Pass & Prosper

Insolvency Law
ISR 310
Produced by Pass & Prosper

With reference to the prescribed textbook and other resources where relevant

1
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 1 – Foundational concepts DO NOT STUDY FOR EXAM

Introduction Overview
❖ Brief historical overview
❖ Definition of Insolvency Law
❖ Options for debt collection
❖ Sequestration
❖ Corporate Insolvency Law
❖ Other Sources of Insolvency Law
Brief historical Roman law (Not important for semester test)
overview ❖ Insolvency law has its origin in Roman law which prioritized the
interest of the creditor and not debtor.
➢ Lex Julia – a debtor can surrender his estate to prevent execution
against his person, known as cession bonorum.
➢ This became part of a Roman Dutch law, introduced in Holland.

❖ Special ordinances applied in Holland – Ordinance of Amsterdam

(basis of SA insolvency law)
➢ Ordinances were replaced by the Insolvency Act 32 of 1916
which did not make provisions for civil imprisonment.
➢ The 1916 Act was replaced by the present Insolvency Act1936.
➢ A new on Insolvency Act is under works by the SA Law Reform
Commission.

Insolvency Law Definition

❖ Insolvency law consists of procedures that are intended to regulate
the insolvency situation of natural persons and business enterprises.
It is the totality of rules regulating the situation where a debtor cannot
pay his debts or where his total liabilities exceed his total assets.

Types of Insolvency
❖ Factual: liabilities are more than assets (balance sheet insolvency)
❖ Commercial: payment of debts. When you do not have enough cash
to pay creditors. You are solvent on the books but cannot function in
the market (cash flow insolvency).

The aim of Insolvency Law

❖ Insolvency law developed as a special collective debt enforcement
procedure to ensure a reasonable distribution of the proceeds of a
debtor’s property among his creditors where he has insufficient
assets to settle his debts in full.
❖ Insolvency law is creditor orientated and focuses on the creditor.
❖ The process is as follows:
➢ A creditor can demand payment,
➢ If the debtor doesn’t respond, the creditor issues summons,
➢ The creditor obtains a judgement against the debtor,
➢ If the debtor does not pay the creditor, then the creditor may
individually attach the property of the debtor,

2
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ The property is then sold in execution at a judicial sale,

➢ The proceeds are used to settle the individual creditor’s claim.
❖ If the debtor’s assets are insufficient to satisfy all the creditors’
claims, this creates unfair favour of creditors who already executed
against debtor’s assets.
❖ Concursus creditorum – The general interest of the creditors as a
group ranks priority over the interest of the individual creditors (final
form of execution) = fairer dispensation. This is the main aim of
sequestration (Walker v Syfrets case).
❖ Position of payment
➢ Secured – pledge (creditor takes possession of something as
security and gets it back once the debt has been repaid.
➢ Unsecured – statutory preferent
➢ Unsecured – concurrent (all treated equally).

The trustee works with two accounts

❖ Encumbered asset account
➢ For assets secured by real security.
❖ Free residue
➢ Leftover money
➢ All assets that are not encumbered because they have been paid
➢ Used to pay statutory creditors (lawyers, trustee, masters fee,
SARS).
➢ After that, concurrent creditors get paid if there is anything left.
➢ The debtor must have enough money so that there is something
left for the concurrent unsecured creditors.

Options for debt Individual debt collection (NB important for semester test)
collection ➢ One on one
➢ Debtor can dispute the debt
➢ Creditor – demand, summons, judgement, execution to the
debtor
➢ One on one payment
➢ Can be multiple individual procedures going on at the same time
(lots of costs)
Debts can be discharged

Collective debt collection (NB important for semester test)

➢ Insolvent: unable to pay debt
➢ Creditors use one process to “rule” them all
o Sequestration
➢ The distribution of funds goes to many
➢ Special nature and thus has consequences
❖ Three essential elements
➢ Stay of actions – individual creditors not allowed to claim.
➢ Pool of assets – collect and preserve all assets.
➢ Pari passu: pro rata payment (Wood) – similar creditors treated
the same.
3
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Sequestration General
❖ Your estate can be insolvent, but not necessarily sequestrated, but
your estate MUST be insolvent in order to be sequestrated.
❖ “The main objective of a sequestration order is to secure the orderly
and equitable distribution of a debtor’s assets where they are
insufficient to meet the claims of all his creditors”– Hockley’s 4.
❖ Creditor can apply for compulsory sequestration of the debtor’s
estate, thereby activating the collective debt enforcement procedure.
❖ Sequestration is the only statutory measure that provides a discharge
of an overburdened debtor’s debt. It is the primary debt relief
measure even though it is a consequence and not the main aim of the
procedure.
❖ A debtor can apply for voluntary surrender of his estate to be
sequestrated.

Debt Relief
There are 2 statutory debt relief measures.
➢ These procedures do not offer a discharge of debt and merely
represent formalised repayment plans which require some level
of disposable income susceptible for distribution amongst
creditors.
➢ Debtors may also enter into voluntary agreements with their
creditors to release them from their obligations or to restructure
their debt.

❖ Administration order in terms of S74 of the Magistrates Court Act

➢ Debtor can apply if debts do no exceed R50 000.
➢ The debtor must then make regular specific payments to an
administrator.
➢ Administrator must draw up a list of creditors and pay them from
amounts received from debtor.

❖ Debt review procedure in terms of S86 of the NCA

➢ Over-indebted consumer can apply if debts result from credit
agreements regulated from NCA.
➢ Once the debt review is order in place, the debtor makes monthly
payments to creditors in accordance with each other.

NINA Debtors
❖ Debtors who do not have sufficient assets to render the sequestration
procedure feasible and don’t have sufficient income to offer
economically viable payment plan to creditors are without remedy.
➢ These debtors are known as NINA (No Income No assets).
❖ Debt intervention, a statutory relief measure for NINA debtors was
devised.
➢ The NCAA 2019 will introduce debt intervention to the NCA and
Insolvency law.

4
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Indebted debtors with unsecured debt of less than R50 000 and a
gross income of less than R7 500 will be able to receive a
discharge of their unsecured debt after at least 24 months from
the commencement of proceedings, subject to strict
requirements and procedural prescriptions.

Sequestration Procedure
❖ Set in motion when the High Court grants a sequestration order upon
voluntary surrender or a compulsory sequestration application.
➢ If the order is granted, the debtor loses control over his estate.
➢ Creditors may no longer claim.
➢ The debtor’s property vests in the Master of the High Court and
thereafter by an appointed trustee.
➢ The trustee realises estate property and distributes the proceeds
amongst the creditors as provided for in the Insolvency Act.

Effects of a sequestration order

❖ Debtor cannot alienate or burden any property because his
contractual capacity is limited until he is rehabilitated.

Other aspects covered in the Insolvency Act

➢ Settings aside of impeachable transactions made before date of
sequestration to the detriment of creditors which prefer certain
creditors.
➢ Offers procedures for trading and collection of estate property.
➢ Criminal liability where certain prohibited acts which constitute
offences in terms of the Act.

Corporate Winding up a company

Insolvency Law ❖ Shareholders of a company can resolve to voluntarily wound up a
company. These proceedings can also commence involuntarily by
court order.
❖ Company can be wound up if it is solvent or insolvent.
➢ Control of the liquidated assets vests in the liquidator appointed
to finalise the administration of the estate.
➢ Shareholders, members, employees and creditors have an
interest in the outcome of these proceedings.
➢ The purpose is to pay debts of creditors.
➢ If a surplus remains, it is distributed amongst the shareholders.
➢ Once liquidation has been finalised and the debts are paid, the
company will dissolve and cease to exist as a legal entity.

Other Sources of Companies Act of 1973

Insolvency Law ❖ Liquidation provisions continue to apply with respect to winding up
and liquidation of companies.
❖ Allows for an application to court or an order to convert the voluntary
winding up in terms of the 2008 Act to an insolvent winding up in
terms of Chapter 14 of the 1973 Act.
5
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ S339 – provisions relating to insolvency laws apply if the Companies

Act does not provide otherwise.
➢ Where a company is liquidated, Chapter 14 applies/Close
Corporations Act applies.
➢ In the absence of prescribed procedure The Insolvency Act and
common law are applied.

❖ Other sections providing for law relating to insolvency to apply:

➢ S340(1) – voidable and undue preferences
➢ S341 – application of assets and costs of liquidation
➢ S364(2) – convening and holding of first meeting of creditors
➢ S365(2) – voting at the meeting of creditors
➢ S366(1) – proving of claims and the position of secured creditors
➢ S383(1) – apportionment of costs of security by liquidator
➢ S286(4)(g) – application of S35 and SS37 of Insolvency Act
➢ S412 – convening of creditors and member meetings and
application of S52
➢ S415 – interrogation of directors during a creditor’s meeting
which invokes S65 – 68
➢ S425 – invoke criminal provisions

Companies Act of 2008

❖ Provides for liquidation of solvent companies.

Close Corporations Act

❖ Winding up and liquidation of close corporations.
❖ Also, certain applicable provisions of the 2008 Companies Act.

Banks Act
❖ Winding up/liquidation of insolvent companies, close corporations
and banks.

6
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 2 – The application process DO NOT STUDY FOR EXAM

Introduction Overview
❖ Estates that can be sequestrated
❖ Estates that cannot be sequestrated
❖ Jurisdiction
❖ Winding up of insolvent companies
❖ Case Law
Estates that can S2 of the Insolvency Act
be sequestrated ❖ Only debtors as defined by the Insolvency Act may be sequestrated:
➢ A person,
➢ A partnership
o S13 of the Act views partners as having separate estates from
the partnership estate so the partnership must be
sequestrated simultaneously but separately with the
sequestration of the individual partners’ estates,
➢ The estate of a person in a partnership,
➢ The estate of a person incapable of handling their own affairs
➢ Spouses married in community of property – S17(4) of the
Matrimonial Property Act
o Joint estate is sequestrated, and the joining of both spouses
is thus compulsory.
➢ A deceased estate
o Can be wound up in terms of S34 of the Administration of
Estates Act. The Insolvency Act can only be used if the
executor has already been appointed, and the creditor must
then convince the court that sequestration is more beneficial
than S34.
o Certain assets and income are excluded from an insolvent
estate so an unrehabilitated insolvent can acquire an
alternative state which is protected from the trustee.
o This estate is also subject to sequestration by means of
another sequestration order.
o Only one rehabilitation order is needed to rehabilitate an
insolvent who has been sequestrated more than once
because the Insolvency Act provides for the rehabilitation of
an insolvent person, not an insolvent estate.

❖ If no other act provides for the winding up of estates, the following can
be sequestrated in terms of the Insolvency Act:
➢ Trusts (can hold assets and labilities)
➢ Clubs
➢ Juristic persons (other can companies or close corporations)

Estates that Estates excluded from the Act

cannot be ➢ A body corporate
sequestrated ➢ Company

7
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Association of persons that may be liquidated in terms of the law

relating to companies.

