In the matter of Edkins vs the Registrar of Deeds, Johannesburg & Others, the South Gauteng High Court recently had the opportunity of considering this question.
Briefly, Edkins was a businessman who purchased residential property which he then leased to third parties or resold at a profit.
Edkins purchased the property of a distressed debtor (“the debtor/insolvent”) at a court approved sale in execution.
Edkins fully complied with all his obligations in terms of the sale agreement. Subsequently to this the debtor published a notice of his intention to surrender his estate in terms of the provisions of Section 4 of the Insolvency Act. The voluntary surrender of the insolvent’s estate was accepted and he was placed under sequestration in the hands of the Master of the High Court.
After Edkins instructed his attorneys to register transfer in his name, his attorneys advised him that, due to a Registrar’s Conference Resolution passed by the Registrar of Deeds (with regard to transfer of the property pursuant to a sale in execution where the debtor was sequestrated after date of the sale in execution), this was prohibited.
The Registrar of Deeds adopted the attitude that once the sequestration order had been granted, only the trustee may pass transfer subject to the provisions of Section 5 of the Insolvency Act.
The court, in dealing with the applicable legal principles, drew attention to the fact that:
1. The provisions of Rule 46(13) of the High Court rules makes it peremptory for the Sheriff to give transfer to a purchaser upon fulfilment of the conditions of sale. The sheriff therefore had a duty to transfer the immovable property to the applicant.
2. Despite the provisions of Section 20 of the Insolvency Act (which provides that the effect of sequestration of the estate of an insolvent shall be to divest the insolvent of his estate and to vest it in the Master until a trustee has been appointed), the legislature could not have intended to nullify a valid sale in execution which occurred before a debtor surrendered his estate. What is clear is that once the agreement of sale has been concluded, the debtor loses all authority over the property and only if the sheriff becomes aware of the sequestration prior to the sale, must be stay the sale in execution. This was not the case in this matter as the notice of surrender was only published well after the agreement of sale had been concluded with Edkins.
3. Despite the provisions of Section 5 of the Insolvency Act (which makes it unlawful to sell any property of the estate in question after the publication of a notice of surrender), it is common cause that the sale in execution in the present matter occurred before publication of the notice to surrender. The only exception is where the sheriff could not have known of the publication and this exception clearly applies in this present matter. The publication of a notice to surrender can therefore effectively stop a sale in execution that has not taken yet place but cannot stop a transfer of the property after the sale has already taken place.
In conclusion, the court stated that as the agreement of sale in execution was concluded before publication of the notice to surrender and as the insolvent knew full well that the bank had foreclosed on him, but deliberately waited until after the sale to publish the notice to surrender his estate, the trustees had no right to prevent transfer of the property. They simply could not have any such right as, at the time of the sale, the insolvent no longer had any authority over his immovable property.
This is an important judgement to be taken into consideration by property speculators who are often confronted with situations such as the one which presented Edkins and the judgement is to be welcomed as it acknowledges the rights of property speculators.
Written by Leander Opperman – partner – Adams & Adams