MD Genesis Corporate Solutions
If anybody thought that the turnaround profession was easy, they obviously have not had to navigate the legal framework that governs the profession.
I recently read an article on the Werksmans Attorneys website which shows how Rule 46 A has recently been put to the test. Let’s take a look at the background to the case and the case itself.
Let’s start at the beginning. Werksmans points out that Since Rule 46A of the Uniform Rules came into operation on 22 December 2017, South African Courts have recurrently held that the procedural protection afforded under Rule 46A does not apply to property owned by a company, close corporation or trust, even if such property is occupied for residential purposes by a natural person who is a shareholder, member or beneficiary of the respective company, close corporation or trust.
As pointed out earlier, this was recently put to the test in the case of Petrus Johannes Bestbier and Others v Nedbank Limited (150/2021) [2022] ZASCA 88 (13 June 2022) (Bestbier).
The historical background of Rule 46A
The Werksmans article points out that Rule 46A regulates the procedure for which execution creditors are to follow when seeking to execute a judgment debt against immovable property.
The legal genealogy of Rule 46A can be traced back to the case of Jaftha v Schoeman and Others; Van Rooyen v Stoltz and Others 2005 (1) BCLR 78 (CC) (“Jaftha“) wherein the Court was tasked to consider the constitutional validity of section 66(1)(a) of the Magistrates Courts Act 32 of 1944 (“the Magistrates Court Act”) which permitted the sale in execution of property in order to satisfy a debt, without any judicial oversight.
The article adds that, in Jaftha, the judgment debtor, being unable to meet a judgement for non-repayment of a meagre loan of R 250, was forced to vacate her home, which was sold in execution for R 5 000 — far below the market-value of the property.
Recognising the injustice caused to the judgment debtor, the court held that a sale in execution of residential immovable property was subject to the judgment debtors’ right to have access to adequate housing under section 26 of the Constitution, and that the failure to provide, in section 66(1)(a) of the Magistrates’ Court Act, for judicial oversight over sales in execution of immovable residential properties of judgment debtors was unconstitutional and invalid. The Constitutional Court further held that the main reason for judicial oversight is to prevent execution against the homes of indigent debtors, where they stand to lose their security of tenure and risk being rendered homeless.
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The article points out that in 2011, the constitutional principle established by Jaftha was applied and further developed by the Constitutional Court in the case of the Gundwana v Steko Development and Others 2011 (3) SA 608 (CC) (Gundwana) by confirming the need for judicial scrutiny in all execution cases concerning residential property and not just in exceptional cases such as those presented in the case of Jaftha.
It is against the background of Jaftha and Gundwana that Rule 46A was enacted: to give effect to section 26 of the Constitution and afford vital protection to indigent persons who risk losing their homes.
The interpretation of Rule 46A prior to Bestbier
The Werksmans article points out that, to understand why the Courts have traditionally adopted “a blanket approach” that Rule 46A does not apply to property owned by juristic persons and trusts, one need not look any further than the wording of the rule itself which states as follows:
“(1) This rule applies whenever an execution creditor seeks to execute against the residential immovable property of a judgment debtor.
(2)(a) A court considering an application under this rule must –
(i) establish whether the immovable property which the execution creditor intends to execute against is the primary residence of the judgment debtor; and
(ii) consider alternative means by the judgment debtor of satisfying the judgment debt, other than execution against the judgment debtor’s primary residence.
(b) A court shall not authorise execution against immovable property which is the primary residence of a judgment debtor unless the court, having considered all relevant factors, considers that execution against such property is warranted.
(c) The registrar shall not issue a writ of execution against the residential immovable property of any judgment debtor unless a court has ordered execution against such property.”
In this regard it is submitted that a literal reading of Rule 46A(1) instructs that:-
The rule will only apply if:
- the immovable property is used for residential purposes by the person cited as the judgment debtor; and
- the judgment debtor is the registered owner of the immovable property.
The rule does not apply if the judgment debtor and the occupier of the property are two different persons.
The article adds that, in FirstRand Bank Ltd v Folscher and another and similar matters 2011 (4) SA 314 (GP) (Folscher) the court considered the meaning of “primary residence” and “judgment debtor” and held that:
- a person’s primary residence is the dwelling where they usually live, typically a house or an apartment, and a person can only have one primary residence at any given point in time;
- a “home” means the place where one lives; the fixed residence of a family or household; a dwelling house or the physical structure within which one lives, such as a house or apartment”;
- “housing” means “shelter” or “lodging”; and
- the term “primary residence” was held to be the same concept as “the home of a person”
In considering the meaning of the term “judgment debtor” the court in Folscher referred to the case of Standard Bank of South Africa Ltd v Saunderson and Others 2006 (2) SA 264 (SCA) (Saunderson) wherein it was held that the term refers to “an individual, a person” and concluded that:
- “It is therefore the primary residence owned by a person that falls within the purview of the rule“; and
- “Immovable property owned by a company, a close corporation or a trust, of which the member, shareholder or beneficiary is the beneficial owner, is not protected by the amended rule requiring judicial oversight by way of an order of court authorising a writ of execution, even if the immovable property is the shareholder’s, member’s or beneficiary’s only residence.”
