JUDGMENT

FRANK,
J.
: This
is a return day of a provisional

sequestration
order. When the matter was originally heard the respondent opposed
the matter and filed a short answering affidavit. The respondent has
now filed a further answering affidavit in which he deals in detail
with the founding papers. The applicant has likewise thus filed two
replying affidavits. Mr Botes appeared for the applicant and Mr
Bloch for the respondent.

Mr
Botes applied at the outset for the striking out of certain portions
from respondent's second answering affidavit. This application was
based on two grounds namely that the portions complained of were
either hearsay evidence or contained matters that were argumentative
and thus irrelevant.

As
far as the hearsay is concerned it should be struck out as it is in
any event inadmissible evidence and the question of prejudice- to
the applicant does not arise (Wiese
v Joubert,
1983(4) SA 182 (0) and Parents'
Committee of Namibia v Nuioma,
1990(1) SA 873 (SWA) at 876 E.) As far as the other matters
complained of are concerned I am not convinced that it should be
struck out. Firstly, the reliance on the Conventional Penalties Act,
Act 15 of 1962 had to be stated and the amplification as to why
reliance was placed on this Act, although argumentative, was done
very briefly and could not prejudice the applicant as it apprised
him in more detail of the basis on which reliance would be placed on
the Act. Secondly, the other matters complained of, although
argumentative, sought to explain how respondent submitted the
interpretation of the franchise agreement worked in practise and was
also in my view not prejudicial to the applicant. Thus, on the
second leg of the striking out, I am not allowing the application.
In the result I grant an order in terms of paragraphs 1 and 3 of the
notice to strike out. As far as the costs are concerned I just
mention that the striking out application took up half an hour of
the Court's time.

The
rule nisi
was obtained on an urgent basis and in respect of respondent's
indebtedness and the extent thereof reliance was placed on three
contracts in terms whereof it was alleged the indebtedness arose.
These contracts were described as the Unavem contract, the Namibia
contract and the Commercial Bank contract. Applicant stated in the
founding papers the following prior to furnishing the
details involving these three contracts:

"In
the -limited time available, it has not been possible to do a full
reconciliation of Respondent's account with Applicant to determine
precisely what amounts are owing at present. However, a
reconciliation of three major contracts was done, which clearly
shows that Respondent is indebted to Applicant in a large amount.
Details of this amount are set out below."

According
to applicant the respondent is indebted to it in respect of the
Unavem contract in an amount of R370 279.53. This amount includes a
penalty of R95 134.80 for not ordering goods through applicant plus
a further penalty of R95 134.80 being a penalty for late payment to
applicant at the rate of 5% per month on the outstanding amount.
According to applicant "Despite delivery of the goods to Unavem
III no payment was forthcoming."

The
respondent averred that various payments were made to the applicant
in respect of this contract and annexes documentary proof to this
affect. In reply the applicant admits that certain payments were
made. Thus payments no longer disputed amounted to R108 658.78. It
is thus apparent that applicant's averment that a reconciliation of
this contract was done and that no payment was made in respect
thereof was not correct. Furthermore, if the penalties in this
matter are not taken into account as they were clearly based on the
wrong assumption, i.e. no payment and a double penalty must surely,
prima
facie,
be reduced in terms of the Conventional Penalties Act then it must
be clear that even on applicant's own version the respondent's
indebtedness to it on this contract was grossly overstated.

If
the penalties are disregarded and the admitted payments are taken
into account, then on applicant's version the indebtedness amounts
to R71 351.15 on this contract.

With
regard to the Commercial Bank contract the applicant alleges the
respondent is indebted to it to the tune of R155 912.07. Once again
this includes a penalty for not ordering the goods through applicant
to the tune of R75 663.28. Once again the averment is made that "nor
were the relevant amounts paid over to the Applicant." Once
again applicant concedes in reply that its "reconciliation"
that was done when these proceedings were launched were incorrect
and now concedes it is not entitled to a penalty and that only R48
293.66 was owing under this contract. Applicant also concedes that
payment in respect of his contract was indeed received contrary to
the averment in the founding affidavit. Thus applicant admits
receiving an amount of R3 583.12 in respect of this account and also
admits having received the total amount averred by respondent namely
R39 125.34 but avers it was unable to accept that this amount was in
connection with this account but it was credited to respondent in
general in respect of his overall account with applicant which
included other contracts as well. Due to applicant's averment in its
founding papers that it reconciled this contract and that no amount
was paid in terms thereof by respondent which was clearly wrong and
in view of applicant's non-admission in respect of the other
payments it must be accepted that respondent paid applicant R39
125.34 in respect of this contract. The indebtedness to
applicant thus is on applicant's version R9 168.32. As
with the Unavem contract the respondent's indebtedness to applicant
in respect of this contract-was grossly overstated in the founding
papers.

