In what circumstances can provisional trustees sell an insolvent estate’s immovable property?

(By Lucinde Rhoodie and Mari Bester, Cliffe Dekker Hofmeyr)

The Supreme Court of Appeal (SCA) in Swart v Starbuck & Others 2016 ZASCA 83, reaffirmed the necessary authorisation for a trustee of an insolvent estate to sell an insolvent estate’s immovable property.

Mr Swart’s estate was finally sequestrated on 1 November 2005. On 24 January 2006, three provisional trustees were appointed by the Master of the High Court. At the time of Mr Swart’s provisional sequestration, he owned certain immovable properties (Properties).

On 16 November 2005, a third party submitted written offers to purchase the Properties to one of the trustees only. At the time the trustees were not yet formally appointed as provisional trustees of the insolvent estate, but had only been advised by the Master of the intention to appoint them as such.

The sales were subject to the suspensive condition that the trustees must obtain consent from the Master to sell the Properties. The offers to purchase were accepted by the trustees as the ‘seller’, before his formal appointment.

In terms of s18(3) of the Insolvency Act, 24 of 1936 (Act) a provisional trustee has the same powers and duties as a final trustee, except that he shall not have the power to sell any property belonging to the insolvent estate unless authorised to do so by the court or the Master, and subject to such conditions as the Master may direct.

However, s80bis of the Act permits a trustee, at any time before the second meeting of creditors, if satisfied that immovable property of the estate should be sold, to recommend, with reasons, such sale to the Master in writing. The Master may then authorise the sale of such property on such conditions and in such manner as the Master may direct.

The trustees submitted a written application to the Master in terms of s80bis, as read with s18(3) of the Act, for the extension of their powers to enable them to sell the Properties by way of private treaty, which consent was granted by the Master.

The issue before the court a quo was whether the sale of the Properties was irregular and constituted a maladministration of the insolvent estate because:

- the trustees did not have the necessary authority, alternatively, capacity, to accept the offers, as at the relevant time they were not yet appointed as provisional trustees;
- the trustees did not have extended powers in terms of s18(3) of the Act; and
- the trustees had not been granted any authorisation by the Master in terms of s80bis of the Act, to sell the Properties to the purchaser.

The SCA confirmed the decision of the court a quo and found that the trustees were permitted to sell the Properties, having been duly authorised by the Master in terms of s80bis of the Act, notwithstanding the fact that when the trustees entered into the sale agreement they were not formally appointed. The SCA based its decision on the fact that the acceptance of the offers to purchase was made subject to the Master granting the necessary consent. Without this suspensive condition, the SCA may have declared the agreement void.

As a warning to trustees, the SCA made reference to s82(8) of the Act which, if applicable, holds trustees liable for damages payable to an insolvent estate if the trustees dispose of property without being duly authorised to do so.

The SCA reiterated the principles of South African law of property’s abstract system of valid transfer of ownership, being:

- delivery, which is effected by the registration of transfer in the deeds office; and
- a real agreement, which is the intention on the part of the transferor to transfer ownership and an intention on the part of the transferee to become owner, irrespective of any legal defect to the written sale agreement.

Despite South African law recognising an abstract system of transfer of ownership, it may be prudent for trustees to include a suspensive condition in the sale agreement stipulating that the sale is subject to the necessary Master’s authorisation being obtained at the date of transfer of the immovable property. This precautionary measure could prevent wasteful litigation, the possibility of agreements being declared null and void, and trustees being held liable for damages towards the insolvent estate.

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