The Werksmans article points out that, following the dictum in Saunderson, the court in Investec Bank Limited v Fraser NO and Another 2020 (6) SA 211 (GJ) (“Investec v Fraser“) similarly held that “if the judgment debtor is not a natural person, the constitutional considerations and protections are not available to such a judgment debtor and the right to access adequate housing in section 26 of the Constitution is not implicated“.
It is a known fact that legal entities and trusts are not capable of residing in property and calling it a home as they (as the court aptly put it in British Steel Corporation v Granada Television Ltd [1981] AC 1096 (HL)), have “no body to be kicked and no soul to be damned”.
The article adds that, in light of the above, it is not difficult to see why the Courts – until now – have regarded the persona of the judgment debtor as an essential enquiry to be made when determining whether a judgment debtor’s section 26 rights would be violated if his or her property is sold in execution, and by implication the application of Rule 46A.
Findings of the court in Bestbier
In determining the question of whether Rule 46A applies to an immovable property owned by a trust wherein it was alleged that the dwelling is a primary residence of the trust beneficiaries, the SCA in Bestbier held inter alia that:-
The article points out that the underlying rationale of Rule 46A is to impose procedural rules to give effect to the fundamental right to adequate housing. Thus, Rule 46A must be interpreted purposively to achieve what was stated in Jaftha and prevent the social injustices of execution processes.
The object of judicial oversight is to determine whether rights in terms of section 26(1) of the Constitution are implicated. Judicial oversight is therefore constitutionally required so that the judicial officer can engage in a balancing process and consider all the relevant circumstances of a case to determine whether there is good cause to order execution against the immovable property concerned.
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The article adds that it is clear from a plain reading of the entire text of rule 46A that it is important to have a preceding enquiry in all cases where the immovable property of the judgment debtor is used as residential immovable property. This preceding enquiry should be directed at establishing whether the persons occupying the immovable property in question are of the ‘Jaftha kind’. A creditor seeking to execute against immovable property owned by a trust would have to establish whether beneficiaries of that trust occupy the immovable property in question. Where that has been established, rule 46A would have to be followed.
Rule 46A(2) provides that a court considering an application in which a creditor seeks to execute against the judgment debtor’s immovable property must consider various matters. Given that rule 46A(2) provides that a court ‘shall not’ authorise execution unless ‘all relevant factors’ have been considered, there is no reason why the fact that the relevant immovable property is owned by a trust and occupied as a place of residence by the beneficiaries of that Trust should not be one of the factors to be taken into account.
The article points out that it is therefore incorrect to conclude that a person to be protected by Rule 46A is, in the tradition of Jaftha and Gundwana, a natural person and not a legal person such as a company or a close corporation, nor an institution such as a trust even if the immovable property is the shareholder’s, member’s or beneficiary’s only residence.
Having regard to the above, it is clear that the main import from the Bestbier case is this: in order to adequately give effect to section 26 of the Constitution, rule 46A ought to be interpreted broadly and purposefully to include residential property occupied by “beneficial owner” through a juristic person or trust.
The article adds that, in light of the SCA’s full concurring bench judgment in Bestbier, it would appear that the identity of the registered owner of the immovable property has now become redundant. The relevant question is rather who occupies the residential immovable property sought to be declared executable in order to establish whether Rule 46A finds application.
Conclusion
The Werksmans article points out that the decision of Bestbier has been highly criticised by legal practitioners for holding that Rule 46A is applicable to property owned by juristic person and trusts. Irrespective, however, of the view held by some that it is the SCA which got it wrong, the decision (until over overturned by a higher court) is binding and must be adhered to.
The article adds that given the broad interpretation of Rule 46A by the SCA it may be necessary for execution creditors to adopt a bells and whistle approach to fully comply with Rule 46A. As challenging and cumbersome as this may be, we advise creditors to obtain as much information as possible regarding the occupants of a property (irrespective of who the registered owner is) before instituting applications to declare property specially executable.
Phahlani Mkhombo is the MD of Genesis Corporate Solutions and is a Senior Business Rescue Practitioner.