Jurisdiction Who may grant sequestration and rehabilitation orders

❖ Only the High Court may grant sequestration and rehabilitation
orders, or to rescind or vary any of its orders
❖ These orders effect the status of natural persons.
❖ The debtor will thus have limited contractual capacity and cannot
made decisions regarding contracts that will affect the estate.

Jurisdiction requirements in terms of S149

❖ On the date of the application, the debtor is:
➢ Is domiciled in the jurisdiction of the court,
➢ Owns or is entitled to property situated within the jurisdiction of
the court,
➢ Has at any time within 12 months preceding the application
ordinarily resided in the jurisdiction of the court, or
➢ Has at any time within 12 months preceding the application
carried on business in the jurisdiction of the court.

❖ Note that these can overlap, resulting in concurrent jurisdiction.

❖ Applications for rehabilitation must be brought in the same division.
of the High Court as the sequestration order was granted.
❖ A company/close corporation cannot be rehabilitated.
❖ Any division of the High Court may review decisions made by the
Master or by the chairperson of the meeting of the creditors. The court
can therefore condone format defects or irregularities.

When the High Court can refuse an order on jurisdictional grounds

➢ When it will be equitable and convenient that the estate be
sequestrated by another court (when different courts have
concurrent jurisdiction).
➢ When a foreign debtor is domiciled in a country that has not been
designated in terms of S2 of the Cross Border Insolvency Act.
Case Law Magnum Financial Holdings v Summerly 1984 (1) SA 160 (W)
❖ The question of law was whether a trust can be considered a ‘debtor’
in terms Section 2 of the Insolvency Act of 1935 and whether a trust
can be sequestrated.
➢ It was held that a trust can incur liabilities and acquire property
by means of its trustees.
➢ Thus, even though it is not a person in the ordinary sense of the
word, it is sometimes treated as a ‘person’.
➢ A trust can be considered as a debtor and thus can be
sequestrated in terms of the Insolvency Act.

❖ Impact on trustees and beneficiaries

8
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ If a trust is sequestrated, it means that the trustees who are

responsible to manage the trust’s assets and liabilities will lose
control over the trust as a liquidator will take control.
➢ If a trust is sequestrated, the beneficiaries will have a claim
against the trust alongside the creditors as they do not have
priority over creditors.
Commissioner, SA Revenue Services v Hawker Air Services (Pty) Ltd
2006 (4) SA 292 (SCA)
❖ The court was faced with the issue of whether the partnership can be
sequestrated if one of the partners is a company.
❖ According to S13 of the Insolvency Act, when a partnership is
sequestrated, the partners must simultaneously, but separately also
be sequestrated.
➢ However, Section 2 of the act which defines a ‘debtor’ excludes
companies.
➢ Thus, if one of the partners of the partnership is a company, that
estate cannot be sequestrated.
➢ Only the partners that are natural persons and ordinary debtors in
terms of the Act will be sequestrated.
➢ This does not prevent the sequestrated of partnership estates!

9
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 3 – Voluntary Surrender

Introduction Overview
❖ 2 processes
❖ Who may apply for voluntary surrender
❖ Requirements before a court accepts application
❖ Notice of surrender
❖ Strict compliance with formalities
❖ Aspects the applicant must prove
❖ Prevention of abuse of power
❖ Summary
❖ Additional requirements from the Labour Relations Act
❖ Example
❖ Technical Aspects YouTube video
❖ Case Law
2 processes The main purpose of the Insolvency Act
❖ Regulate the sequestration process by ensuring an orderly and fair
distribution of assets for the advantage of the creditors of an insolvent
estate.
❖ There are 2 paths:
➢ Voluntary surrender
o Formalities are more stringent.
o Burden of proof higher – more difficult to obtain a
sequestration order.
o Debtor only applies for one order.
➢ Compulsory sequestration
o Creditor first applies for a provisional sequestration order and
thereafter a final one.

❖ Both are instituted by way of application proceedings and the court’s

decision is based on merit in accordance with the strength of the
documentary evidence.
❖ Parties must include all relevant facts in sworn affidavits.

Insolvency-specific legislation
❖ Law of civil procedure
❖ Courts Acts and Rules, Practice directives
➢ Deals with how to bring a matter to court
❖ Other laws
➢ S3(1)(a) Trust Property Control Act
➢ S17(4) of the Matrimonial Property Act
➢ S86 of the National Credit Act \
➢ Section 197 of the Labour Relations Act
➢ Law of things
➢ Law of contract including specific contracts (e.g. huur gaat voor
koop)

Who may apply Who may apply for voluntary surrender

10
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ The debtor brings application on their own

o Sequestrate debtor’s insolvent estate
➢ His representative with special authority
o Sequestrate debtor’s insolvent estate
➢ Debtor(s)
o Sequestrate communal estate
➢ Partners together
Sequestrate partnership estate
➢ Partners alone
Sequestrate individual estate of partners (S13)
➢ The curator bonis of a person incapable of handling their own
estate
o Sequestrate the estate of persons incapable of handling their
own affairs.
➢ The executor of a deceased estate (more advantageous then S34
of AEA)
o Sequestrate deceased’s insolvent estate

❖ Marriages in community of property – the spouses are co applicants.

❖ Partnership estate – ordinary partners living in the Republic must
apply jointly for the surrender and at the same time apply individually
for the surrender of their own estates.

Requirements Procedural and substantive requirements that must be met before a

court accepts the application
❖ Not more than 30 days but no less than 14 days before the date upon
which the application will be made, publish a notice of surrender in
the Government Gazette (S4) as well as in a newspaper circulating in
the district in which he resides or where his principal business place
is situated.

❖ Within 7 days from the date of publication of the notice of surrender

in the GG, deliver or post a copy thereof to every creditor whose
address he knows or can ascertain.
➢ A copy of the notice must within the same period be furnished by
post to every registered trade union that to the debtor’s
knowledge represents any of his employees and it must also be
sent to the employees themselves.
➢ A copy must further be posted to SARS.

❖ In duplicate, lodge a statement of affairs at the Master’s office (S6).

➢ If there is none in the district where the debtor resides or carries
on business, a further copy must be lodged at the office of the
magistrate of the district.
➢ This is to provide every creditor with information regarding the
insolvent’s property liabilities as well as the cause of insolvency
so that creditors can draw proper conclusions on how to proceed.

11
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Summary of process of voluntary surrender (NB important)

➢ Notice of surrender
➢ Copy of notice to certain persons/entities
➢ Statement of affairs
➢ Application to court
➢ Sequestration order

Summary of process of compulsory sequestration (NB important)

➢ Security to Master
➢ Copy of application to certain persons/entities
➢ Application to court
➢ Provisional sequestration order
➢ Final sequestration order
➢ Remember “changes” if friendly sequestration

Notice of Effect of notice – S5

surrender ❖ All sales in execution are stayed and the sherif may not pay any
proceeds from such a sale to a judgement creditor of the estate.
❖ Where the value of the estate is less than R5 000 to the Master or
where it exceeds R5 000, the court may order the sale of property so
attached and direst as to how the proceeds should be applied.
❖ Where the estate is sequestrated, the sheriff must hand over all goods
or proceeds of goods sold to the trustee.
❖ The master may, after the notice of surrender has been published,
appoint a curator bonis to temporarily control the debtor’s estate.

Strict Purpose of formalities

compliance with ❖ Notify the creditors that an application for voluntary surrender is
formalities imminent and to enable creditors to object to such an application.
➢ There must be strict compliance to formalities

A mistake in terms of S157(1)

❖ Where a mistake is made, the court may condone a mistake that
constitute a formal defect in terms of S157(1).
❖ Where the mistake prejudices creditors in such a manner that it may
not be corrected by the court order, it cannot be condoned. This can
be ascertained by looking at whether the relevant provisions are
peremptory or directory.
❖ Peremptory/late publication of a notice of surrender and the fact that
the statement of affairs did not lie open for inspection at a place as
prescribed by the Act are rarely condoned.

Aspects Aspects in terms of S6

applicant must ❖ The application must be in accordance with Section 6 and satisfy the
prove court on a balance of probabilities of four aspects before he
succeeds with his application:
➢ Formalities have been complied with
➢ Applicant is insolvent
12
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Insolvent owns realisable property of sufficient value to cover the

costs of sequestration that would be payable out of the free
residue.
➢ Sequestration is to the advantage of creditors as a group.

❖ Creditors may oppose the application by applying for leave to

intervene and by filing affidavits setting out the grounds for the
opposition.
❖ The matter will then be postponed if allowed, parties will file
affidavits, and the case will be set down on the opposed roll.
❖ Where the affidavit has satisfied the court of the above requirement,
the court still has the discretion to sequestrate the estate which
depends on the relevant circumstances
Prevention of The court’s jurisdiction to prevent abuse of power
abuse of power ❖ The court has inherent jurisdiction to prevent abuse of process and
may postpone or refuse an application where it was brought with
improper motive.
➢ A court will refuse an application where it does not disclose
details pertaining to the reasons of insolvency, the moveable
assets and the income and expenditure of the applicant.

S150 of the Insolvency Act

❖ An aggrieved party may appeal against the final sequestration order.
➢ A person who is aggrieved by an order that nullifies a provisional
order may with leave appeal against it.
➢ Such an order is appealable, and a provisional order may also be
varied or rescinded.

S151 of the Insolvency Act

❖ Any person aggrieved by any decision, ruling, order, appointment or
taxation of the Master or by a decision, ruling or order of an officer
presiding at a meeting of creditors may bring it under review by the
Court.

Ex parte Arntzen
❖ The court in rejecting an application for voluntary surrender indicated
that voluntary surrender requires high level of discloser since the risk
for abuse is even greater than friendly sequestrations.
❖ Full and frank disclosure is thus a necessity when it comes to
descriptions of assets, debts and causes of insolvency.
Summary What to do
❖ Steps before applying for court order
➢ Notice of surrender
➢ Copy of notice
➢ Statement of affairs

❖ Steps when applying for court order

13
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Bring court application in accordance with processes of court

(civil procedure).

What to say
❖ Content of the court application
➢ Who, why and where
➢ Preliminary steps completed
➢ Actual insolvency, causes and statement of affairs
➢ Funds to cover sequestration costs
➢ Advantage to creditors

Additional
❖ Contents of application
➢ Court’s decision and discretion
❖ Applicant’s burden of proof
❖ Notice of motion and affidavit
➢ Facts and attachments
➢ Debtor and jurisdiction
➢ Applicant actually insolvent and causes for insolvency
➢ Sufficient free residue to cover sequestration costs
➢ Sequestration to the advantage of the creditors
➢ Proof of compliance with formalities

Additional S197B – Disclosure of information concerning insolvency

requirements 1) An employer that is facing financial difficulties may reasonably
from the Labour result in the winding-up or sequestration of the employer, must
Relations Act advise a consulting party contemplated in S189(1).
2) a) An employer that applies to be wound up or sequestrated
whether in terms of the Insolvency Act, 1936, or any other law,
must at the time of making application, provide a consulting party
contemplated in S189(1) with a copy of the application.
b) An employer that receives an application for its winding-up or
sequestration must supply a copy of the application to any
consulting party contemplated in S189(1), within two days of
receipt, or if the proceedings are urgent, within 12 hours.

