Daniela Schultz

[insolvency]

Reflection questions
NB SECTIONS OF THE INSOLVENCY ACT
TOPIC 1: INTRODUCTION
1) The term “insolvency” and all other basic concepts of insolvency
law

THE INSOLVENT ESTATE

 The inability to pay one’s debts.

 Involves the weighing up of assets and liabilities.
 Time principle [“first in time, stronger in law”] does not
apply when it comes to concurrent creditors. This means that
the creditors are all equal, no matter when the debt arose.
 The estate [ net assets = assets-liabilities] of the insolvent
is sequestrated
 Specifically excluding a body corporate / company / or other
association which may be sequestrated in terms of the Companies
Act. (profit motive)
 Seen as punishment for someone who is not looking after their
affairs properly

TECHNICALLY INSOLVENT:

- You have assets but your liabilities are more (i.e. your
liabilities exceed your assets)

COMMERCIALLY INSOLVENT:

- You have assets but not the cash flow.

- Occurs when the assets you have (1) are of such nature that it
is not easy to sell + quantify [no one wishes to purchase]; (2)
are of such nature that NEED it and thus can’t/won’t sell.
- E.G. Goodwill
TWO-TIER SYSTEM

1) Insolvency in terms of Insolvency Act

2) Liquidation in terms of Companies Act

Commissioner, SARS v Hawker Partnership?

Magnum v Summerly ; Melville v Busane Trust? “The impact of

the Companies act, 2008?”

MILNER V JANKS what estate can be Sequestrated?

2) The Purpose of a Sequestration order

A) concursus creditorium

- all creditors who have claims against the insolvent estate must be
treated equally in the distribution of assets

- each creditor must receive a share of the assets that is

proportionate to the amount of their claim in a certain order
of preference

- “coming together” of creditors

- emphasises the rights of the group of creditors as opposed to the

rights of any individual creditor

B) fair and orderly distribution

- in the absence of security

- when an estate is being sequestrated; inferred that there are not
enough assets to pay the debts. This is why great importance
is established on the concursus creditorium principle.

AS A CREDITOR, FIRST PRIZE WOULD BE A SECURED DEBTOR. THIS WOULD AVOID THE

CREDITOR FROM HAVING TO SHARE THE SPOILS WITH ANY OTHER CREDITOR. AS A

CREDITOR, ONCE YOU HAVE ATTACHED THE ASSETS, TECHNICALLY THEIR ASSETS ARE

FROZEN.

3) Courts Capable of making a sequestration order

 The high court has jurisdiction as sequestration orders deal

with the status of a person. Only the High Court has
jurisdiction over the status of a person.
 There exists a possibility that a sequestration order be made
in the magistrate court if it has jurisdiction, however a MC
court will never be able to sequestrate as this is only
available to HC
 Two considerations in determining where to lodge an
application:

A) where is the person domiciled?

B) Where does the person have property?

INTANGIBLE ASSETS:

- A has a cost order against B. However, A owes C money… C want

to have A’s estate sequestrated… None of the parties are in CPT
where Cs issues the order.

o A has a personal right against B which is attached to B

thus C must issue application in jurisdiction of B

- SHARES?
 o “property is situated where the company is situated… thus,
where is the company registered?”

o Jurisdiction will be in the companies main place of

business [ordinary residence where conducts its business
within 12 months]

- Concurrent jurisdiction: issues may arise

o In this scenario, it is possible to have jurisdiction over

3 or 4 courts; issue of domicile, property, place of work,
ordinary residence all differs from one another

 The court will ask what will be the most beneficial

for the creditors [where are the majority of the
assets of insolvent situated / where do a majority
of the creditors live?]

 Moreover, the court will consider what will be the

most convenient for the winding up of the estate.

o Thus: don’t really care/ consider where the insolvent

lives.

4) A short historical overview?

 Insolvency Law is affected by various other pieces of

legislation and/or law:
o Constitution
o PAJA
o Law of Persons
o Family Law
o Credit Law
o Contract Law
 PAJA:
 o “administrative action” is defined to include any
decision taken by an organ of state, or any failure by it
to take a decision, when performing a public function in
terms of any legislation, which decision adversely
affects the rights of any person and which has a direct,
external legal effect

TOPIC 2: VOLUNTARY SURRENDER

1) The debtor’s application for voluntary surrender?

 The debtor can bring an application himself because he is in

the best possible position to know about his own state of
affairs.
 WHO MAY APPLY TO BRING APPLICATION?
o Debtor himself or his agent [if acquired express
authority to do so]

EX PARTE BROWN: an agent may only apply on behalf of debtor

if expressly authorised to do so

o Curator bonis [where debtor incapable of handling own

affairs]
o All members of a partnership (other than partners en
commandite [silent] or certain special partners) who
reside in republic or their agent.

The disconnect between sections 13 and 3(3)?

- Section 13 states that the partner that undertakes to pay the

debts and provides the requisite security does not have to have
their estates sequestrated
 - Whereas section 3(2) states that all members of partnership
(other than silent + special partner) must have their estates
sequestrated

EX PARTE BESTER: all members must bring application of

surrender at the same time: not sufficient for just 1
member to do so and claim that “agent” for the rest.

The difference between sections 13(3) and 3(2)?