As
far as the Namibian contract is concerned it is clear that
respondent was awarded a tender by the Department of Works of the
Government of Namibia. The total amount of this tender was for an
amount of N$927 433.72 which is also the same amount in the South
African currency i.e. rand. Applicant claims respondent is indebted
to it in respect of this contract in an amount of R982 477.25. As it
is common cause that none of the goods ordered in terms of this
contract were ordered through the applicant the applicant avers that
the cost price of the goods involved amounted to R476 93 0.70.
Because this was not ordered through applicant this whole amount is
claimed as a penalty. In addition this amount of R476 930.70 is
claimed a second time as a penalty as the order was not reported to
applicant. And on top of this a management fee and advertising
contribution is claimed as if applicant was actually involved in the
transaction. Thus the claim of applicant in respect of this contract
exceeds the gross amount receivable by respondent.

Although
the respondent accepted the penalties provided for in the franchise
agreement to be fair and reasonable as is evidenced from the said
agreement this does not preclude him from relying on the
Conventional Penalties Act. In fact, prima
facie,
a case has been made out for a reduction in the Namibian contract,
and in respect of the other contracts it is clear that in the
one case it is now conceded that a penalty was not applicable
and in the other case it was wrongly calculated. Thus in respect of
the Namibian contract one • cannot talk of a liquidated amount and
the remaining penalty in respect of the Unavem contract cannot be
quantified as the allegations relating to it in the founding
affidavit was clearly wrong.

Thus
if one quantifies applicant's claim based on its own papers, a
liquidated claim of at most R80 519.47 (R71 351.15 + R9 168.32) was
established on a balance of probabilities. If this claim is
substituted for the one of R577 052 which was used by provisional
trustees it is clear that the respondent is solvent by a substantial
margin. According to this report the liabilities exceed the assets
by R60 692 if allowance is made for a claim by the applicant to the
tune of R577 052. This report also indicates that this liability is
disputed by applicant. Even if applicant's own new reconciliation
undertaken in reply which, according to it now reflects the correct
position is taken without the penalty amount at face value,
respondent is indebted to it to the tune of R397 507.50 which would
still keep him solvent on the calculations of the provisional
trustees. His assets would then exceed his liabilities as the
difference between R577 052 and R397 507.50 is R179 544.50 which is
far in excess of the current deficit of R6 0 6 92 and which would
thus constitute a credit balance in excess of R100 000. I suspect it
is for this reason that applicant knew it had to rely on penalties
for it to establish the respondent's insolvency.

I
am thus not convinced that the applicant established on a balance of
probabilities that the respondent is in fact insolvent. I'now turn
to deal with the submissions that the respondent committed acts of
insolvency which would entitle applicant to the relief sought
provided it is to the advantage to creditors (Wilkins
v Pieterse,
193 7 CPD 166 and Meskin
& Co v Friedman.
1948(2) SA 555 (W) ) . Mr Botes relied on two acts of insolvency
namely that respondent made or attempted to make a disposition of
his property which had or would have had the effect of prejudicing
his creditors, or of preferring one creditor above another (see 8(c)
of the Insolvency Act, Act 24 of 193 6) and that he gave notice in
writing that he was unable to pay his debts (section 8(g) of Act 24
of 1936) .

After
respondent was awarded the Namibian tender he had to furnish a
"non-performance" guarantee to the relevant department in
an amount of N$92 743. This he was unable to do and he approached
applicant to assist him. According to him a person acting on behalf
of applicant said that he "would see what he could do and come
back" to him as there was a deadline relating to the furnishing
of the guarantee. According to the respondent he informed applicant
about the deadline as well as of the fact that if applicant could
not assist he would look elsewhere as he did not want to lose such a
lucrative tender. As applicant did not respond he obtained a third
party to furnish the guarantee. Basically it was agreed between the
respondent and the third party that each would contribute R250 000
towards the project and that at the end of the tender each party
would recover his capital plus 50% of the net profits. It must be
stated here that applicant avers it did in fact obtain a guarantee
and annexes a document from Standard Bank to substantiate this
averment. This document however is dated 2 days prior to the
deadline and merely states that the bank is considering an
application for such guarantee. The applicant does not state when
this guarantee was furnished nor does it annex a copy of the
guarantee. If regard is had to the numerous documents filed by
applicant in other respects I would have expected a copy of the
guarantee and at least the date thereof. In these circumstances the
respondent's version must be accepted for the purpose of this
judgment as far as this aspect is concerned.

