Background

Scheer’s estate was sequestrated in Austria on 19 July 2017, following which the applicant was appointed as its trustee on 7 August 2017. At the time of the final sequestration order, Scheer was domiciled in Austria and the majority of his creditors and assets were in Austria.

Scheer’s South African estate was finally sequestrated in 2018 and his trustees confirmed that after its administration, it would have surplus funds which would be paid to the Master of the High Court in terms of section 116 of the Insolvency Act 24 of 1936 (Act). Central in this case, this section of the Act states that:

“If after the confirmation of a final plan of distribution there is any surplus in an insolvent estate which is not required for the payment of claims, costs, charges or interest, the trustee shall, immediately after confirmation of that account, pay that surplus over to the Master who shall deposit it in the Guardians’ Fund and after the rehabilitation of the insolvent shall pay it out to him at request.”

The applicant’s case

The applicant alleged, inter alia, that there would not be sufficient funds in Scheer’s Austrian insolvent estate to pay all claims and costs, mainly because of different values ascribed by the applicant regarding a property known as Gut Kellerhof (the property). It was further contended by the applicant that the total claims and administrative costs attached to Scheer’s Austrian estate amounted to €4,855,967.01, while its estimated assets’ total value was alleged to be €3,790,000.

Moreover, and in his supplementary affidavit, the applicant explained that it had been difficult to sell the property for various reasons, including the impact of the COVID-19 pandemic and that the highest offer received for the property was a sum of €1,800,000 on 23 October 2023.

On 10 January 2024, the Austrian Bankruptcy Court authorised the sale of the property for €1,800,000, which was approved by Scheer’s Austrian creditors and, based on the above figures, there would be, as the applicant’s argument went, a significant shortfall in Scheer’s Austrian estate.

Scheer’s case

Conversely, Scheer contended that the value that should be used for determining whether there would be a shortfall in his Austrian estate was €3,330,000 and that he disputed the inclusion of other liabilities in his estate. Scheer further argued that the principle of convenience demanded that his Austrian estate first be finalised as its administration was already underway and at an advanced stage, before comity to his insolvent South African estate be considered to settle any claims from his Austrian creditors. Essentially, Scheer’s argument was that the application before the court was premature.

The court’s findings

The High Court confirmed the general rule in South African law that a foreign trustee’s appointment will be recognised from an order in the debtor’s domicile and is granted on the grounds of comity and convenience.

With regard to comity, the court accepted the definition ascribed to this principle in the seminal case of Hilton v Guyot [1895] 159 US 113, as being:

“Neither a matter of absolute obligation on the one hand nor of mere courtesy or goodwill upon the other … but it is the recognition which one nation allows another within its territory to the legislative, executive or judicial act of another nation, having due regard both to international duty and convenience, and to rights of its own citizens or of other persons who are under the protection of its law.”

The court held that the applicant had standing to bring the application and that he had established that there was a real prospect that Scheer’s Austrian assets would be insufficient to meet the Austrian claims and the costs of those proceedings.

It was further held and accepted by the court that the applicant’s obligation as a trustee in terms of section 237 of the Austrian Insolvency (Bankruptcy) Code was for him to try to enforce the Austrian Bankruptcy Court’s order outside its borders for the benefit of Scheer’s Austrian creditors.

Pertinently, the High Court proffered a purposive interpretation of section 116(1) of the Act and found that the principles of comity, convenience and equity warranted that it grant the relief sought by the applicant, as there was no reason why he should not be granted access to the surplus funds when no prejudice would be suffered by Scheer’s South African creditors, but his Austrian creditors were likely to suffer prejudice in circumstances where it could step in to assist them on the basis of the abovementioned principles.

Conclusion

The importance of the court’s ruling in this matter cannot be overstated. It gives foreign trustees the comfort of knowing that South African courts ascribe to enforcing cross-border insolvency orders under the principles of comity, convenience and equity. Its finding that if Scheer (in this case) had unpaid creditors in a foreign jurisdiction, there was strictly speaking no surplus estate in South Africa once the foreign trustee was recognised by South African courts.