 Section 13(3) states that the court will not accept the
surrender of the partnership estate unless and until it is
satisfied that the individual partners of the partnership have
petitioned for their estates to be sequestrated. Its function
is thus to place a limitation onto the acceptance of voluntary
surrender by the court
 Section 3(2) on the other hand provides who may petition for
the surrender of the partnership estate and the estate of each
member
 ONE VS ALL

2) Substantive and Procedural Requirements that need to be complied

with before the application is made

 S6: Substantive Requirements:

1. The debtor must be insolvent.
 Assets < Liabilities

EX PARTE HARMSE: did not succeed because failed to prove

insolvency on a balance of probabilities.
 2. There must exist sufficient assets in the free
residue to pay for sequestration costs.
 That portion of the estate which is not subject
to any right of preference [special mortgage,
legal hypothec, pledge or right of retention]
 = administration costs
 This is to ensure that the onus doesn’t fall on
the creditor to pay sequestration costs.
 Monies will be part of the free residue where
there is a positive balance when you compare
the market value and the standing amount which
you owe to the person who holds security

EX PARTE WILLIAMS: secured mortgage in favour of two

creditors but assets not sufficient to cover costs of
sequestration

3. It must be to the advantage of the creditor.

EX PARTE VAN DYK: wanted to surrender portion of his salary

but this would be too risky … the fact that the div.
that would accrue for the concurrent crediotrs from
movable assets = zero is sign of no benefit

 S4: Procedural Requirements

1. Notice of surrender in GG + newspaper … [+ in
principle place of business if trader]
 Notice published no more than 30 days and no
less than 14 days before bringing application.
 Careful attention of what constitutes a
newspaper … look at intention : to reach all
 creditors so they can become aware of your
intention

EX PARTE TROLLIP: use calander days. Counting forwards –

Thus, excluding the first day and including the court
date. If this ends up on weekend, the next week day
which follows.

2. send copy of publication to creditors by post (mail)

EX PARTE GOLDMAN: published notice in a community newspaper

which only appeared in Hebrew. Doesn’t satisfy the
requirement for newspaper as “it needs to be available
to the general public

3. lodging of statement of affairs

 The masters office or MC will look at what the
debtor is disclosing
 Statement is done under oath and thus if the
debtor is lying = perjury

NON-COMPLIANCE WITH FORMALITIES?

- Section 157(1): must be such a prejudicial injustice towards

the creditor that it cannot be fixed.
o Broad discretion: can you from the notice, deduct what the
debtor tried to do? Was the publication made in good
faith?
o Must be a formal delict
- Tensions with S4:
 o “shall not be published more than 30 days and less than 14
days” = preventative language.
o Thus more precise and narrow
- Reconcile the 2 pieces of legislation:
o Look at the language of section 4 within the context of
section 157 to decipher if there was a non-compliance with
a formality
- What is most important about the notice is the fact that it
gives the creditor a chance to oppose the application and thus
what we need to look out for is whether the debtor, through his
notice, is attempting to abuse this time period.

4) The effect of the application for voluntary surrender

i. Suspends sale in execution

 Delivery is key!
 Good faith
o Purchaser has acted in good faith and delivery has
taken place = sale stands
o Purchaser has acted in good faith but sheriff not
[knew auction shouldn’t have continued] = purchaser
protected

FIRSTRAND BANK V CONSUMER GAURDIAN SERVICES: When you bring

a notice, needs to be done with the intention to make
an application.

ii. Master obtains certain powers

WITHDRAWAL OF NOTICE:

- On good cause: came into money and now able to pay debts.
 - Can only be done once shown to master
- Debtor must publish withdrawal in GG and newspaper where
initially published

EX PARTE VIVIERS: it is impossible to withdraw something

that has already lapsed. Withdrawing the first notice
was unnecessary because the first notice had become
void on expiry of 14 day period

DISCRETION OF THE COURT:

 AN INTERACTION BETWEEN THE INSOLVENCY ACT AND THE NATIONAL CREDIT

ACT:

MAY BE PROVIDED THAT THE DEBTORS FINANCIAL PROBLEMS WILL BE

BETTER HANDLED UNDER THE NATIONAL CREDIT ACT

EX PARTE FORD: insolvents whose misfortune arises out of

credit-agreement transactions would be well advised, to
take into account the policy and objects of the nca and
also special remedies provided under this act, before
opting to apply for the surrender of their estates
under the insolvency act

TOPIC 3: COMPULSORY SEQUESTRATION

1) Requirements to be complied with before acceptance

1. creditor must have locus standi

- R100 liquidated claim or combined liquidated
claim or R200
 - Claim = pecuniary

2. debtor commits act of insolvency

8a) leaving country / dwelling with intention

to be absent and intention to avoid paying debts

8b) debtor not satisfying judgement debt and

unable to indicate sufficient assets

8c) debtor makes a disposition or attempts to

make a disposition which prejudices the creditor or
intends to prefer one creditor over another

8d) removes property or attempts to remove

property

8e) settlement offer

8f) publishing notice of surrender ; not

lodging statement of affairs; statement materially
incorrect; debtor doesn’t arrive at court

8g) gives written notice that he cannot pay

8h) trader who gives notice and cant pay debts

3. Advantage for creditors

2) the application itself

3) Friendly Sequestrations