A receiver and liquidator in matrimonial affairs: A legal entitlement or a drastic measure?
Thulani Nkosi – De Rebus
The concept or the nature of a marriage in community of property – an instance in which the question of appointing a receiver and liquidator may arise where there is no agreement as to the division of the joint estate – was explained in the case of Estate Sayle v Commissioner for Inland Revenue 1945 AD 388. The court held that a marriage in community of property means that the spouses become joint owners in undivided half shares of the assets they possess at the time of their marriage as well as of all assets acquired by them during the subsistence of their marriage. The merging of the properties takes place automatically by virtue of being married in community of property and no delivery of movables or cession of rights is needed (see Rosenberg v Dry’s Executors and Others 1911 AD 679). Parties do not even have to expressly agree that they are joint owners in undivided shares of their joint estate.
This community of property continues for the duration of the marriage only to be terminated, together with the marriage, by either a decree of divorce or the death of one of the spouses. On termination of the marriage by death, the surviving spouse acquires his half share of the joint estate, because he owns it, and not through inheritance (JC Bekker Family Law: An Introduction (Cape Town: Juta & Co 1990) at 39). If the marriage is dissolved by divorce, the parties may agree on a division of the joint estate, in which event a settlement agreement may be drafted and incorporated in the decree of divorce as an order of court.
There are instances, however, where parties do not reach an agreement on how to divide their joint estate. In those instances courts have tended to allow the appointment of a receiver and liquidator to realise and divide the matrimonial assets. This is evident in the seminal case of Gillingham v Gillingham 1904 TS 609, where Innes CJ held at 613 that:
‘The law governing this matter seems to me perfectly clear. When two persons are married in community of property a universal partnership in all goods is established between them. When a court of competent jurisdiction grants a decree of divorce that partnership ceases. The question then arises, who is to administer what was originally the joint property, in respect of which both spouses continue to have rights? As a general rule there is no practical difficulty, because the parties agree upon a division of the estate … . But where they do not agree the duty devolves upon the court to divide the estate, and the court has the power to appoint some person to effect the division on its behalf. Under the general powers which the court has to appoint curators it may nominate and empower someone (whether he is called liquidator, receiver, or curator – perhaps curator is the better word) to collect, realise, and divide the estate.’
The practical questions that often arise when a receiver and liquidator is to be appointed are whether such an appointment is a legal entitlement or a drastic measure, and when should a receiver and liquidator be appointed? In other words, can a court withhold an order for the appointment of a receiver and liquidator? And when is such an appointment justified?
Legal entitlement or drastic measure?
I submit that if, on one hand, the appointment of a receiver and liquidator is held to be a legal entitlement, then parties are entitled to such an appointment by virtue of being co-owners of undivided shares in one joint estate that they cannot agree on how to divide. All that must be alleged to justify the appointment of a receiver and liquidator is that the parties cannot agree on a division and whichever spouse is bringing the application is merely exercising his existing right. The outcome of this is that a court must find good reason not to appoint a receiver and liquidator if either of the spouses demands it.
If, on the other hand, given the fact that a receiver and liquidator will pay himself from the proceeds of the joint estate, his appointment is held to be a drastic measure, then it will mean that there is no automatic right to appoint a receiver and liquidator. Under these circumstances it will not be enough to allege that the parties cannot agree on a suitable division. Something more than that as a matter of course must be alleged and proved. There is a heavier onus and burden of proof on the spouse that requests the appointment of a receiver and liquidator.
The receiver and liquidator burdens and reduces the value of the joint estate, but I submit that the appointment is a legal entitlement that each of the spouses has when there are disagreements on how to divide the joint estate. In support of this, I advance the argument that the appointment of a receiver and liquidator is designed to protect the ownership rights of both spouses when they cannot agree on a suitable division. If a court has no discretion to withhold an order for forfeiture of benefits if that is claimed by the innocent spouse, as was held in Opperman v Opperman 1962 (1) SWA 456 at 457H and in Ex Parte De Beer 1952 (3) SA 288 (T), then the court should also not have a discretion to withhold an order for the appointment of a receiver and liquidator when this is claimed by one of the spouses.
