THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case No: 240/2016
In the matter between:
THE BODY CORPORATE OF EMPIRE GARDENS

APPELLANT

And

NOBUHLE GLORIA SITHOLE

FIRST RESPONDENT

NEDBANK LIMITED

SECOND RESPONDENT
Neutral citation: Body Corporate v Sithole & another (240/2016) [2017] ZASCA 28
(27 March 2017)
Coram:
Tshiqi, Wallis, Petse and Mbha JJA and Nicholls AJA
Heard:
6 March 2017
Delivered:
27 March 2017
Summary:
Application for compulsory sequestration : advantage to creditors as
contemplated in s 10(c) of the Insolvency Act, 24 of 1936 not proven : no basis to find
that a body corporate of a sectional title development need not prove pecuniary
benefit to the general body of creditors.

___________________________________________________________________

ORDER
___________________________________________________________________
On appeal from: The High Court Gauteng Division, Pretoria (De Klerk AJ sitting as
court of first instance):
a) The appeal is dismissed.
________________________________________________________________

JUDGMENT
___________________________________________________________________
Tshiqi JA (Wallis, Petse and Mbha JJA and Nicholls AJA concurring):

[1] The issue in this appeal is whether in an application for compulsory
sequestration, a body corporate of a sectional title development is required to prove
that the order of sequestration sought will be to the advantage of the whole body of
creditors as contemplated in s 10(c) of the Insolvency Act 24 of 1936 (Insolvency
Act).1

[2] The appellant, the body corporate of Empire Gardens (the E G Body
Corporate) was established in accordance with s 36 of the Sectional Titles Act, 95 of
1986 (the Sectional Titles Act). The first respondent, Ms Nobuhle Sithole, is the joint
registered owner of unit 12 of the sectional title scheme of the E G Body Corporate
and is accordingly, in terms of s 36(1) of the Sectional Titles Act, one of the members
of the E G Body Corporate. The other registered owner of the unit is the first
respondent’s sister, Ms Cynthia Sithole, but she was not cited as a party in these

1[1] Section 10(c) of the Insolvency Act 24 of 1936 provides:
‘If the court to which the petition for the sequestration of the estate of a debtor has been presented is of the
opinion that prima facie
(a) . . .
(b) . . .
(c) there is reason to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated,
it may make an order sequestrating the estate of the debtor provisionally.’

proceedings. Any reference to Ms Sithole in this judgment will thus be a reference to
Ms Nobuhle Sithole.

[3] Section 37(1)(a) of the Sectional Titles Act, provides that a body corporate is
obliged to:
‘. . . establish for administrative expenses a fund sufficient in the opinion of the body
corporate for the repair, upkeep, control, management and administration of the common
property (including reasonable provision for future maintenance and repairs), for the payment
of rates and taxes and other local authority charges for the supply of electric current, gas,
water, fuel and sanitary and other services to the building or buildings and land, and any
premiums of insurance, and for the discharge of any duty or fulfilment of any other obligation
of the body corporate;’

In terms of s 37(1)(b) it must require the owners of the units, who, in terms of s 36(1),
are also members of the body corporate, to make contributions, where necessary, to
the fund  established in terms of s 37(1)(a), for the purposes of satisfying any claims
against the body corporate. It must determine from time to time amounts to be raised
from each member and must raise the amounts by levying contributions on the
owners in proportion to the quotas of their respective sections (s 37(1)(c) and (d)).

[4] The Sithole sisters, as joint owners of the unit were obliged to pay their
proportionate share of the levies, but they defaulted and two default judgments in the
amounts of R13, 385.70 and R99, 298.80 were granted against them respectively. In
order to satisfy the judgments, their movable assets were attached and sold at an
auction, but it only realised an amount of R3, 237. The Sheriff first appropriated the
money towards the payment of his fees and costs and declared a shortfall of R147.23
in respect of his fees and costs. The consequence was that the E G Body Corporate
received nothing from the proceeds.