S189 – Dismissals based on operational requirements

1) When an employer contemplates dismissing one or more
employees for reasons based on employer’s operational
requirements, the employer must consult
a) Any person whom the employer is required to consult in terms
of a collective agreement,
b) If there is no collective agreement that requires consultation
i) A workplace forum, if the employees likely to be
affected by the proposed dismissals are employed in
a workplace in respect of which there is a workplace
forum, and

14
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

ii) Any registered trade union whose members are likely

to be affected by the proposed dismissals.
c) If there is no workplace forum in the workplace in which the
employees are likely to be affected by the proposed
dismissals are employed, any registered trade union whose
members are likely to be affected by the prosed dismissals or
d) If there is no such trade union, the employees likely to be
affected by the proposed dismissals or their representatives
nominated for that purpose.

Note: For S189, only know the four different types of people that must
receive a copy of the notice as contemplated in S189(a) to (d).
Example Hockley’s The Law of Insolvency Specimen Applications
Important for the ❖ “I, the undersigned, John Jack, declare under oath as follows:”
test ❖ “I am the applicant in this matter, and the facts deposed to are
within my own knowledge.”
❖ “I am a major male, identity number 1234 5678 909 presently
residing at 123 ABC Road, Pretoria, and employed as an engineer
by Engineers 123 CC.”
❖ “I am married out of community of property to Lacy Jack, identity
number 1234 5678 910 residing at ….”
❖ “I am domiciled within the jurisdiction of the above Honourable
Court”.

Note: If spouses are married in community of property, there is only one

joint estate and the estate gets sequestrated. Thus, both spouses will be
co-debtors/co-creditors so there must be 2 parties joined as applicants
or respondents.
Technical General
Aspects ❖ Court application is heavily influenced by the normal rules of civil
YouTube Video procedure.
(extra ❖ You approach the motion court for the application.
understanding) ❖ It is based on paper specifically in affidavits and this is presented in
court, there are no cross examinations.

Voluntary surrender
➢ Schedule 1 of Uniform rules of court contain the Form 2
➢ Ex part application – only applicant(s)
➢ Debtor is applicant who brings application to court. There can be
more than one applicant in the case of spouses INCOP.
➢ Partners must also apply jointly and must apply individually for
the sequestration of their own estate.
➢ Notice of motion.
➢ The affidavit sets out the details of the case and is deposed to by
debtor (written in first person).
➢ Given to the registrar of the court.

Compulsory sequestration
15
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Schedule 1 of the Uniform rules of court, Form 2(a) [NOT 2A]

➢ Long notice of motion form
o There is applicants and respondents so it will be longer
o If married INCOP, there will be 2 applicants.
➢ Creditor brings application for sequestration of debtor’s estate
➢ Brought on notice
o There are details given to the respondent if the respondent
wants to depose the notice.
o Must give reasons or facts as to why they should not be
sequestrated (such as if they are not insolvent) Give notice to
the respondent.
➢ The affidavit is deposed by the creditor or someone who has
knowledge of the facts of the case in the event of a juristic person.
➢ Notice is given to the registrar and the respondent.

Case Law Ex Parte Ford 2009 (3) SA 376 (WCC)

❖ Three applicants had applied for the voluntary surrender of their
estate.
❖ Majority of their debts were a result of credit agreements.
❖ The court was required to determine whether reliance on voluntary
surrender was the appropriate remedy, considering the fact that the
debts were credit agreements subject to the National Credit Act.
➢ When investigating, the courts realised that there was a
disproportionate relationship between high amount of debt and
the applicant’s modest income, indicating a chance of there
being reckless credit lending.
➢ It was stated that the main aim of voluntary surrender is not
relieve debtors, but to regulate how the creditor’s claims are
handled to the best advantage of the creditors.
➢ The courts decided that applicants who apply for voluntary
surrender instead of making use of the debt relief measures
provided in the NCA must explain why they have chosen to use
voluntary surrender.
➢ In terms of debt review., all debts, costs and interests are paid,
thus the monetary value to creditors may be more than that of
voluntary surrender.
➢ In terms of voluntary surrender, there is a discharge of debt.
➢ Thus, it is more advantageous to creditors if debtors apply for
debt review in terms of the NCA, even though the creditors will
have to wait to be paid.
❖ The application for voluntary surrender was then rejected by the
court.

Ex parte Bouwer 2009 (6) SA 382 (GNP)

❖ This case dealt with an application for voluntary sequestration.
❖ In terms of S4 of the Insolvency Act, a debtor must submit a detailed
statement of affairs to the Master.

16
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ This statement must include details with regards to the debtor’s

moveable and immovable property, and the reasons as to why
they are insolvent.
➢ This is because debtors must prove that there is sufficient
advantage to creditors when applying for voluntary sequestration.
➢ This requirement is strictly followed because there is a chance
that there will be abuse of process and the undermining of
creditors rights.
➢ Thus, the debtor is required to provide detailed evidence of their
estate and the reasons for insolvency.
❖ In this case, the court determined that the debtor failed to provide
sufficient information regarding the affairs of their estate and the
reasons for insolvency.
➢ In addition to this the valuation of the estate did not show enough
substantial dividends that would result in there being an
advantage to creditors.

Ex Parte Arntzen 2013 (1) SA 49 (KZP)

❖ This case concerned an application for the voluntary surrender of an
estate.
❖ Similar to Bouwer, the courts emphasised the need for full and honest
disclosure of details with regards to the insolvent’s estate in voluntary
surrender applications.
➢ This is due to the fact that creditors are more vulnerable in
voluntary surrender applications than they are in compulsory
sequestration applications.
➢ Thus, the courts need to have access to all details in order to
make an informed decision.
➢ There is also a greater risk of abuse and the voluntary surrender
not being to the creditors’ advantage.
➢ Thus, the applicant (debtor) must act in utmost good faith and
provide all the necessary details, evidence and documentation to
prove the requirements of voluntary surrender.
❖ In this case, the court determined that voluntary surrender was not
the appropriate remedy and granted a provisional order for judicial
management.

Ex Parte Concato [2016] 2 All SA 519 (WCC)

❖ This case dealt with 5 applications for voluntary surrender
❖ Upon inspection, the court noticed that all the application were all
uniform.
➢ All five applications made use of the same structure and formula
to prove that the requirements of the Insolvency Act were met. All
the applications proved the reasons that led to insolvency, that
there are enough costs to pay for the process of sequestration
and that there will be an advantage to creditors and sufficient
dividends.

17
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ The courts then requested further evidence of past applications

due to these similarities.
➢ The court found that almost an exact copy of the applications was
being used as a template for the purpose of a buy-back
arrangement.
➢ Thus, the debtor would at a later stage buy back all his assets by
means of an instalment agreement.
➢ This indicates an abuse of process as this is to the advantage of
the debtor and not to the advantage of the creditors as strictly
required.
❖ The court in case refused all 5 of the applications for voluntary
surrender.

18
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 4 – Compulsory sequestration

Introduction Overview
❖ Affidavit
❖ Compulsory sequestration
❖ Requirements
❖ Advantage to creditors
❖ Friendly sequestration
❖ Sequestration of partnerships
❖ Case Law
Affidavit Affidavit of a voluntary surrender and compulsory sequestration
application
❖ Details of the applicant to show locus standi (if not debtor self).
❖ Full names, address, occupation and status of the debtor.
➢ Section 2 definition of ‘debtor’
❖ Facts proving that the court has jurisdiction.
Compulsory Concept
sequestration ❖ One or more of a debtor’s creditors, with the required claim(s) may
apply for the compulsory sequestration of the debtor’s estate.
❖ Creditor’s perspective: Collective form of debt enforcement.
❖ Prescriptions of the NCA in relation to debt enforcement is not
applicable.
Requirements General
❖ When a creditor applies for compulsory sequestration and the
debtor’s estate meets the burden of proof, the court will first in its
discretion, place the estate under provisional sequestration.
➢ Interested parties are entitled to object to the application by
addressing the court at a date in future as to the reasons why the
application should not be granted.

Procedural requirements are that the applicant:

❖ Steps before applying to court (Preliminary steps)
➢ Provides security to the Master to defray all costs of sequestration
until a trustee is appointed and,
➢ Furnish the debtor, SARS, as well as employees and registered
trade unions, with copies of the application.
o The notice is usually sent to a number of people.
o There will be a founding affidavit, an opposing affidavit from
the debtor and a replying affidavit.

❖ Content of application (brought in accordance with civil procedure)

➢ Contents of affidavit
o A juristic person cannot attest to an affidavit.
➢ Details of applicant (creditor) and debtor.
➢ Details of applicant’s claim is important to show that they have
interest – locus standi.
➢ Actual insolvency of debtor/act of insolvency.
19
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Advantage to creditors.
➢ Compliance with preliminary steps: security and notification.
❖ Applicant must provide prima facie proof of the following in order for
the court to grant a provisional sequestration order (Provisional
order):
➢ He has a liquidated claim of at least R100 against the debtor,
➢ The debtor has committed an act of insolvency or is in fact
insolvent and,
➢ There is reason to believe that sequestration will be to the
advantage of creditors of the estate.
o Less strict than voluntary surrender
o Same elements
o Other considerations
❖ Process after granting provisional order: notification.
❖ Note: the date of sequestration is on the date of the provisional order
being granted PROVIDED that the final order is granted.
➢ Back date as if process started when the provisional order was
granted.

❖ Final order
➢ Grant
➢ Discretion for further proof
o The court can ask for investigations or further evidence.
➢ Appeal
➢ Recission of order
o In this instance, all consequences of insolvency will not apply
so rehab and discharge will not take place, and the assets will
be reinvested into the debtor himself.

Acts of insolvency
❖ Sometimes problems arise in proving that the debtor is actually
insolvent.
❖ The creditor will have to rely on indirect evidence which will not
necessarily be conclusive as to the debtor’s state of insolvency.
❖ The Insolvency Act provides for an alternative, namely for a creditor to
base his claim on the fact that the debtor committed an act of
insolvency.
❖ Every act of insolvency has 2 aspects
➢ Intention - the intention to hide/dispose of assets, prejudicing the
creditors.
➢ Effect - creditors are prejudiced, sheriff doesn't hide assets
➢ The creditor must prove both in order to prove that the act is
presence.

