Some Aspects of South African Cross-Border Insolvency Relief: The Lehane Matter

Abstract

The Lehane matter wound its way through the Cape Provincial Division of the High Court and reached the Supreme Court of Appeal. Mr Dunne, the debtor, lived in the United States of America and ran an international web of companies. One of these companies, Lagoon Beach Hotel, operated a Cape Town hotel. Mr Dunne later filed for chapter 7 bankruptcy in the United States and soon was also bankrupted by the Irish High Court. The Irish official trustee, Lehane, applied to the Cape court for the recognition of his status as a foreign trustee and for an anti-dissipation order preventing the disposal of South African property to which Mr Dunne was connected. Lehane succeeded at every stage of the South African proceedings.

Initially, Steyn J recognised Lehane as the trustee as though a sequestration order had been granted against Mr Dunne in terms of the Insolvency Act 1936, thus diverging from the approach taken by the Judicial Committee of the Privy Council in Singularis Holdings Ltd v PricewaterhouseCoopers (Bermuda). Subsequently, Yekiso J's approach to applying the Insolvency Act without derogating from its generality opens up the possibility of applying section 21 of the Insolvency Act to significant effect against Mrs Dunne's South African property. Yet the territorialist restriction in Yekiso J's order that only creditors with causes of action which arose in South Africa were entitled to claim against the insolvent estate excluded many foreign creditors, even those from Ireland.

Of the many issues raised by the Lagoon Beach Hotel company, two that are chosen for discussion in this case note are the possible application of the automatic stay under section 362 of the United States Bankruptcy Code 1978 to the South African proceedings, and the standing of Lehane because of the litigants' dispute whether Mr Dunne was domiciled in the United States or Ireland.

Yekiso J and subsequently Leach JA held that the American automatic stay did not govern the South African proceedings. Significantly, the American and the Irish trustees were co-operating with respect to proceedings in Ireland and South Africa that involved Mr Dunne. And Leach JA deftly deferred to the Irish court the decision regarding the application of the American automatic stay and its relevance to the Irish proceedings.

As for the disputed domicile of Mr Dunne, Yekiso J and Leach JA both considered that Mr Dunne had retained his Irish domicile. The established principles of recognising a foreign domiciliary trustee before he might deal with South African property, whether movable or immovable, were confirmed. Leach JA, however, went on to discuss the assistance that might cautiously be accorded to Lehane if Mr Dunne were domiciled elsewhere than in Ireland. Even then, the relevance of domicile could not be gainsaid.

In the comments, it is pointed out that trustees appointed in countries other than the insolvent's domicile may still be recognised by South African courts. The insolvent's submitting to the jurisdiction of a court that is not the court of his domicile is discussed; on its facts, the cited authority does not bear out the relevant principle. And the possibility of recognising non-domiciliary trustees in exceptional circumstances and for exceptional convenience is explored. The cases cited in support of this principle are shown to yield differing results.