[5] In a further attempt to satisfy the judgments, the E G Body Corporate obtained
a warrant of execution against their immovable property and the unit was attached
and sold at an auction, but the sale had to be abandoned because the second
respondent, (Nedbank) which had a mortgage bond registered in its favour in respect
of the unit, did not accept the selling price of R170 000. The E G Body Corporate

then launched an application for Ms Sithole’s sequestration. It alleged that Ms Sithole
appeared to be factually insolvent in view of the fact that she had not paid for her
levies, and because her movable assets had only realised a meagre amount of
R3,237. It also referred to a judgment in the amount of R31 008 in favour of an entity
known as Amazing Properties CC, which it alleged had been granted against her but
remained unsatisfied.

[6] Regarding the advantage to creditors the E G Body Corporate stated in the
founding affidavit that:
‘. . . a Body Corporate need not show a pecuniary benefit when it applies for the
sequestration of its members. In this regard, it is important to point out that the Applicant is
not a normal concurrent creditor in insolvent estates. Because of the nature of a sectional
title development, the Applicant enjoys a certain preference over other creditors. Section 89
of the Insolvency Act, 24 of 1936 (as amended) read with Section 15B of the Sectional Titles
Act, 95 of 1986 states that the Applicant is a preferential creditor for any unpaid levies or
contributions. The position has been confirmed by the Supreme Court of Appeal in the
decision of Barnard NO vs Regspersoon van Aminie en ‘n ander 2001 (3) SA 973 (SCA).
As stated in 8.3 above, the concept of advantage to creditors where a sectional title scheme
is the Applicant has been the topic of many debates. The current position is that where a
Body Corporate applies to have a member sequestrated the guiding principle should be the
removal of the defaulting member from the scheme in order to bring the negative effect of her
actions to an end.’

[7] Ms Sithole, who opposed the application as an unrepresented party in the
court a quo, did not meaningfully deal with the provisions of the Insolvency Act and it
is thus not helpful to unduly burden this judgment with the contents of her affidavit. In
this appeal Ms Sithole was also unrepresented, but Ms Nhlapho, counsel at the Free
State Society of Advocates made herself available, as an amicus, at short notice. We
are indebted to her and the Free State Society of Advocates for their assistance.

[8] Nedbank, which has a mortgage bond over the unit, obtained leave of the
court a quo to intervene in the sequestration proceedings. It opposed the application
mainly on the basis that it was not proved that the sequestration would be to the
advantage of any creditor other than the E G Body Corporate. It said that its bond
instalments were up to date. It further criticised the fact that the application was

against only one of the co-owners of the unit and highlighted the fact that if an order
of sequestration were granted in respect of only one co-owner, the trustee would face
practical difficulties in dealing with half of the value of the unit. The court a quo
accepted the submission by Nedbank that a sequestration order would only benefit
the E G Body Corporate and it consequently dismissed the application and
subsequently granted leave to this court.

[9] The purpose and effect of the sequestration process is ‘to bring about a
convergence of the claims in an insolvent estate to ensure that it is wound up in an
orderly fashion and that the creditors are treated equally’.2 (See Investec Bank Ltd &
another v Mutemeri & another 2009 ZAGPJHC 64; 2010 (1) SA 265 (GSJ) at 274-
275.) It cannot fittingly be described as a mechanism to be utilized by a creditor to
claim a debt due by the debtor to one single creditor. (See Collett v Priest 1931 AD
290 at 299.) Once a sequestration order is made, a concursus creditorum comes into
being. This means that the rights of the creditors as a group are preferred to the
rights of the individual creditor.

[10] The phrase ‘advantage to creditors’ is not defined in the Insolvency Act, but if
the principle of concursus creditorum is taken into account, it means that there should
be a reasonable prospect of some pecuniary benefit to the general body of creditors
as a whole. (See Lynn and Main Inc. v Naidoo & another 2006 (1) SA 59 (N) paras
33-35; Ex Parte Bouwer and Similar Applications 2009 (6) SA 382 (GNP) para 13).
This requirement is fulfilled where it is established that there is reason to believe that
there will be advantage to a ‘substantial proportion’ or the majority of the creditors
reckoned by value.3 (See Fesi & another v Absa Bank Ltd 2000 (1) SA 499 (C) 505-
506; Trust Wholesalers and Woolens (Pty) Ltd v Mackan 1954 (2) SA 109 (N);
Samsudin v De Villiers Berrange NO [2006] SCA 79 (RSA)). Although advantage to
creditors is not a rigid concept (Stratford v Investec Bank 2015 (3) SA 1 (CC) para
44) it requires proof of a tangible benefit to the general body of creditors.

