In a case decided by Acting Judge De Wet (De Wet AJ), the South African courts faced the question of recognising a foreign trustee's authority in cross-border insolvency matters. This was unpacked in Wagner N.O v Gijsbers N.O and Others (20876/19) [2024] ZAWCHC 155.

This complex matter revolved around the interplay of international comity, convenience, and equity and was particularly significant due to its implications for the enforcement of foreign bankruptcy orders in South Africa.

Facts
Background of the Insolvency Proceedings
Jurgen Scheer's estate was declared bankrupt by the Commercial Court of Vienna (the  Austrian estate) on 19 June 2017, with the official receiver appointed on 7 August 2017. Scheer’s South African estate was sequestrated on 14 August 2018 and the joint trustees were appointed shortly thereafter.

The receiver in the Austrian estate brought an application in the High Court of South Africa, Western Cape Division for the recognition of his appointment as receiver of Scheer’s Austrian estate in South Africa, for the purpose of having the surplus funds in the South African estate transferred to Scheer’s Austrian estate for the benefit of his Austrian creditors. The South African trustees did not oppose the application.

The Dispute
The case centred on Jurgen Scheer, whose estates were simultaneously subject to insolvency proceedings in both Austria and South Africa. The applicant, in his capacity as the official receiver of Scheer's insolvent estate in Austria, sought an order from the South African courts recognising his appointment. The purpose of this recognition was to facilitate the transfer of surplus funds from Scheer’s South African estate to his Austrian estate, where a shortfall was anticipated after the settlement of all liabilities.

The total value of the assets in the Austrian estate amounted to €3.7 million while the liabilities, including the costs of the administration of the estate, amounted to €4.8 million. The total value of assets included the value of a luxury immovable property known as Gut Kellerhof.

The property was sold by the receiver for an amount of €1.8 million which sale was disputed by Scheer as he claimed that the property was sold for less than value. He claimed that the true value of the property was in the region of €2.75 million and had the receiver sold the property for that value there would not be a shortfall in the Austrian estate.

Scheer contested the application, arguing that the applicant lacked locus standi, as his appointment was not recognised in the South African jurisdiction and that the application was premature due to uncertainties about a shortfall in the Austrian estate arising from the sale of the immovable property. He contended that a shortfall in the Austrian estate could not be declared until the administration of that estate is finalised.

A further contention raised by Scheer was that the South African Insolvency legislation does not make provision for the transfer of surplus funds as sought by the applicant. In support of his contention, he referred to section 116(1) of the Insolvency Act 24 of

1936, which section makes provision for the surplus funds to be paid to the Guardians Fund to vest in the Master of the High Court until the rehabilitation of the insolvent, whereafter the funds will be paid to the insolvent upon rehabilitation.

Issues Raised

•   Recognition of Foreign Insolvency Proceedings: Whether the South African court should recognise the appointment of a foreign receiver to facilitate the movement of surplus funds.
•   Locus Standi: Whether the applicant had the standing to bring the application given the foreign insolvency proceedings.
•   Prematurity of the Application: Whether the application was premature considering the ongoing administration of the Austrian estate and the uncertainty regarding the existence of a shortfall.
•   Comity, Convenience, and Equity: Whether the principles of comity, convenience, and equity support the recognition of the foreign insolvency proceedings in South Africa.

Comity refers to the recognition one nation extends to the legislative, executive, or judicial acts of another nation, respecting international duty and convenience while safeguarding local rights. In this case, comity played a significant role in determining whether South African courts should acknowledge the foreign trustee’s authority. The court considered the principle of comity as a factor influencing its discretion to grant recognition. The court recognised that foreign trustees, appointed in the debtor’s domicile, require local recognition to manage the insolvent’s assets within another jurisdiction. This recognition allows them to manage local assets as if they were in their home jurisdiction, subject to local legal requirements and protections for local creditors. The court's decision to recognise the applicant’s appointment was rooted in respect for international insolvency practices and cooperation between jurisdictions.

Convenience pertains to the practical benefits and efficiencies of recognising a foreign trustee. The court weighed the benefits of allowing the applicant to manage Scheer’s South African assets against potential disruptions to local creditors. In this case, recognising the applicant was deemed convenient for the effective administration of the insolvent estate, given that the majority of Scheer’s creditors and assets were located in Austria. The court acknowledged that cross-border cooperation would facilitate a more efficient resolution of the insolvency, reflecting the principle of convenience in international insolvency proceedings.

Equity involves fairness and justice in legal proceedings. The court evaluated whether recognising the foreign trustee would serve the interests of fairness and the equitable treatment of creditors. By allowing the applicant to access and transfer surplus funds, the court aimed to ensure that the Austrian creditors, who were facing a potential shortfall, received fair treatment. The court’s decision was aligned with equitable principles, ensuring that the administration of the insolvency was conducted in a manner that balanced the interests of all parties involved.

Court’s Considerations and Decision
The court found that the applicant’s request to transfer surplus funds from the South African estate to benefit Austrian creditors was neither speculative nor premature. Despite Scheer's arguments for a wait-and-see approach until the Austrian estate's shortfall was confirmed, the court recognised the need for the applicant, as the court-appointed receiver, to manage all assets related to the insolvency claims in Austria. 

The proposed transfer of surplus funds from South Africa was deemed appropriate, provided there is no detriment to local creditors. The court also acknowledged that the applicant demonstrated a real prospect of insufficiency in the Austrian assets to cover claims and costs. Austrian law, specifically § 237 of the Austrian Insolvency (Bankruptcy) Code, supports extending bankruptcy orders to foreign assets, including those in South Africa. Scheer did not dispute this legal position. Thus, the court found it justifiable to recognise the applicant and grant the relief sought based on principles of comity, convenience, and equity.

Regarding section 116(1) of the Insolvency Act 24 of 1936, which mandates depositing surplus funds in the Guardians' Fund after final distribution, the court concluded that this provision did not preclude the relief sought. The section pertains to surplus funds after satisfying local claims, and the applicant argued that no true surplus existed in the South African estate due to unpaid Austrian creditors. The court agreed that section 116(1) should not obstruct the grant of relief under common law principles, allowing any remaining funds to be transferred to the Austrian estate after local claims were settled. The court’s order included recognising Raoul Gregor Wagner as the official receiver for the purpose of transferring surplus funds from South Africa. The South African trustees were to continue managing the estate until distribution was complete. Once verified, any surplus funds not required for local claims could be transferred to Austria, with the applicant entitled to remove these funds upon confirmation of their amount and proper bank account details.

Conclusion
The judgment demonstrates the application of cross-border insolvency principles, balancing the recognition of foreign proceedings with the protection of local creditors' interests. The decision highlights the importance of comity, convenience, and equity in international insolvency resolutions and underscores the court’s discretion in managing cross-border insolvency issues effectively.

This matter has been taken on appeal at the Supreme Court of Appeal