Ms. Nobuhle Sithole is one of the members of the Empire Gardens Body Corporate (hereinafter, referred to as “the Body Corporate”) by virtue of her joint ownership of a certain unit in the sectional title scheme. Her sister is co-owner of the unit. As joint owners of thereof, the Sithole sisters (judgment debtors) were under an obligation, in terms of the provisions of section 37(1)(a) and (b) of the Sectional Titles Act No. 95 of 1986, to pay their proportionate share of the levies, but they defaulted and two default judgments were granted against them respectively. Section 37(1)(a) and (b) places the Body Corporate under compulsion to establish a sufficient administrative fund, which makes provision for the repair, upkeep, control, management and administration of the common property, among others; and the Body Corporate is further required to amass such monies from the contributions required to be made by the owners.

As a result of the judgements granted, the movable assets of the judgment debtors were attached and sold at an auction, but only an amount not sufficient to cover the debt could be recovered. The judgments could therefore, not be satisfied. Moreover, the Sheriff of the court first deducted certain amounts in respect of his fees and costs, and even then, a shortfall remained. Thus, the Body Corporate did not receive anything from the proceeds.

Subsequently, the Body Corporate obtained a warrant of execution against their immovable property, so the unit was attached and sold at an auction. However; the sale was torpedoed by Nedbank, the bank holding a mortgage bond over the unit. Nedbank did not accept the selling price of R170 000.00 (one hundred and seventy thousand Rand). The blockage of the sale by Nedbank resulted in the application for the sequestration of Ms. Nobuhle Sithole’s estate.

The Body Corporate, however; failed to prove monetary benefit to all other creditors of Ms. Sithole (which includes Nedbank, a preferential creditor). Pursuant to this, the SCA found that there was no justification for it to usurp the functions of the Legislature by granting the Body Corporate immunity from what was intended when the provisions of section 10(c) of the Insolvency Act were formulated. It further held that it could not draw a distinction between bodies corporate and other creditors. The preferential treatment sought by the Body Corporate of its debt was found to not be conferred by neither the Sectional Titles Act, nor the Insolvency Act.

Ultimately, the Body Corporate was still left with no recourse against Ms. Sithole. The proclamation of Rule 46A of the Uniform Rules of Court, which requires that a reserve or minimum price should be set by the court that grants any debt judgment, which will see the sale of residential property in execution of such judgment, had the effect of curtailing the banks holding bonds over the property from causing the sale to be abandoned due to the fact that the levy defaulter is up to date with their bond repayments. The banks will have to accept any sale concluded at the reserve or minimum price and they cannot unilaterally veto such sales, as they did in the past.

In order for the transfer of ownership in the immovable property to be effected accordingly to the new buyer, the outstanding levies on the property will have to be settled by the buyer. This way, the debt owed to the body corporate or HOA will be discharged.

Reference List:

Case Law Body Corporate v Sithole & Another (240/2016) [2017] ZASCA 28 (27 MARCH 2017).

 

Legislation

Insolvency Act No. 24 of 1936.

Rules Board for Courts of Law Act No. 107 of 1985.

Sectional Titles Act No. 95 of 1986.

Uniform Rules of Court: Rules Regulating the Conduct of the Proceedings of the Several Provincial and Local Divisions of the High Court of South Africa.