Section 8 of the Insolvency Act (know content)

(a) if he leaves the Republic or being out of the Republic remains
absent therefrom, or departs from his dwelling or otherwise

20
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

absents himself, with intent by so doing to evade or delay the

payment of his debts
➢ applicant must prove the debtor’s intention as the debtor may
be able to provide reasons for his absence.
(b) if a Court has given judgment against him and
i) he fails, upon the demand of the officer whose duty it is to
execute that judgment, to satisfy it or to indicate to that officer
disposable property sufficient to satisfy it,
ii) or if it appears from the return made by that officer that he has
not found sufficient disposable property to satisfy the
judgment;
➢ Where the sheriff finds the debtor and the debtor does not
indicate sufficient disposable assets, the act of
insolvency has been committed.
➢ The sheriff does not need to search for further assets.
➢ Where the sheriff cannot find the debtor, he must search
for disposable assets.
➢ The act of insolvency is only committed when he does not
find sufficient assets to sell in execution to satisfy the
debts.
(c) if he makes or attempts to make any disposition of any of his
property which has or would have the effect of prejudicing his
creditors or of preferring one creditor above another;
(d) if he removes or attempts to remove any of his property with intent
to prejudice his creditors or to prefer one creditor above another;
(e) if he makes or offers to make any arrangement with any of his
creditor for releasing him wholly or partially from his debts;
(f) if, after having published a notice of surrender of his estate, fails
to bring such application on the stated date, lodges a statement
which is incorrect or incomplete in any material respect or fails to
apply for the acceptance of the surrender of his estate on the date
mentioned in the aforesaid notice;
(g) if he gives notice in writing to any one of his creditors that he is
unable to pay any of his debts;
➢ the test is weather a reasonable reader will construe the
notice as an indication of inability.
➢ This occurs were, due to his inability to pay, he requests a
creditor in writing for an extension to enable him to pay his
debts.
(h) if, being a trader, he gives notice in the Gazette in terms of sub-
section (1) of S34 of his intention to transfer his debts and is
thereafter unable to pay all his debts.

❖ Even when the applicant creditor has discharged his burden of proof,
the court has a discretion whether to order the provisional
sequestration of the debtor’s estate.
❖ If the order is granted, it is served upon the debtor, trade unions,
employees and SARS.

21
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Master of the HC is also notified of the order.

❖ He publishes a notice of sequestration in the GG.
❖ Registrar must also transmit copies of the sequestration order to:
➢ The Master,
➢ The sheriff of every district which the insolvent resides or own
property,
➢ Every sheriff who holds attached property that belongs to the
insolvent estate,
➢ Every Registrar of Deeds and
➢ Every person in charge of a register of ships.

Section 12
❖ The court may order the final sequestration of the debtor’s estate on
the return date if the court is satisfied that:
a) The creditor has liquidated claim against the debtor.
b) The debtor has committed an act of insolvency or is in act
insolvent.
c) there is reason to believe that sequestration will be to the
advantage of creditors of the estate.

❖ A person who is aggrieved by a final sequestration order may, with

leave, appeal against such order.
❖ A final sequestration order may also be rescinded but only in
extraordinary circumstances.
❖ The Master or the insolvent with the Master’s consent may apply for
the setting aside of a sequestration order if no trustee is elected
during the creditor’s meeting convened for such purpose.
❖ Once a recission order is granted, the debtor regains control of his
estate.
❖ If the application for compulsory sequestration constitutes an abuse
of the court’s procedure, is malicious or vexatious, the court may also
award damages to the debtor.

Advantage to Difference between voluntary surrender and compulsory

creditors sequestration
❖ The main difference with regards to advantage to creditors is the
burden of proof.
❖ “Will be” vs “Reason to believe”.

Compulsory sequestration applications

❖ Where the applicant is the only creditor, sequestration is not the
conventional method of debt collection.
❖ The creditor must indicate why it is more beneficial than execution.
➢ Advantage can be proved when one creditor is threatening
execution to the detriment of other creditors or,
➢ Where property is concealed and/or disposed of might be found
and vindicated after sequestration.

22
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Opposition to the application by many creditors may be

considered but it is not decisive.
➢ Some acts of insolvency can indicate advantage, but it is not
decisive.
➢ Sufficient assets of value + costs + dividend (realistic calculation)
o The percentage that the creditor will get by looking at the
assets and the value of the assets (immovable and movable).
o Must be careful that asset value is not inflated.
o An expert evaluation of the value of property is needed.
o One can look at income but not it is not reliable because
subject to change and is thus not excluded.
o The surplus amount that is not needed to take care of the
family falls into estate, so courts consider this amount
carefully.

➢ Advantage will not be proven where it is unlikely that further

assets will be recovered or
o Where it appears that the free residue will be insufficient to
pay any dividends and
o That there would rather be a risk of contribution for creditors
who prove their claims.

Section 6, 10 and 12
❖ The applicant in an application for a sequestration order should show
that:
➢ Either it will be (in the case of voluntary surrender applications)
or,
➢ There is reason to believe that it will be (in the case of compulsory
sequestration),
➢ To the advantage of the debtor’s creditors if the estate is
sequestrated.
➢ This requirement is central to SA Insolvency Law.

Ex Parte Ford
❖ The court confirmed that the primary object of the voluntary
surrender procedure is not the relief of harassed debtors.
❖ Referenced the decision in Nel NO v Body Corporate of the Seaways
Building
➢ The Insolvency Act does not intend the deprivation of creditors’
claims but merely the regulation of the manner and extent of their
payment.
❖ ‘Advantage to creditors’ is not defined or explained in the Act
❖ Case law shows that it entails a reasonable prospect of some
pecuniary benefit accruing to the general body of creditors.
❖ What would constitute a reasonable dividend depends on the
circumstances of each case and the attitude of creditors.
❖ The practical implementation of this principle is problematic.

23
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Even the best estimates at the time of application will not be

accurate as the available funds for distribution will only be
ascertained once the assets have been liquidated.
Friendly Definition
sequestration ❖ Where debtors request friends or family members to bring an
application for their compulsory sequestration.
❖ Based on a written notice by the debtor to his creditor(s) that he is
unable to pay his debt – which qualifies as an act of insolvency.
❖ Usually based on S8(g) of the Insolvency Act.

Abuse of process
❖ These applications run the risk of being classified as procedural
abuse.
➢ There is a risk of collusion between the applicant and the debtor
where information is deliberately withheld from the court.
➢ There can be abuse because the debtor can force a discharge
when there is no creditor advantage.
➢ Because there are no proper debt relief measures as
sequestration is one of the only that offers discharge.
➢ This application is ‘wrong’ where other creditors’ interests are
infringed and
➢ Where there is deception.
➢ However, it will be in order where there is no indication of abuse
and where the evidence complies with the requirements of S12.

Courts interpretation
❖ Courts have called for the need to scrutinize friendly applications.
➢ And to curb the abuse of the procedure to assure that there will
be advantage for creditors.
➢ Some judgement set guidelines and additional requirements.
➢ Other don’t as it infringes on the functions of the legislature and
the notion that each case must be decided on its own facts and
circumstances.

Ex parte Mattysen ex Uxor

❖ The essence of “advantage to creditors” is that the courts must
decide, on the evidence presented, that there are sufficient assets in
the estate (with sufficient value) to pay the costs of sequestration and
a not-negligible dividend to creditors.
❖ Courts have of late demanded more precise information relating to
the debtor’s affairs as well as a realistic calculation of the potential
dividend.
Sequestration of Overview
partnerships ❖ A partnership qualifies as a debtor for the purposes of the Insolvency
Act
➢ Thus, it can be sequestrated.
❖ If the court grants the sequestration of the partnership estate, the
private estates of each individual partner must be sequestrated
24
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ The applicant need not prove that the procedural or substantive

requirements of the Insolvency Act have been met in relation to
the partner’s private estates.

Private estates that are excluded from separate sequestration

❖ A partner in commandite
❖ A limited partner
❖ A partner who has undertaken to pay the debts of the partnership
within a period determined by the courts and who has given security
for the payment.
❖ Where there is a legal bar preventing such sequestration such as
➢ A partner who was on full-time military duty.
➢ Where one person is a juristic person that must be liquidated in
terms of the Companies Act.
❖ The partnership may still be sequestrated even if some partners do
not qualify as debtors in terms of the Act (Hawker Air Services case).

Effect of simultaneous, separate sequestration

❖ The partnership’s creditors must prove their claims against the
partnership estate.
❖ The private creditors of each partner must prove their claims against
the individual estates of the respective partners.

Balances
❖ The trustee of the partnership is entitled to any balance in the
partner’s estates after their creditors’ claims have been satisfied
provided that such funds are necessary to pay the partnership debts.
❖ If there remains a balance in the partnership estates after all
creditors’ claims have been satisfied, the trustees of the partners’
individual estates are entitled to such a balance.

❖ Separate trustees’ accounts must be drawn up for each estate, thus

for
➢ The partnership estate and
➢ For the private estates of the partners.
❖ Natural person estate may be rehabilitated.
❖ Partnership estates may not be rehabilitated.
➢ Sequestration dissolves the partnership.
❖
Case Law Investec Bank Ltd v Mutemeri 2010 (1) SA 265 (W)
Naidoo v ABSA Bank Ltd 2010 (4) SA 597 (SCA)
❖ In these cases, the court had to determine whether compliance with
the National Credit Act is necessary before a credit provider can
institute compulsory sequestration proceedings.
❖ The court had to determine whether the sequestration process
constitutes enforcement of the credit agreement in question.

25
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ In addition to this, the courts also had to determine whether a credit

cannot apply for sequestration against a debtor if a debtor is already
subject to debt review in terms of the NCA.
➢ According to S129 of the NCA, a creditor must send a notice to
the debtor informing them that they are in arears and the debtor
must be provided with options in this notice.
➢ This notice is thus part of enforcement proceedings.
➢ According to S88 of the NCA, as long as the debtor pays according
to a repayment plan under debt review, a creditor may not enforce
the agreement.
❖ The court in this case stated that compulsory sequestration does not
constitute enforcement in terms of the NCA.
➢ This is because the purpose of sequestration is not to enforce the
payment of debt to the creditors, but to take control of the estate.
➢ Thus, there is no need to comply with the enforcement
proceedings.
➢ The creditor does not need to send a S129 notice when they want
to sequestrate the debtor.
➢ The creditor may also still apply for compulsory sequestration
even if the debtor is subject to a repayment plan under debt
review because sequestration is not an enforcement procedure.

Stratford v Investec Bank 2015 (3) SA 1 (CC)

❖ The court emphasized the importance of advantage to creditors and
stated that the benefit must be tangible and not negligible.
➢ Even small payments are sufficient as the court did not specify a
threshold.
➢ It does not have to be immediate or substantial
➢ The benefit can thus be realized through the uncovering of assets
➢ Thus, the court concluded that the term “advantage to creditors”
is flexible and does not need to be a specific amount.
❖ When an employer is sequestrated
➢ Notice must be sent to the employees of the employer in terms of
S197B and S189 of the Labour Relations Act
➢ The notice must be sent to all employees
➢ Domestic and business employees.

