Suing a Debtor – Make Sure Your Victory Isn’t a Hollow One
“Pyrrhic victory”, n. A very costly victory, wherein the considerable losses outweigh the gain, so as to render the struggle not worth the cost (Wiktionary)
With our economic woes unlikely to abate any time soon, expect an increasing number of your debtors to find themselves in financial difficulty. If you end up litigating against any of them the last thing you will want to do is to throw good money after bad.
And whilst fighting a court case and winning against a recalcitrant debtor is all very well, it’s a hollow victory if by the time you come to enforce your judgment the debtor has no assets left to execute against. You may have won the battle, but you’ll have lost the war. You’ll be left with nothing but a large legal bill and a very sour taste in your mouth.
So what can you do if, during the litigation, you realise that the court case is nothing but a delaying tactic to give the debtor time to dispose of or hide assets? Or perhaps the debtor genuinely thinks it has a valid defence to your claim but decides to get rid of assets just in case it loses. Either way, you risk having no assets left to execute against if you eventually win.
Fortunately our law has an effective remedy for you in the form of an “anti-dissipation interdict” (sometimes referred to as a “Mareva Injunction” which is a similar English remedy). Its effect is to freeze, until your case is finalised, enough of your debtor’s assets to satisfy any judgment in your favour.
A R230m case illustrates what you must prove
- A plaintiff suing in the High Court for R230m plus interest and costs became aware through media reports of a potential dissipation of the defendant’s assets in the form of a corporate unbundling exercise.
- It obtained an order that the defendant provide security of R430m and when this security was not forthcoming the plaintiff applied for an anti-dissipation interdict.
- The Court set out what you must prove thus –
- That the defendant “is dissipating assets or hiding assets”.
- That “there is reason to believe that such dissipation or hiding of assets is taking place mala fide [in bad faith] with the intention of defeating [your] claims”.
- In addition you “must satisfy the Court that all the other requirements for the granting of an interim interdict have been established.” These other requirements, as set out in many other cases, are proof of –
- A prima facie (“at first view”) right, even if it is subject to some doubt,
- A reasonable apprehension of irreparable and imminent harm to the right if an interdict is not granted,
- The balance of convenience must favour the granting of the interdict, and
- You must have no other remedy.
- Finding on the facts that the defendant (a company) was indeed disposing of its assets and would be left as only an empty shell after doing so, and that it was acting in bad faith and “with the view to frustrate the [plaintiff’s] claims and to render its victory in the pending action pyrrhic”, the Court granted the interdict.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.