Hogan Lovells Publications | August 2014

The effects of publication of a voluntary surrender notice – Abuse of process vs the law

In recent years it appears to have become a common trend for distressed homeowners to publish voluntary surrender notices as a stratagem to stay execution proceedings instituted by creditors. We have also witnessed an increase in institutions approaching distressed homeowners following publication of a notice of sale in execution, purporting to be in the business of assisting distressed homeowners by guarding their homes from sales in execution by the sheriffs of the high courts. These notices are published in the Government Gazette and in a newspaper circulating in the area where the debtor resides.

In the matter of Letitia Nomafaku Ndema v Absa Bank Limited and Others (Case No 583/10 (ECD)), the Eastern Cape High Court heard an application by Ms Ndema in terms of which she sought an order rescinding a default judgment entered into against her in favour of Absa and setting aside the sale in execution of her property by the sheriff of the High Court that ensued. Ms Ndema had, upon Absa proceeding with a sale in execution, published a notice for the voluntary surrender of her estate on the same day as the sale in execution.

The application rested on the following contentions:

• That the default judgment granted by the registrar was void ab origine. In this regard Ms Ndema relied on the fact that the Constitutional Court has declared the practice in terms whereof registrars granted default judgments declaring immovable property executable, as being unconstitutional (See: Gundwana v Steko Developments CC and others 2011 (3) SA 608 (CC)).
• That she had provided a reasonable explanation for the delay in bringing the application for rescission, she had established that she was not in wilful default and that she had a bona fide defence to Absa's claim.
• The sale in execution was contrary to the provisions of section 5 of the Insolvency Act, 24 of 1936 (the Insolvency Act), in that it had proceeded despite the fact that she had published a notice of the voluntary sequestration of her estate on 20 October 2011.

For purposes hereof, we shall deal with the third contention in respect of the sale in execution.

Section 5 of the Insolvency Act provides as follows:

"After the publication of a notice of surrender in the Gazette in terms of section four, it shall not be lawful to sell any property of the estate in question, which has been attached under writ of execution or other process, unless the person charged with the execution of the writ or other process could not have known of the publication…"

In terms of the wording of section 5, the sheriff would have been obligated to stop the sale in execution once the publication of the notice had come to his attention. In this instance, however, the sheriff proceeded to sell the property by public auction. The sale conditions stated that the sale would be subject to the suspensive condition that Ms Ndema would be unsuccessful or not proceed with the application for voluntary surrender.

It is important to note at this juncture, that this was the second time that Mrs Ndema had utilised the provisions of section 5 and published a notice for the surrender of her estate to stop a sale in execution. On the first occasion, she did not proceed with the application for surrender following the sale in execution being cancelled. These facts were not drawn to the court's attention in her founding affidavit.

The Honourable Smith J in his judgement was of the view that counsel for Absa had convincingly argued that Mrs Ndema had disingenuously used the provisions of this section as a stratagem to frustrate Absa's attempts to have the property sold in execution. Once this objective had been accomplished, there was no need for her to proceed with the surrender.

The Honourable Judge found that the inclusion of the suspensive condition had effectively put the sale on hold pending the fulfilment thereof and that the transaction did therefore not constitute a sale of the property as envisaged in section 5. Accordingly, the application was dismissed with costs.

Although the facts of the case illustrate the court's willingness to extend its powers and in doing so, go to great lengths in balancing the conflicting interests of both the debtor and the creditor, application of the court's approach should be treated with great caution against the background of the wording of section 5, which is very clear and certain.

Over and above the wording of section 5, regard must also be had to the provisions of Rule 46 of the Rules of the High Court and the regulations thereto, which stipulate that a sale in execution must be without reserve. 

With respect, the writer is of the view that the honourable court should have upheld the law with regard to the third contention and set aside the sale in execution.

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