26
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 5 – Distributions and Contributions

Introduction Overview
❖ General
❖ Types of creditors
❖ Secured creditors
❖ Types of security conferring preference
❖ Preferred creditors
❖ Concurrent creditors
❖ Contributions
❖ Case law
General When
❖ Immediately after the confirmation of the trustee’s account, the
trustee must in accordance therewith distribute the proceeds of the
estate assets.

S1 definition of “preference”
❖ In relation to any claim against an insolvent estate, means the right to
payment of that claim out of the assets of the estate in preference to
other claims; and ‘preferent’ has a corresponding meaning.
Types of creditors 1. Secured creditors
❖ S89
❖ Enjoy a real security over the property of the insolvent
❖ Paid from proceeds derived from the realization of their securities
encumbered assets)
➢ Special mortgage (immovable and movable property)
➢ Landlord legal hypothec (rent)
➢ Pledge (Possession)
➢ Lien (Right of retention)
➢ Instalment agreement hypothec

2. Unsecured creditors
Statutory Preferent Creditors
❖ S96 – S102
❖ Have no security
❖ Paid from the free residue account (unencumbered assets)
➢ Funeral & deathbed
➢ Costs of sequestration
➢ Special preferences
➢ Costs of execution
➢ Salaries
➢ Statutory obligations
➢ Income tax
➢ Claims secured by general bonds

Concurrent creditors
❖ S103
❖ Have no security

27
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Paid from the free residue account (unencumbered assets)

❖ All rank equally on the proceeds of the assets falling into the free
residue.
❖ If the remaining proceeds are insufficient to pay the concurrent
creditors in full, they will be paid in proportion to the amount of their
claim, by way of a dividend.
❖ Also includes secured and preferent creditors for the non-preferent
balance of their claims.
Secured Application of securities
creditors ❖ They have preference over other creditors.
❖ They are paid first but after certain costs (S 89 initial costs).
❖ They hold security over their claims.
❖ They are paid from the proceeds of the property subject to the
security, AFTER the payment of certain expenses.
➢ Initial costs
➢ Costs of maintaining
➢ Conserving and realizing the asset
➢ Trustee’s remuneration in respect of the asset.

❖ If the proceeds of sold secured property are insufficient to cover the

secured creditor’s claim, the secured creditor has a concurrent claim
for the balance from the free residue.
❖ However, the secured creditor may waive this right to participate in
the free residue for the concurrent claim (chooses to rely exclusively
on his security) as per S89(2).
❖ But he may still pursue a claim against the surety if they exist.
❖ A creditor who relies exclusively on his security is less likely to be
called to make contributions towards the costs of sequestration.
❖ If a creditor is in possession of property due to a lien or a landlord’s
hypothec and delivers the property to the trustee, the creditor will not
lose his security provided to him by the property.

Ranking within encumbered assets

➢ Initial Costs S 89
o Maintaining and conserving
o Costs of realising the property
▪ Trustee’s remuneration
▪ Pro rata portion of the costs of the trustee’s security
▪ Master’s fees
▪ Amount for periodic taxes in respect of immovable
property (S89(5)).
➢ Secured claims
➢ Immovable Property
➢ Enrichment lien
➢ Special mortgage bond
➢ Debtor and creditor liens
➢ Movable Property
➢ Enrichment lien
28
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Pledge
➢ Special notarial bonds
➢ Debtor & creditor liens
➢ Instalment sale hypothec
➢ Landlord hypothec
Types of security Special mortgage
conferring ❖ Mortgage bond - immovable property
preference ❖ Special notarial bond – specially defined/described moveable
property.
❖ General notarial bonds over movable property are excluded.
➢ Confers no security but confers a preference in respect of the free
residue, it is paid before the concurrent creditors (S102).

Section 88 of the Insolvency Act

❖ A mortgage bond (except a kustingbrief) gives no security or
preference if:
➢ The estate of the mortgage debtor is sequestrated within a period
of six months after the lodging of the bond (whether special or
general bond) with the Registrar of Deeds for registration.
➢ The debt was incurred more than two months before lodging of
the bond.
➢ The debt was not previously secured.

What is a kustingbrief?
❖ A “kustingsbrief” is a bond which is registered simultaneously with
the transfer of the piece of land concerned, in order to secure either
the outstanding purchase price of the land, or the repayment of a loan
made to the buyer to enable him to pay the purchase price of the land.

Landlord legal hypothec

❖ Failure to pay rent- landlord acquires a legal hypothec over moveable
property brought onto the leased property and over all the crops
raised by the tenant in the landlord’s premises.
❖ Landlord can sell the movable property/crops to recover rent owed
Balance given to debtor.
❖ Upon insolvency, the landlord has a secured claim & concurrent
claim for excess.

Pledge
❖ The right of pledge is based on possession of a movable thing.
❖ No security without possession.
❖ If the creditor voluntarily relinquishes/loses possession, the right of
pledge lapses.

Lien (Right of Retention)

❖ Possession is a prerequisite.
❖ When someone has improved the property of another or incurred
labour or expenses over the property of another, the person who
29
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

made the improvement/incurred labour or expenses acquires a right

of retention (lien) over the improved property until payment is made.

❖ There are two types of liens:

➢ Debtor-creditor lien in terms of a contract
o For the agreed contract price.
➢ Enrichment lien – unjustified enrichment
o The right of retention for the amount by which the value of the
property has increased.

Instalment sale hypothec

❖ If movable property has been delivered to a debtor under an
instalment sale agreement (credit agreement in terms of the NCA).
❖ On sequestration of the debtor’s estate the seller acquires a hypothec
over the property which secures his claim for the balance for the
outstanding amount under the contract.

Death of insolvent
❖ If the insolvent died before the trustee’s first account was submitted
to the Master and the free residue is insufficient to cover the deathbed
and funeral expenses, the proceeds from the secured assets will be
used.
❖ It will also be used to defray
➢ Insolvent’s expenses
➢ Spouse and minor child’s expenses if incurred within three
months before sequestration.
❖ Remaining proceeds must be used to satisfy
➢ The claims of secured creditors in their order of preference.
➢ Interest in respect of any period not exceeding two years
immediately preceding the date of sequestration.
➢ Interest from the date of sequestration to the date of payment.

Preferred General
creditors ❖ Preferred creditors are paid after secured creditors.
❖ They are paid before concurrent creditors (preference over
concurrent creditors).
❖ They don’t have security.
❖ The preference is created by the Insolvency Act and other legislation
❖ They are referred to as a statutory preference.

Ranking of free residue

❖ Funeral Expenses [S96(1)]
➢ If the insolvent died before the lodging of the first distribution
amount with the Master.
➢ Costs of the spouse or minor child if such expenses incurred
within three months immediately prior to sequestration.
➢ Limited to R300 per expense.
➢ Over and above R300 – concurrent.
30
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Death-bed Expenses [S96(3)] - max R300

❖ Costs of sequestration & admin [S97] (except initial costs S89)
➢ Sheriff’s costs
➢ Master’s fees
➢ Charges in terms of S97(2) – Ranked on equal footing and
decrease in equal proportion.
o Costs taxed by Registrar incurred in respect of application for
voluntary surrender or compulsory sequestration.
o Costs allowed by Master for person who assisted
insolvent/spouse with completion of statement of affairs
o Remuneration of trustee and curator bonis.
o Remuneration for person appointed by Master, trustee or
curator bonis to act on behalf of insolvent estate.
o All other costs of administration and liquidation (costs of
security in so far as not payable by secured creditors).

❖ Preferences under S135(3) of Companies Act

➢ Applies when business rescue proceedings are superseded by a
liquidation order.
o Remuneration and expenses of the business rescue
practitioner.
o Remuneration and other employment related amounts that
become due and payable to employees during the company’s
business rescue proceedings.
o Claims of creditors who provided post-commencing
financing in order in which they incurred.
➢ S153(4) Creates a preference payable from the free residue after
payment of the sequestration costs.
➢ Does not create a supe preference that ranked in priority before
all other claims, including secured claims.

❖ Cost of Execution [S98]

➢ Taxed fees of the sheriff in connection with any execution upon
property of the insolvent and the connection with any
proceedings that resulted in that execution.
➢ Any other taxed costs in those proceedings limited to a sum of
R50.
❖ The total amount paid may not exceed the proceeds of the
property where the property was still under attachment or where
the proceeds of the sale in execution of the property were still in
the hand of the sheriff at the time of sequestration.
❖ Attachment of property in execution of any judgment does not
confer any preference on the judgement creditor after
sequestration of the judgement debtor’s estate.

❖ Salaries/Remuneration of Employees [S98A] - max R12 000

a) Salary or wages in arrears for a period not exceeding 3 months –
max R12 000.

31
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

b) Claims in respect of any period of leave or holiday due to

employee that has accrued as a result of his employment by the
insolvent in the year of insolvency or the previous year – max R4
000.
c) Any amount due in respect of any other form of paid absence for
a period not exceeding 3 months prior to date of liquidation – max
R4 000.
d) Any severance or retrenchment pay due to employee in terms of
any law, agreement, contract, wage-regulating measure or
because of termination in terms of S38 – max R12 000.
e) Max amount of R12 000 payable thereafter for contributions
payable by an insolvent, including contributors payable in respect
of his employees, to any pension or provident fund, medical aid
or employment fund, or any similar scheme or fund.

S98A3
❖ Employees do not have to prove their claims in terms of S44.
❖ Trustee may require an affidavit in support of claim.

S98A4
❖ Claim for salary or wages (a) enjoys preference above claim for leave,
other paid absence and severance/retrenchment pay.
❖ Claims (b) and (d) rank equally and abate in equal portions if
necessary.
❖ Preferred to (e).
❖ Claims (e) rank equally and abate in equal portions.

❖ Balance of claims not covered by S98A will be claimed concurrently

with that owed to the general concurrent creditors.
❖ Employees must prove a claim in terms of S44 for this.
❖ Salaries or wages include all cash earnings received by employees
from the employer.
❖ Directors, members of insolvent companies and independent
contractors are excluded from the meaning of ‘employee’.

❖ Statutory obligations [S99]

➢ Payable by insolvent employer to certain government and other
institutions.

❖ Income Tax [S101]

❖ Claims secured by general bonds [S102]
Concurrent General
creditors ❖ They do not enjoy any advantage.
❖ They are paid out of the free residue after preferent creditors have
been paid.
❖ Amongst themselves, they rank equally.
❖ They receive a dividend.

32
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Entitled to interest from the date of sequestration to the date of

payment of heir claims only if their capital claims have been paid in
full.
➢ 8% or higher by virtue of any lawful stipulation.
➢ Simple interest, not compound interest.
❖ If the free residue is insufficient for their claims, they receive an equal
proportion of their claim by way of a dividend (cents in a rand).