2 P M Meskin Insolvency Law and its Operation in Winding Up Service Issue 47 (December 2016) at 2 – 1, para
2.1.
3 Ibid at 2 – 20 – 2 – 24 para 2.1.4.

[11] In this appeal counsel for the E G Body Corporate urged this Court to deviate
from the trite principle of concursus creditorum and conclude that it is not necessary
for bodies corporate to prove actual or prospective pecuniary benefit to the general
body of creditors. He submitted that a body corporate only needs to establish that it
has exhausted all reasonable execution remedies in respect of the movable assets
and immovable properties of one of its members. According to him this distinction is
necessary, because bodies corporate are not merely acting to protect their own
financial interests, but have a statutory obligation to protect the interests of all the
members who are prejudiced when a single member fails to pay their arrear levies.
Counsel confirmed that he was not asking this Court to develop the common law and
agreed that no such case was made out in the papers. He was also constrained to
concede that the Insolvency and the Sectional Titles Acts, do not provide for the
distinction sought.

[12] The fundamental problem with the proposition is that the difficulty experienced
by bodies corporate in collecting arrear levies is not a novel one. It is part of a ‘socio-
economic problem’. (See Body Corporate of Geovy Villa v Sheriff Pretoria Central
Magistrate’s Court, & another 2003 (1) SA 69 (T) at 73 paras 6-7; Barnard NO v
Regspersoon van Aminie 2001 (3) SA 973 (SCA) at 981 D-F; South African Law
Journal.4) Since 1986 the legislature has effected several amendments to the
Sectional Titles Act,5 but has not deemed it fit to accord bodies corporate any other
preferential treatment beyond that provided through the provisions of s 15B
(3)(a)(i)(aa) of the Sectional Titles Act and s 89(1) of the Insolvency Act. Section
15B(3)(a)(i)(aa) provides that a sectional title unit cannot be transferred to the name
of a new owner unless a clearance certificate is obtained from the body corporate
and, provision is made for the payment of all arrear contributions. In terms of s 89(1)
of the Insolvency Act, outstanding levies due to the body corporate are treated as
being part of the cost of realisation. (See Nel NO v Body Corporate of the Seaways
Building & another 1996 (1) SA 131 at 140 A-D; First Rand Bank Limited v Body
Corporate of Geovy Villa 2004 (3) SA 362 (SCA) at para 27).

4 N Segal ‘Any cure for the body corporate blues?’ (2004) 121 SALJ at 552 – 555.
5 1991;1992;1993;1997;1999;2002;2003;2005;2006;2010;2011 and 2013.

[13] This Court cannot usurp the functions of the legislature and grant the immunity
from the Insolvency Act now being sought. There is thus no basis to make the
distinction between bodies corporate and other creditors.

[14] The other fundamental problem that the E G Body Corporate is facing, is the
fact that the debt allegedly owed to Amazing Properties CC has not been proved and
Nedbank, which is both a major and preferential creditor has objected to the
application on the basis that its monthly instalments are paid regularly. It is not clear
on the papers how Ms Sithole is able to pay for the mortgage bond, but there is no
basis to conclude that a sequestration order would be to Nedbank’s advantage, and
hence to the general body of creditors. Simply put the E G Body Corporate is seeking
to obtain a preference that neither the Sectional Titles Act, nor the Insolvency Act
confers upon it. That would require an amendment of these statutes, which is a
matter for Parliament, not this Court.

[15] I therefore make the following order:
(a) The appeal is dismissed.

___________________
Z L L Tshiqi
Judge of Appeal

APPEARANCES

For the Appellant:
J Vorster and W J Botha
Instructed by:
Christo Sutherland Attorneys, Pretoria

Francois Van der Berg Van Vuuren Attorneys

Bloemfontein

For the First Respondent:
In person

Amicus Curiae:
K Nhlapo