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To put it simply, it is possible. The main enquiry of this article is to find out whether compulsory sequestration is an appropriate remedy to enforce a claim for arrear maintenance.
Although the real aim of the sequestration process is not to enforce a claim, case law confirms that it is perfectly legitimate for a creditor to utilize sequestration proceedings as a debt collection tool. Furthermore, arrear maintenance which has accrued before sequestration in terms of an agreement or court order may be proved as a claim against the insolvent estate. However, although it is legitimate to use the sequestration process to collect debt, the creditor is still required in terms of the Insolvency Act to prove that prima facie there is reason to believe that it would be to the advantage of the respondent’s creditors if his estate were to be sequestrated. Only in extreme cases, and only once the requirements for sequestration have been met, can a parent apply for the other’s estate to be sequestrated based on the non-payment of arrear maintenance.
In a recent judgment handed down by Makaula J in the Eastern Cape High Court in the case of A v H, the estate of an unemployed father was sequestrated following an application which was brought by his ex-wife.
The facts of the case were as follows:
In May 2010, the parties were divorced by way of a settlement agreement. A term of the settlement agreement was that the Respondent, being the father of two minor children, would pay the Applicant maintenance for the minor children in the amount of R3000.00 per month per child. According to the Applicant, the mother, the Respondent did not comply with the terms of the agreement and fell into arrears in the amount of R360 000.00. A Judgment was therefore granted against the Respondent for the arrears owing. The Respondent’s defence to the application for sequestration was inter alia that he was unemployed and had no source of income.
Section 12(8) of the Insolvency Act 24 of 1936, (“the Act”) states that for a final sequestration order to be granted the court must be satisfied that:
8(1) the sequestrating creditor has established against the debtor a claim of not less than R100.00 entitling him or her to apply for the sequestration of the debtor’s estate (in this case, that requirement was met as the arrears amounted to R360 000.00);
8(2) either the debtor has committed an act of insolvency, or the debtor is Insolvent (this requirement was met, as detailed below); and
8(3) there is reason to believe that it will be to the advantage of creditors if the debtor’s estate be sequestrated (this requirement was met).
Although the Respondent made a case that he should be discharged from his obligation to pay maintenance due to his unemployment, the judge held that the judgment against him for the arrear maintenance stood as such order was never set aside by any court. The judgment debt was therefore valid, and the Applicant was indeed a judgment creditor of the Respondent. It was further never denied that the Respondent was insolvent. In fact, the Respondent admitted that he had no assets and was unemployable due to his age and lack of skills and/or education.
It has been held that once it is established that the requirements for insolvency have been satisfied, judges still have a discretion or choice as to whether the order for sequestration should be granted or not. Thus, it is not automatic that if the requirements are satisfied, sequestration will be granted. There is little authority, however, on how such discretion should be exercised and thus the onus rests with the Respondent to establish special or unusual circumstances that warrant the exercise of the court’s discretion in his or her favour.
The judge finally held that it was clear that on the Respondent’s own version, that he knew two years after the granting of the divorce that he could not meet his maintenance obligations in terms of the court order as he was unemployed. At such point he had assets that could have been liquidated to contribute towards the maintenance. He continued to not pay maintenance for five years following the divorce. Despite knowing of the arrear maintenance that he owed he sold all his assets and did not use the funds therefrom to contribute towards his debt. This ultimately prejudiced the minor children and thus the court granted the final order for sequestration of the Respondent’s estate.
If you have any queries regarding arrear maintenance or a new claim for maintenance, contact our office to speak to one of our professionals to assist in the process.