❖ Other creditors who also claim from the free residue include.
➢ Secured creditors whom the proceeds of their security were
insufficient to pay their whole debt.
➢ Preferent creditors for non-preferent balance of their claims.
❖ If there is any remaining surplus
➢ The trustee must in terms of S116 pay it to the Master.
➢ Master deposits it in the Guardian Fund.
➢ After rehabilitation of the insolvent, the Master must pay the
surplus to the insolvent on his request.
Contributions Payment of a contribution
❖ When a creditor has to pay money into the insolvent estate so that
certain costs can be paid.
❖ These costs are incurred in
➢ The process of bringing an application for sequestration
➢ The process of attaching an asset
➢ The process of selling an asset
❖ If the estate is unable to cover these costs, then the creditors must
cover these costs.

This liability to contribute is determined by 2 factors

❖ Which costs
➢ S89 costs (encumbered asset)
o Initial costs
o Paid by secured creditors for the encumbered asset
o The cost is paid before paying the secured creditors
➢ Section 97 costs (free residue assets)
o Sequestration costs – costs of the sequestration application
o Master’s dees, Trustee’s fees etc.
o If insufficient, it is paid by unsecured creditors for the
unencumbered assets: have a statutory preference
o Share the costs pro rata.

❖ The category of creditor liable to contribute

❖ The creditors contribute to the costs related to the account from
which the creditor stood to benefit.
➢ Secured creditors who relied on their securities
➢ The applicant creditor
➢ Creditors with concurrent claims

33
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

o Concurrent creditors and secured creditors who did not rely

on their securities and claimed the outstanding amount from
the free residue as a concurrent claim.
➢ Statutory preferent creditors
➢ Trustee if no other creditor proves a claim against the insolvent
estate.

Rule 1
The creditors contribute to the costs related to the account from which
the creditor stood to benefit.

Secured creditors
❖ S89 Costs (Initial costs)
❖ Secured creditors who did not rely on their security (S106)
➢ Those who elected to claim the unsecured part of their claim as
concurrent creditors.
➢ Will be liable to contribute towards the S89 costs and S97 costs
➢ Contribute towards the free residue for the concurrent part of
their claim, should there be a shortfall in the free residue.
❖ The secured creditor who relied exclusively on his security will be
liable for S89(1) costs (initial costs-admin cost pertaining to the
security).
➢ The secured creditor who relied on his security will also
contribute towards the free residue (S97) if they proved their
claims and there are no other creditors (concurrent creditors &
secured creditors with concurrent parts of their claim) (S106(a)).

❖ A creditor with realised property in terms of S83(10A) will be liable to

contribute even if he has not proved a claim.
➢ If the creditor relied on his security, he will only be liable for the
costs specified in S89(1) and other costs for which he may be
liable in terms of S106(a) and (b).

S106(b)
❖ Creditors who have withdrawn their claims in terms of S51
➢ Liable to pay a pro rata amount of the cost of sequestration up to
the date of withdrawal.

Statutory preferent creditors

❖ Ongevallkommissaris v Die Meester
❖ S106(c)
❖ Liable towards the costs of sequestration (s 97 costs) if all creditors
with concurrent claims withdrew their claims and paid their
contributions up to the time of their withdrawal in terms of S106(b).
❖ If a deficiency still remains
➢ The remaining creditors who have proved their claims
“notwithstanding the fact that they would not have ranked upon
the surplus of the free residue, there had been any, will be liable.

34
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Applies to statutory preferent creditors

➢ Entitled to payment before the unsecured and concurrent
creditors and would thus “not have ranked upon the surplus of the
free residue, there had been any”.

Concurrent creditors
❖ General part of S106
❖ Liable for S97 costs
❖ Concurrent creditors with proved claims are liable to contribute pro
rate in respect of the among of their claims.

Rule 2
❖ The applicant creditor always contributes if the funds in the free
residue are insufficient.
❖ S14(3)
➢ This creditor sets the machinery in motion.
➢ They caused the costs by bringing the application for the
sequestration of the debtor’s estate.
Case Law FirstRand Bank Limited v Master of the High Court (Pretoria) and
Others ([2021] ZASCA 33)
❖ This case dealt with the which creditors were liable for sequestration
costs in an insolvent estate.
➢ The SCA was tasked with interpreting S106, s89(2) and S14(3).
➢ Secured creditors who only rely on their security will not be liable
for S97 costs (sequestration costs) unless they are the only
creditors.
➢ The applicant creditor will always be liable to pay sequestration
costs, regardless of whether or not they have proved against the
estate.
➢ This case sought to emphasis the responsibility that the applicant
has in contributing to sequestration costs.

35
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 6 – Consequences of sequestration for the debtor and the debtor’s spouse

Introduction Overview
❖ Consequences for insolvent debtors – vesting provisions
❖ Legal status of the insolvent
❖ Ability to obtain credit
❖ Earning capacity
❖ Hold office
❖ Capacity to institute and defend legal proceedings
❖ Obligations on granting a sequestration order
❖ Consequences for the solvent spouse
❖ Vesting provision
❖ Postponing of the vesting and exemptions
❖ Release of the assets of the solvent spouse
❖ Consequences for the solvent spouse
❖ Obligations on granting a sequestration order

Consequences Vesting provisions S20(1)(a)

for insolvent ❖ The effect of the sequestration order: divest the insolvent of his estate
debtor – Vesting and to vest it in the Master until a trustee has been appointed.
provisions ❖ Upon his appointment, to vest the estate in him.

The insolvent estate consists of:

❖ All property of insolvent at the date of sequestration
❖ All the property that the insolvent acquires during sequestration or
that accrues to him during sequestration.

S 2 of the Insolvency Act defines property as:

❖ “Movable or immovable wherever in South Africa, including
contingent interests in property”.
➢ Immovable Property: Land and every right or interest in land or
minerals which is registrable in a deeds office in South Africa.
➢ Moveable Property: Every kind of property and every right or
interest which is not immovable.

❖ The estate remains with the trustee until:

➢ The discharge of the sequestration order
➢ The acceptance of an offer of composition by creditors or
➢ An order of rehabilitation.

Legal status of General

the insolvent ❖ Sequestration reduces the status of the insolvent.
➢ Limits his capacity to contract
➢ Ability to obtain credit
➢ Earn a living
➢ litigate and
➢ Hold office

36
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Contractual capacity
❖ The debtor may not enter into a contract which purports to dispose of
any of his insolvent estate
➢ Without the trustee’s written consent
❖ The insolvent may not conclude a contract which adversely affects
his estate or
➢ Any contribution that he is obliged to make towards his estate
➢ The contract becomes voidable at the option of the trustee.
➢ The trustee may elect to continue with the contract (thus it
becomes binding on parties)
➢ or set it aside (thus, recover performance made by the debtor &
also restore to the third party any benefit received by the
insolvent)

S 24(1) Protection to third parties

❖ Who contracted unaware of debtor’s insolvency: contract will be
valid
❖ Applies to new assets which came into insolvent’s possession after
sequestration.
❖ Onus on the third party to prove
➢ That when he received the property
➢ He was unaware and had no reason to suspect that the debtor
was insolvent

Ability to obtain S137(1) of the Insolvency Act

credit “Any person shall be guilty of an offence and liable to imprisonment for a
period not exceeding one year if, during the sequestration of his estate,
he obtains credit to an amount exceeding ten pounds (R100, 00) without
previously informing the person from whom he obtains credit that he is
insolvent unless he proves that such person had knowledge of that fact”.

Credit Bureau
❖ Information about a debtor’s insolvency status appears on the
debtor’s credit record held by a credit bureau
➢ For five years from the date of the sequestration order until a
rehabilitation order is awarded,
➢ And for a further five years after a rehabilitation order.
❖ Used by credit providers to determine a consumer’s credit profile and
to establish whether a consumer has a good or bad payment history
before granting him or her credit.
❖ Potential employers where honesty and trust in dealing with finances
and cash are required may also use the information when considering
whether to employ him or her.
Earning capacity S23(3) of the Insolvency Act
“The insolvent is allowed to follow any profession or occupation or to
enter into any employment contract BUT he may not without the written
consent of the trustee carry on, be employed in any capacity in, or have

37
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

any direct or indirect interests in the business of a trader who is a general

dealer or manufacturer”.

The definition of a ‘Trader’

❖ Very wide
❖ It includes any person who carries on any trade, business, industry, or
undertaking in which
➢ Property is sold, bought, exchanged, or manufactured for
purposes of sale or exchange, or in which building operations of
whatever nature are performed.
➢ Includes anyone involved in public entertainment, or who acts as
a broker or agent for any person in the sale or purchase of any
property or the letting or hiring of immovable property.
➢ It excludes an insolvent involved in farming operations.

❖ General dealer - a trader operating in a fixed place of business in a

variety of goods and wares.
❖ Manufacturer - a trader who operates any kind of fabrication work.
❖ An insolvent who disregards this will be guilty of an offence and liable
to imprisonment.
Hold office S47(1)(c) and S106(1)(c) of the Constitution
❖ An unrehabilitated insolvent cannot be a Member of:
➢ the National Assembly,
➢ the National Council of Provinces
➢ the provincial legislature or municipal council
➢ National House of Traditional Leaders
❖ An insolvent is also disqualified from being a:
➢ trustee in an insolvent estate,
➢ liquidator of a company or close corporation
➢ director of a company or a co-operative
➢ business rescue practitioner
➢ Credit provider, debt counsellor or payment distribution agent in
terms of the NCA
➢ board member of the Land and Agricultural Development Bank,
➢ member of the governing board of the National Credit Regulator
➢ registered manufacturer or distributor of liquor.

❖ A person employed in these positions or who holds these offices is

required to vacate the position or office should his estate be
sequestrated in terms of the Insolvency Act.
❖ This list is not exhaustive.

Capacity to Proceedings relate to property of insolvent estate

institute and ❖ The trustee of the estate is the person to deal with the estate,
defend legal ➢ To administer it,
proceedings ➢ To sue in respect of it,
➢ And to defend actions concerning it.

38
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

S23 of the Insolvency Act

❖ Under the exceptional circumstances an insolvent can sue or be sued
in his or her personal capacity.
➢ Matter relates to status (s23(6)) – divorce.
➢ Claim is to recover remuneration for work done or professional
services rendered by him or her or on his or her behalf after the
sequestration of the estate (s23(9)).
➢ Claim is for a pension to which he or she is entitled for services
rendered (23(7)).
➢ Claim is for compensation in respect of loss or damage that he or
she has suffered because of defamation or personal injury (23(8)).
➢ Matter concerns a delict committed by him or her after the
sequestration of his or her estate(23(10)).
➢ Matter relates to a right that does not affect the insolvent estate
(a right to receive maintenance from the insolvent or the right not
to be unlawfully dispossessed of property).

Obligations on Obligations once the debtor has received the final sequestration
granting a order
sequestration ❖ The debtor as well as his spouse (if married OCOP) must lodge a
order statement of affairs within 7 days of service if not already done so.
❖ The debtor must hand over all documents and records pertaining to
his affairs.
❖ The Registrar must send a copy of the order to every:
➢ Sheriff of every district in which the insolvent seems to reside or
carry on business,
➢ Registrar of titles of immovable property in South Africa,
➢ Officer having charge of & official register of ships and
➢ Official who is holding any of the debtor’s property under
attachment.

