- Surplus funds may be transferred to recognised foreign trustees rather than to the Guardians’ Fund.
- Section 116 does not apply where a foreign trustee is recognised, and the foreign estate is in deficit.
- The judgment confirms that statute and common law can coexist in cross-border sequestration.
Surplus funds in a South African insolvent estate must be transferred to a recognised foreign trustee once local creditors have been paid, where the foreign estate is in deficit.
This was the ruling of the Supreme Court of Appeal, which dismissed Jurgen Scheer’s appeal and confirmed that Section 116 of the Insolvency Act does not apply in those circumstances.
Parties and background
Represented by South African law firm Cox Yeats, Raoul Gregor Wagner, acting as trustee of the Austrian insolvent estate of Scheer, had applied for recognition in South Africa and for an order permitting the transfer of surplus funds from the South African estate to Austria. The Austrian estate reflected a shortfall of more than €4.4 million.
The High Court in the Western Cape granted the relief sought. Scheer appealed the decision, arguing that the surplus should instead be paid into the Guardians’ Fund.
Legal issue and arguments
The central question was whether Section 116 of the Insolvency Act requires surplus funds to be paid into the Guardians’ Fund where a foreign trustee has been recognised and a concurrent foreign insolvency process exists.
Scheer relied on Section 116, arguing that it applies to surplus funds in South African insolvency proceedings.
Wagner argued that Section 116 does not apply where there are a recognised foreign trustee and a deficit in the foreign estate, and that the foreign trustee is entitled to the surplus once local creditors have been satisfied.
Court findings and reasoning
The court held that Section 116 does not apply where there is a recognised foreign trustee and the foreign estate reflects a deficit. It also noted that legislation does not alter the common law unless that intention is clear.
The court further held that a foreign trustee appointed in the jurisdiction of the insolvent’s domicile is entitled, upon recognition, to any surplus remaining after local creditors have been satisfied. The court also emphasised that meaning must be informed by constitutional values.
Impact on insolvency practice
The judgment confirms that a recognised foreign trustee may seek the transfer of surplus funds from a South African estate without having to prove a claim as a creditor under Section 44.
It also settles the position that Section 116 does not apply where a foreign trustee has been recognised, and the foreign estate reflects a deficit.
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