Further, it is settled law that a marriage in community of property creates what is called ‘tied’ co-ownership, where the rights of spouses are not only undivided but are also indivisible, as opposed to ‘free’ co-ownership, with freely disposable shares and the possibility of demanding a division at any time since each co-owned share is viewed as separate property (see Ex Parte Menzies et Uxor 1993 (3) SA 799 (C) at 811E-G). Holding that a spouse in a ‘tied’ co-ownership does not have an automatic right to the appointment of a receiver and liquidator leaves that spouse without a remedy.
Moreover, there have been instances where courts have allowed the appointment of a receiver and liquidator where parties have agreed to this in advance. In the case of Revill v Revill 1969 (1) CPD 325 at 326C-D Van Zyl J held: ‘In my opinion … the applicant is entitled to move this court for the appointment of a receiver, unless the respondent agrees with the applicant in regard to the appointment of a receiver.’ Van Zyl J also stated at 326 E-F that:
‘The true position is that no man can be a judge in his own cause. In other words, neither party can take upon himself or herself the right to divide the joint estate. In fact, no party in any form of community is entitled to divide the common property and the other party be forced to accept that position. Once either of the parties has no faith in the bona fides of the other party, he is entitled to demand the appointment of a receiver.’
It therefore follows that if parties can agree on the appointment of a receiver in advance where they foresee difficulties in dividing the joint estate, and courts give effect to that, it cannot then be said that, in the absence of an agreement providing for the appointment of a receiver, trying to appoint a receiver at a later stage is a drastic measure.
The ideal situation is for the parties to agree on the division of the joint estate and the legislature, through the enactment of s 7(1) of the Divorce Act 70 of 1979, encourages parties to divide their joint estate by agreement. Section 7(1) provides a statutory mechanism in terms of which written settlement agreements are recognised by the courts. The relevant part of the section provides that ‘a court granting a decree of divorce may in accordance with a written agreement between the parties make an order with regard to the division of the assets of the parties’.
The written agreement in s 7(1) may provide for the appointment of a receiver and liquidator, the identity of such liquidator and the powers of such a liquidator. This means that divorcing spouses may agree in advance to the appointment of a receiver and liquidator. In the case of Van Onselen NO v Kgengwenyane 1997 (2) SA 423 (B) the parties, in their settlement agreement, which was made an order of court, had agreed in advance on the appointment of a receiver and liquidator to be nominated by them to sell a property.
The above are reasons in support of the argument that the appointment of a receiver and liquidator is a legal entitlement and courts should not have a discretion to withhold such an appointment where it is justified, as in the case of an order for forfeiture of benefits.
When to appoint a receiver and liquidator
South African courts tend to apply in matrimonial affairs the principles applicable to the appointment of receivers and liquidators to divide assets of commercial partnerships (see the Van Onselen case at 428B).
Although there are similarities in the joint ownership of assets in commercial partnerships and marriages in community of property, the two are not the same and a crucial difference lies in the ‘free’ co-ownership of commercial partnerships and ‘tied’ co-ownership of marriages in community of property as set out above. Another stark difference is that it is settled law in commercial partnerships that, in the absence of any agreement between the partners on dissolution of the partnership, each partner gets a proportionate share of the assets according to his contribution (see Schrepfer v Ponelat (WCC) (unreported case no 17318/09, 26-8-2010) (Moosa J) at para 33).
In commercial partnerships partners will only get equal shares where their contributions were equal or where it is impossible to determine with certainty their exact contributions (see Isaacs v Isaacs 1949 (1) SA 952 (C) at 961). This does not apply in the dissolution by divorce of a marriage in community of property. In Engelbrecht v Engelbrecht 1989 (1) SA 597 (K) the position was stated as follows in the headnote:
‘Joint ownership of another party’s property is a right which each of the spouses acquires on concluding a marriage in community of property. Unless the parties (either before or during the marriage) make precisely equal contributions the one that contributed less shall on dissolution of the marriage be benefited above the other if forfeiture is not ordered. This is the inevitable consequence of the parties’ matrimonial property regime.’
In the absence of a forfeiture order, divorcing spouses will get equal shares irrespective of their contributions. HR Hahlo in The South African Law of Husband and Wife 5ed (Cape Town: Juta & Co 1985) at 157-158 states:
‘Community of property is a universal economic partnership of the spouses. All their assets and liabilities are merged in a joint estate, in which both spouses, irrespective of the value of their financial contributions, hold equal shares.’