❖ Every officer having charge of an official Register of ships or Register

of Deeds must enter a caveat against any transfer of ownership by the
insolvent or the cession or cancellation of any mortgage registered in
his name or his spouse.
❖ Every sheriff must attach & make an inventory of the movable
property of the insolvent estate which is in his district, and which is
not in the possession of a person who claims to be entitled to in terms
of a right of pledge lien.
Consequences Outline
for the solvent ❖ Vesting provisions: S21 of the Insolvency Act
spouse ❖ Postponement / Exemption of vesting
❖ Release of solvent spouse assets: S 21(2) of the Insolvency Act
❖ Obligations on granting a sequestration order
Vesting Provision Section 21(1)
❖ The separate estate of the spouse of the insolvent (solvent spouse)
must vest in the Master and later in the trustee.

39
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

S 21(13) defines a “spouse”

➢ Wife or husband in the legal sense (civil monogamous marriages,
➢ Wife or husband according to any law or custom (monogamous
customary marriages),
➢ A person living with a member of the opposite sex although not
married (cohabitation); and
➢ Same sex partners in a civil union as defined in the Civil Union Act
17 of 2006 (civil partners in a civil union or marriage).

❖ S21 applies only to marriages in terms of an antenuptial contract (out

of community of property)
❖ Applies only to an existing relationship

Purpose of S21
Harksen v Lane
❖ To prevent collusion between spouses,
❖ To make it difficult for spouses to deprive the estate of assets to which
it is entitled,
❖ Help the trustee determine which assets belong to the insolvent
estate.
Postponing of the S 21(10) Postponement of the vesting of some or all property
vesting and ❖ If:
exemptions ➢ Solvent spouse carries business as a trader apart from the
insolvent, or
➢ It appears the solvent spouse is likely to suffer serious prejudice
through the immediate vesting of her assets with the trustee.

❖ Court will grant the temporary exemption if it is satisfied that

➢ Solvent spouse is willing or able to make arrangements to protect
the interests of the insolvent estate
➢ During the period of exemption, the solvent spouse must apply for
a release of the assets
Release of the S21(2)
assets of the ❖ Transfer is not permanent (Harksen v Lane)
solvent spouse ➢ Release of property set out in S21(2)
❖ Trustee must release property if it falls in the following categories:
S21(2)
➢ Property owned before the marriage to the insolvent or before 1
October 1926,
➢ Property acquired by the spouse under a marriage settlement
(before marriage to current spouse),
➢ Property acquired during marriage by valid title against creditors
of insolvent (See Christensen v De Magalhaes [2024]).
o To provide the solvent spouse with a valid title, the transaction
by which she acquired the property must have been genuine
and concluded in good faith.
o If it was a simulated/collusive transaction intended to
deceive/defraud creditors, the trustee may disregard it.
40
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

o A key factor in determining the question of good faith is

whether the parties, at the relevant time, were aware of the
alienator’s actual or imminent insolvency.

S22 of the Matrimonial Property Act

❖ Donations between spouses are valid
❖ However, such donations are subject to be set aside in terms of S26
as dispositions not made for value.

(Continuation of categories in S21(2)

➢ Property acquired from proceeds of a policy of insurance,
➢ Property acquired with proceeds of the property mentioned
above or with the income or proceeds thereof.
Consequences Consequences
for the solvent ❖ Should the trustee refuse to release the property, the solvent spouse
spouse may apply to the court for an order declaring that the property belongs
to her.
❖ If release was not claimed and the property does not seemingly
belong to the solvent spouse, the trustee may sell the property
together with the insolvent estate.
❖ However, if release was not claimed, but the property seemingly
belongs to the solvent spouse, the trustee may not immediately sell
the property. The trustee must give the solvent spouse written notice
of intention to sell the property and afford the solvent spouse 6 weeks
to claim release.
➢ The creditors of the solvent spouse must prove their claims in the
same manner as creditors of the insolvent estate,
➢ If release is not claimed, the trustee will sell the solvent spouse’s
assets and distribute the proceeds amongst the solvent spouse’s
creditors who have proved their claims.
➢ The balance of the proceeds vests in the insolvent estate.
❖ If the solvent spouse commits an act of insolvency because of the
vesting of her assets in the insolvent estate, the court may postpone
the sequestration application based on that act of insolvency,
provided that the assets have been released, or release has been
applied for.
Obligations on After granting the sequestration order
granting a ❖ The sheriff will serve a copy to the solvent spouse
sequestration ❖ The solvent spouse must lodge a statement of affairs with the Master
order within 7 days of service.
Cases Harksen v Lane 1997 11 BCLR 1489 (CC) 8
Facts:
❖ A solvent spouse alleged that S21 violated the equality clause
because it differentiated between solvent spouses and other
spouses & constituted an expropriation without compensation
❖ (S8 & 28 of the Interim Constitution).

Majority judgment:
41
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ S21 did not amount to expropriation:

➢ There was difference between expropriation & and depravation of
property in the section
➢ As divesting was temporary to ensure the estate not deprived of
property entitled to
➢ Adequate mechanisms for a solvent spouse to get the property
back
➢ It served the purpose of preventing collusion between spouses in
marriages OCOP.

❖ As to S8 the court held that 2 enquiries were to be answered:

➢ Does the provision differentiate between people or categories of
people?
➢ If so, did the differentiation bear a rational connection to a
legitimate governmental purpose?
❖ If differentiation served no government purpose, then violation-
provision served the governmental purpose of preventing collusion
between spouses in marriages OCP and assists the trustee to identify
which assets belong to the insolvent estate.

❖ Differentiation had to be proved to be unfair even if based on a

prohibited ground in the Constitution.
❖ Test for unfairness based on the impact of the discrimination on the
complainant and others in his or her situation.
➢ If discrimination justified under s33 (s36 of Constitution)
➢ S33 test the provisions if they serve a legitimate purpose based
on equality, freedom and human dignity and shows that there is a
rational connection between the differentiation it creates and its
stated purpose.
➢ Court held that S21 had a rational connection to the
governmental purpose of trying to stem illegal transfers of
property to solvent spouses at the expense of creditors.
➢ The majority also said that the provision sought to overcome the
usual difficulties attendant to the process of determining the
ownership of assets belonging to spouses who are married out of
community of property.
➢ Thus, s21 was found to be constitutional.

Christensen v De Magalhaes [2024] ZAGPJHC 556 12 June 2024

Legal question
❖ Did the respondent prove under Section 21(2)(c) of the Insolvency Act
that:
❖ The proceeds from her immovable property sale were acquired via a
valid title enforceable against her insolvent husband’s creditors; or
❖ The property was purchased independently (using her own funds or
non-marital sources), thereby shielding it from creditors?

Facts of the case

42
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ The respondent and insolvent married out of community of property

on 11 January 1992, with the union still intact during proceedings.
❖ The respondent held three accounts
➢ FNB cheque account
➢ FNB maximiser account
➢ Standard Bank credit card account
❖ On 17 May 2019, R2.74 million (part of proceeds from the sale of a
Simons Town property registered in her name) was transferred from
her FNB cheque account to her FNB maximiser account.
❖ Provisional order was granted on 3 July 2019.
❖ Final order was issued on 15 August 2019.
❖ Trustees were appointed provisionally on 2 August 2019.
❖ On 19 August 2019, trustees attached the FNB maximiser account
under Section 21(1) of the Insolvency Act, notifying the respondent of
intent to realize funds for creditors per Section 21(3).
❖ The attachment hinges on whether the respondent’s claim to the
funds meets Section 21(2)(c) requirements (valid title or independent
acquisition)

Respondent’s arguments
❖ Alleged purchase of Simons Town property in 2001 with personal
funds, supported by a deed of transfer (15 August 2001) showing
acquisition from Moneyline 489 (Pty) Ltd for R179,500.
❖ Sold the property in 2019 for R4.3 million, transferring R2.7 million to
her FNB maximiser account.
❖ Explained reliance on the insolvent for bond payments during illness,
citing his common-law duty of support

Appellant’s Counterarguments
❖ Lack of documentation (e.g., payment records) for the 2001
purchase, undermining her claim of independent acquisition.
❖ Deed of transfer is not conclusive proof of ownership, as registration
alone does not establish valid title under Section 21(2)(c).
❖ Limited employment history (salaried for only two years pre-
purchase) contradicts her ability to fund the R179,500 purchase.
❖ Inference of collusion: The appellants argue the property was not
intended for her and the insolvent was the true owner.
❖ Section 21(2)(c) requires the respondent to prove valid title or
independent acquisition. Failure to meet this burden justifies
trustees’ attachment of funds.
❖ Section 21(2)(c): The respondent must demonstrate non-collusion
and independent ownership to shield assets from creditors.
❖ Inconsistencies (e.g., lack of payment evidence, reliance on the
insolvent) weaken her case, as trustees may infer beneficial
ownership by the insolvent.
❖ The appellants’ arguments align with precedents like Edkins v
Registrar of Deeds, where courts prioritize substantive proof over
mere registration to determine valid title.

43
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Judgement
❖ Unlike Kilburn, there is no evidence of an agreement between the
respondent and insolvent to shield assets via the property purchase.

❖ Sequestration occurred 18 years post-purchase, making collusion

implausible.
❖ The insolvent’s contributions to bond instalments (post-transfer)
stemmed from his common-law duty of support, not ownership.
❖ Such payments did not confer ownership on the insolvent.
❖ The respondent’s inability to produce 18-year-old payment records is
reasonable, not evidence of collusion.
❖ Transfer of the property into her name required proof of payment or
security, which the appellants failed to rebut.
❖ Section 21 aims to prevent spouses from colluding to defraud
creditors (e.g., Beddy NO v Van Der Westhuizen).
❖ The facts lack evidence of collusion, as sequestration was
unforeseeable at the time of purchase.
❖ De Villiers NO v Delta Cables: Van Heerden JA emphasized that
temporary vesting in trustees does not negate the solvent spouse’s
valid title.
❖ Harksen v Lane: Goldstone J clarified that section 21 ensures the
insolvent estate retains only what is rightfully its own, not the solvent
spouse’s property.

Outcome
❖ Dismissal of Appeal: The appellants’ reliance on speculative
inferences and misapplication of precedents (e.g., Beddy NO) was
rejected.
❖ Costs Follow Result: No reason to deviate from the general rule.
❖ The court prioritized substantive proof over speculation, aligning with
precedents that protect solvent spouses’ valid titles unless collusion
is demonstrable.

