The estate of a debtor who has committed an act of insolvency or who is in fact insolvent may be sequestrated. “Debtor” is defined in section 2 of the Insolvency Act No. 24 of 1936 (“Act”), as “a person or a partnership or the estate of a person or partnership which is a debtor in the usual sense of the word, except a body corporate or a company or other association of persons which may be placed in liquidation under the law relating to [c]ompanies”.
There are specific estates which, due to their nature, cannot be placed under sequestration, but in all such circumstances, there is normally always some other remedy that is available to creditors demanding performance.
The case of Lawclaims Proprietary Limited v Rea Shipping Company SA 1979 (4) SA 745 (N) held that a body corporate which could not be liquidated in terms of the Companies Act No. 71 of 2008 (“Companies Act”) was a debtor in terms of section 2 of the Act and that the court has the power to sequestrate it if a proper case has been made out.
On this basis it could have been argued that a body corporate of a sectional title scheme is included in the ambit of the definition of ‘debtor’ in section 2 of the Act and thus can indeed be sequestrated, because section 36(5) of the Sectional Titles Act No. 95 of 1986 (“Sectional Titles Act”) excludes the application of the Companies Act in relation to a body corporate established under the Sectional Titles Act.
Similarly, in Ex parte Body Corporate of the Caroline Court 2001 (4) SA 1230 (SCA), the court confirmed the judgment of the court a quo which held that a body corporate cannot be wound-up due to its inability to pay its debts, as section 36(5) of the Sectional Titles Act precludes the application of the provisions of the Companies Act.
However, in the Reddy v Body Corporate of Croftdene Mall 2002 (5) SA 640 (D), the court held that such a body corporate is not a debtor for the purposes of the Act. The court submitted that a body corporate established in terms of the Sectional Titles Act is a body corporate as defined in terms of the common law as well as a debtor as defined in section 2 of the Act and, hence, cannot therefore be subject to sequestration or liquidation under the Companies Act.
The court held that the Sectional Titles Act contemplates winding-up only in the context of the sectional title scheme ceasing to exist, and in such cases section 48(6) of the Sectional Titles Act would apply.
Consequently, although a body corporate is excluded from the provisions of the Companies Act in terms of section 36(5) of the Sectional Titles Act, it can also not be regarded as a debtor in terms of section 2 of the Act. Therefore, it has been submitted, that the intention of the legislature for the wording of the definition of “debtor” in the Act, ‘which may be placed in liquidation under the law relating to [c]ompanies’, governs not only ‘other association of persons’, but also the words which immediately precede them, namely, ‘a body corporate or company’.
Thus, it can be argued that a body corporate which cannot be placed under liquidation in terms of the Companies Act should be subject to sequestration as a means of enforcing payment of its debts.