In
my view the contract respondent entered did not have the effect of
prejudicing a creditor or creditors nor did it have the effect of
preferring one creditor above another. This is so even if I accept
that in concluding the agreement with the third party he made a
disposition of property. Without the tender none of the profits
would have been available to creditors. Because of the agreement
there is money available to creditors which would not otherwise have
been available. The agreement with the third party was not to the
detriment of creditors but to their benefit. At the stage the
agreement was concluded the third party was not a creditor.

In
the original answering affidavit the following, inter
alia,
was stated by the respondent:

"I
admit that I am presently in a cash flow or liquidity problem,
however this does not at all mean that I am not in a position to pay
my debts.

I
at no stage indicated to Applicant or to any of my creditors that I
am unable to pay my debts. In fact I had made acceptable
arrangements with all my other creditors for the payment of what is
due to them.

In
fact the present tender amounting to almost one million Namibian
Dollars, will yield a substantial profit to me which will be far in
excess of what I owe all my creditors."

Mr
Botes in his heads of argument put his submission in this regard as
follows:

"If
regard is had to the aforegoing, (i.e. the above quoted portion) as
well as to all the other

circumstances
contained in the answering

affidavits,
it is clear that the Respondent indeed indicated herein that he only
will be able to pay his debts in future and more specifically after
the said tender yielded a substantial profit. The only reasonable
objective inference to be drawn from the aforegoing therefore is
that the Respondent at this point in time is indeed unable to pay
his debts."

In
my view the passage in the answering affidavit taken at face value
does not amount to an unambiguous notice that respondent is unable
to pay any of his debts. He categorically states that his liquidity
problem does not mean "that I am not in a position to pay my
debts". Thus the arrangements with his creditors must have been
such that those debts when they become due will be paid. The last
paragraph when seen in this light is only an indication that his
liquidity problem (which did not effect the payment of debts) will
fall away in the near future which is an assurance that his
liquidity problem will not deteriorate to the point where it
will have the effect of rendering him unable to pay his
debts.

The
next question that arises is whether there has been a written notice
of inability to pay when the circumstances surrounding the above
mentioned portion in the answering affidavit is considered as was in
essence submitted by Mr Botes. Here it must be borne in mind that
what was said by respondent appeared in an answering affidavit that
was very brief and in an attempt to avoid the provisional
sequestration order which was brought on an urgent basis. Mr Botes
criticised the conduct of the respondent with regard to various
matters, pointing out discrepancies between this original answering
affidavit and the later one. Most of the criticisms had some merit
but did not in my view take the matter of respondent's solvency or
not or whether an act of insolvency was committed or not any
further. The most telling criticism was the fact that respondent
paid cheques which should have been paid directly to applicant into
his own bank account and on certain invoices deleted the instruction
that payment had to be made to applicant directly. Thus Mr Botes
contended the respondent funded the continuation of his business
with the applicant's money. In terms of the franchise agreement
clients of respondent had to pay the purchase price of the goods
directly to applicant. Applicant would then deduct its price from
this amount plus the administration fee and advertising contribution
and forward the balance which would represent respondent's share to
him. There would thus invariably be a delay before respondent would
get what was due to him. As was seen in the Unavem and
Commercial Bank contracts, payments were indeed made to
applicant contrary to the contention in its funding papers. Thus,
although it is clear that respondent acted in breach of the
franchise agreement it is not clear that he funded his business with
applicant's money as it is also a possibility that he, because of
his admitted liquidity problems, decided that he would take his
share upfront instead of waiting for the process as provided for in
the franchise agreement. It is clear that respondent was less than
open in his dealings with applicant but though this may even mean
that he was dishonest and wanted to crook applicant it does not
necessarily mean he was insolvent or committed an act of insolvency.

I
may just mention in passing that applicant, when forced to admit the
payments in respect of the contracts it relied on in its founding
papers, changed tack in its second replying affidavit and made
averments relating to a further and full reconciliation and a new
alleged indebtedness. Mr Botes also strongly relied on portions of
this affidavit in his submissions. The applicant however must stand
or fall in this application on the basis it decided to bring this
application namely the three contracts and the events surrounding
those contracts.

In
the result I am not satisfied that the applicant made out a case on
a balance of probabilities that the respondent is insolvent or
committed any act of insolvency and the rule is thus discharged with
applicant to pay the costs.