This differentiation between these partnerships is of importance because for commercial partnerships our courts have held that they are not obliged to appoint a receiver and liquidator, and the same principles have been applied to the appointment of receivers and liquidators in matrimonial affairs. I submit that if principles developed to divide joint assets of commercial partnerships are to be employed in the division of matrimonial assets, then those principles must be tweaked and changed to the extent necessary to fit the circumstances of matrimonial assets.
Circumstances in which a receiver and liquidator may be appointed
The court in the case of Robson v Theron 1978 (1) SA 841 (A) at 855C held that a court has a wide equitable discretion in making a division of the joint estate, having regard, inter alia, to the particular circumstances, what is most advantageous to the co-owners and what they prefer. Two decisions in the KwaZulu-Natal division have held that courts are not obliged to appoint a receiver and liquidator. In Moosa NO and Others v Akoo and Others  1 All SA 585 (N) at 591G Msimang J held that:
‘… upon dissolution of a partnership, the court is not obliged to appoint a liquidator to realise the partnership assets, that no party is entitled to such an appointment and that the court has a wide equitable discretion on the issue … .’
Tshabalala JP in Bushnell v Robert (KZD) (unreported case no 6482/08, 9-9-2008) (Tshabalala JP) at 13 held that ‘whilst it is correct that a court is not obliged to appoint a liquidator upon dissolution of a partnership, the court has a discretion to appoint a liquidator’. In exercising its discretion to appoint a liquidator a court will obviously look at various factors including the fact that the parties cannot agree and the size of the joint estate.
Other cases on this aspect suggest that there are at least two considerations to take into account. One, that where parties cannot agree on how to divide the joint estate, or where they no longer trust each other as often happens in divorces, then either one or both of them may approach the courts for the appointment of a receiver and liquidator. In Botha NO v Deetlefs and Another 2008 (3) SA 419 (N), for example, Koen J held at para 15 that:
‘Upon termination and in the absence of agreement, a receiver should in the ordinary course and in the absence of agreement as to how the dissolution of the partnership is to be achieved, be appointed to collect all assets, discharge debts and generally liquidate the partnership.’
Two, the joint estate itself must not be of so trivial a nature or value that it does not justify the appointment of a receiver and liquidator. In the case of Schoeman v Rokeby Farming Co (Pty) Ltd 1972 (4) SA 201 (N) at 206D-G the court, in deciding whether or not the size of the joint estate justified the appointment of a receiver and liquidator, held that:
‘[The plaintiff] could claim the appointment of a liquidator … . In this case, however, there does not seem to be any practical purpose in doing so. … There are no difficulties with regard to capital contributions and it is simply a question of determining the expenses that have been incurred in the farming operations. … The farming activities do not appear to have been particularly complex nor to have extended over a long period. In fact the partnership has been of a very restricted nature. In these circumstances, it appears to me to be unnecessary to go through the formality of having a liquidator appointed … .’
The nature, value and size of the joint estate were also factors considered in the Moosa NO case: ‘Clearly, the partnership activities in casu are much more extensive and have been transacted over a period of approximately five years’ (at 591F). In the Robson case the business involved a partnership of veterinary surgeons and the joint estate to be divided was the goodwill of the partnership. In opting not to appoint a receiver and liquidator, the court at 858F-G reasoned that:
‘The practical and equitable solution in the circumstances, according to the substantive principles of law governing the actio pro socio or the utilis actio communi dividundo, is for the court to place arbitrio judicis a valuation on the goodwill with due regard to the particular circumstances concerning its value at the date of dissolution of the partnership and to order Dr Robson to pay Dr Theron one half thereof.’
Notwithstanding the above, Tshabalala JP in the Bushnell case held at para 13 that: ‘Therefore, as one can see from the abovementioned cases, there can be no general rule as to when a receiver/liquidator is appointed, each case should be judged according to its facts.’
Although parties should be encouraged to settle on an amicable division of their joint estate, where this is not possible the appointment of a receiver and liquidator should be recognised as a right they have where the circumstances of the joint estate permit such an appointment. If a court declines such an appointment, this not only leaves the parties without a remedy but may also force them to try to renegotiate, which may force a spouse in a weaker position to accept an unfair settlement in order to bring the proceedings to an end. The only solution if the court declines the appointment of a receiver and liquidator for fear that the appointment will burden the joint estate, is that the court itself must divide the estate. Existing case law suggests that courts have this power.
Thulani Nkosi BA LLB (Wits) is a candidate attorney at Wits Law Clinic in Johannesburg.