date.
Faulty math
In this matter, the respondents didn’t seek to rely on prescription but instead argued that a R480,000 sale of the Parkview property would cover the outstanding amount and make sequestration unnecessary.
But the court found the plan unravelled on a critical detail and the respondents’ reliance on the full sale value to settle the debt was “flawed at its root”.
A key fact was that the property was not solely owned by the respondents. It was held in undivided half shares by the first respondent and his former spouse, a factor the court said the defence failed to properly confront.
“Absent her participation, the sale cannot be given effect,” the court said, noting that no evidence had been presented to show the co-owner had agreed to the transaction.
Even if the deal were to proceed, the numbers did not add up. Once the outstanding bond and costs were deducted, only half of the remaining proceeds would flow into the joint estate – an amount the court found would fall short of settling the debt.
“The respondents’ arithmetic, which treats the full purchase price as available to settle their liabilities, is therefore flawed at its root,” said the Judge.
Owed for ages
The judgment also pointed to the broader issue in that the debt was long-standing.
Multiple attempts to recover the debt had failed, including writs of execution that yielded no assets and a sale in execution that attracted no bids. The respondents had also been in default on levy payments for more than seven years.
On that basis, the court found both an act of insolvency and factual insolvency had been established. Crucially, the court held that sequestration would likely benefit creditors.
In addition to the Parkview unit, the joint estate includes a second property in Meyerton, bought for R680,000, and there were indications of possible rental income that a trustee could investigate.
“The threshold for ‘advantage to creditors’ at the provisional stage is a modest one,” the court said, adding that there was a reasonable prospect that creditors could recover some value.
The court also dismissed the notion that the matter was simply about recovering a single debt. “Sequestration is not a debt-collection device for the benefit of a single creditor; it is a collective procedure,” the judgment said.
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Nicola Mawson
iol.co.za