44
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 7 – Assets

Introduction Overview
❖ What is property?
❖ Cross – border insolvency
❖ Included property at the date of sequestration
❖ Property that is excluded on the date of sequestration
❖ Property acquired after (during) sequestration
What is property? The insolvent estate consists of
❖ Effects of sequestration – S20
❖ All the property of the insolvent at the date of sequestration; and
❖ All the property that the insolvent acquires during sequestration or
that accrues to him during sequestration.
➢ This property vests in the trustee of the insolvent estate as owner
(De Villiers v Delta Cables).
➢ Assets that have not been realised immediately before the
rehabilitation will remain vested in the trustee after rehabilitation
for the purposes of realisation and distribution amongst creditors
of the estate.
➢ If the trustee dies or is removed form office, the estate will vest in
the Master (S25(2)).

❖ The insolvent may not dispose of any property belonging to the

insolvent estate.
❖ If the insolvent effects any registration regarding immovable property,
such registration is valid even though it forms part of the insolvent
estate.
➢ Unlawful disposals provide the trustee with a right of recourse
irrespective of S25(3).

S25(4) Trustee’s right to recover value of property were alienated

from:
a) The insolvent/former insolvent
b) Any person obtaining the property/right while knowing that it
forms part of the insolvent estate
c) Any person obtained the property without giving sufficient value
in return (difference between actual value and value given can be
claimed).

S 2 of the Insolvency Act defines property as:

“Movable or immovable wherever situated in RSA, including contingent
interests (a right that depends on a future event or the performance of an
action) in property.

❖ What is immovable property?

➢ Land and every right or interest in land or minerals which is
registrable in a deeds office in RSA.
❖ What is movable property?

45
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Every kind of property and every right or interest which is not

immovable.
❖ General Rule
➢ Property situated outside RSA is not included in the insolvent
estate.
➢ The contingency right of a fideicommissary heir or legatee is
excluded.
➢ Other types of contingency rights are included.

Cross – border Assets

insolvency ❖ If there is no treaty or legislation between SA and a foreign country,
private international law will apply.

Movable property in a foreign jurisdiction

❖ Lex domicilli – law of the natural person’s domicile.
❖ Automatically forms part of the insolvent estate in SA if:
➢ Movable property situated in a foreign jurisdiction;
➢ The insolvent owns the movable property in the foreign state at
the time of his sequestration; or
➢ he acquires it afterwards but during sequestration;
➢ Provided that the insolvent is domiciled in the jurisdictional area
of the court that is sequestrating his estate.

Immovable property in a foreign jurisdiction

❖ Lex situs – law of the place where the immovable property is situated.
❖ Does not automatically form part of the insolvent estate in SA.
❖ To form part of the insolvent estate in SA, the trustee must apply to
the foreign court to be recognised as a trustee.
➢ The foreign court can accept or refuse the application.
➢ The court will consider comity, convenience and equity.
➢ Foreign court will consider the interest of its own local creditors
first.
➢ The foreign court may accept the recognition but impose
conditions.
➢ As an alternative the SA trustee may open insolvency proceedings
in the foreign jurisdiction (multiplicity or plurality of bankruptcy
procedures.
❖ Model Cross Border Insolvency Law of the United Nations
Commission on International Trade Law (UNCINTRAL).
❖ 8 Dec 2000 – South Africa adopted UNCITRAL Model Insolvency Law
as the Cross Border Insolvency Act.
Included Rights of inheritance
property ❖ Form part of insolvent estate unless repudiated/rejected by insolvent
At the date of beneficiary.
sequestration
Wessels v De Jager
❖ Before the insolvent beneficiary accepts the inheritance, it is only a
competence to accept the offer.
46
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Such competence does not form part of the insolvent estate.

❖ It only forms part of an insolvent estate; once he accepts the
inheritance, then it becomes a right of inheritance.

Movable property
❖ Including movable foreign assets.

Immovable Property
❖ Houses, apartments, all immovable property situated within the
republic owned by the insolvent at the date of sequestration.

Body Corporate of Old Trafford v Muronzi 2024

❖ To prove an advantage to creditors, the applicant relied on the sale of
the insolvent’s primary residence (a sectional title house) in which he
had lived for 22 years with his children.
❖ The court held that because selling the house would leave the
insolvent and children homeless, infringing on their Constitutional
right to access housing in S26, for a debt that is less than R50 000,
there was no advantage to creditors.
❖ Therefore, the court exercised its discretion and refused the
application for final sequestration of the insolvent’s estate.

Debts owed to the insolvent during sequestration

❖ Will be paid to the trustee of the insolvent estate to benefit the estate.

Property that the insolvent bought but not yet paid for
❖ Where the insolvent had to pay later or in instalments.

Money
Intangible property
❖ Intellectual property
❖ Goodwill
❖ Shares
❖ Bitcoin
Solvent spouse’s property
❖ S21 of the Insolvency Act

Claim for damages against the trustee for maladministration

Property that is Statutory exclusions/exemptions of certain property from vesting in
excluded on the the insolvent estate
date of ❖ So that the debtor can maintain himself and his dependents (so he is
sequestration not left destitute) and to also protect his constitutional rights.
❖ From the protected/excluded/exempt property, the debtor can
acquire a new estate, which can also be sequestrated.

❖ The following assets do not vest (excluded or protected) in the trustee

on the date of sequestration:

47
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Clothes, bedding, household furniture, tools of trade and other

means of subsistence (if no creditors proved their claims) S82(6).
➢ A fideicommissary’s contingent interest in property does not vest
in the insolvent estate unless the actual right accrues to the
insolvent before his rehabilitation.
➢ Trust property – S12 of the Trust Property Control Act
o Trust property does not form part of the trustee’s personal
estate.
o Applies only to trusts established by written document.
o Therefore, trust property that is in the name of an attorney,
agent, curator or any administrator does not form part of the
insolvent estate of that person (S88 of the Legal Practice Act).
o Any balance remaining after all claims against the trust
account have been satisfied will form part of the assets of the
trust account practice.
o S4(5) of the Financial Institutions Act
▪ Trust property that is held by a financial institution in its
capacity as a trustee also does not form part of the assets
of that institution.
➢ Property in terms of S33 and S34 of the Land and Agricultural
Development Bank Act
Confirmed by S90 of the Insolvency Act.
o Farmers
o S33(10) – Land Bank may attach and realise the insolvent
debtor’s property in terms of the special court process
provided for by S33(4).
o It may, on application to the court, prevent the vesting of the
insolvent’s property in the trustee and remove property after
it vested in the trustee.
o If the Land Bank does not use this right or it is denied by the
court, the Bank’s position will be regulated by the Insolvency
Act.
➢ Right to share in accrual (S3(1) of the Matrimonial Property Act).
➢ Property subject to restraint of trade (S35 and S36 of the
Prevention of Organised Crime Act).
➢ Foreign property.
➢ Property of third parties.
o Where the insolvent acquired possession of certain property
which the trustee claims, it will be a part of the insolvent
estate (S24(2)).
o Where a person becomes a creditor of the insolvent estate
after sequestration and alleges that such property does not
belong to the said estate and claims any right thereto, it is
deemed not to belong to the estate unless proven otherwise.
o S36 – moveable property of 3rd parties that are sold in good
faith as part of the insolvent estate

48
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

o S36(5) – Owner can recover property if he has demanded the

return in writing from the curator bonis/trustee/Master before
such sale.
o If not, he can claim the net proceeds of the sale before
confirmation of the trustee’s estate account, but he will forfeit
any right which he may have had to recover the property in
terms of article 36(5).
➢ Life insurance policies.
o S63 of the Long-Term Insurance Act protects certain long-
term insurance policy benefits from forming part of the
insolvent estate of policy holder.
o S63 protects the full value of the policy benefit.
o The policy benefit will not form part of the holder’s insolvent
estate during his lifetime.
o Apon the holder’s death, if survived by spouse, child,
stepchild or parent, the benefit will not be available for
purpose of payment of his debts.
▪ Only protected if they devolve upon spouse, child,
stepchild or parent (S63(3)(a)).
▪ Only protects close family members.
▪ Where benefits do not devolve upon them but are payable
to them as nominated beneficiaries, S63 does not apply.
o Types of long-term insurance policies that are protected
include:
▪ Assistance, life, disability, health policies.
▪ Fund risk, credit life, funeral, life annuities, individual
investment, income drawdown class of life insurance
business (Table 1 Schedule 2).
o Will not apply if the policy served as security for the payment
of debt or if it was taken with the intention to defraud
creditors.
o Must prove on a balance of probabilities.
➢ These policies will be protected/excluded:
o If the insolvent is the beneficiary.
o If the policy is in respect of assistance, life, disability, health.
o If the policy has been in force for at least three years.
o If the life insured is that of the insolvent or his/her spouse.
o Assets acquired with proceeds of the policy pay-outs will also
be protected for 5 years from the date of pay out.
➢ Therefore, in terms of S63, the proceeds of a life insurance policy
benefit do not form part of the insolvent estate.

Wentzel v Discovery Life

❖ Facts
➢ Malcolm Wentzel and Lizane Wentzel were married in community
of property.
➢ They took out a joint life insurance policy with Discovery Life Ltd,
each naming the other as beneficiary in the event of death.

49
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Their joint estate was sequestrated in April 2012 due to debts

incurred, primarily by Mr Wentzel.
➢ Lizane Wentzel died in April 2017 and Mr Wentzel, as the
nominated beneficiary, claimed the insurance proceeds (over
R5.2 million)

❖ Judgement
➢ The SCA held that the proceeds of the life insurance policy were
payable to the trustees of the insolvent estate, not Mr Wentzel
personally.
➢ The court emphasized that, under the Insolvency Act, S20, all
property (including benefits accruing during sequestration) vests
in the trustees until the insolvent is rehabilitated, unless
specifically excluded by statute.
➢ The fact that the liquidation and distribution account had been
confirmed did not mean the administration of the estate was
finalized if further assets accrued (such as the insurance
proceeds).
➢ The court also noted that the dissolution of the marriage by death
did not alter the sequestration status or the vesting of assets in
the trustees

Mabe and Mbiriri article summary

❖ It is argued that, according to S63, the proceeds should have been
protected from the insolvent estate and paid directly to Mr. Wentzel,
as he was the policyholder and beneficiary, and the policy met the
statutory requirements.
❖ However, the courts ruled in favour of the trustees, granting the
proceeds to the insolvent estate. This outcome is criticized,
attributing it to Mr. Wentzel's failure to base his claim on S63 and the
court's failure to analyse or apply S63 to the facts.
❖ The court's decision, according to the article, prioritized the
Insolvency Act over the LTIA without considering the intended
protection of insurance proceeds under S63, thus favouring creditors
without balancing the interests of the debtor or dependants.
❖ The Insolvency Act does not comprehensively address all issues
concerning insolvent debtors, forcing courts to cross-reference other
statutes like the LTIA.
❖ Wentzel judgment exemplifies the difficulty courts face when relevant
cross-references are overlooked, leading to outcomes that may
undermine legislative intent and debtor protections.
❖ The article concludes that unless the Insolvency Act is amended to
harmonize with other statutes, similar dilemmas will persist, and
courts may continue to ignore protections like those in S63.

Property General Rule

acquired after
50
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

(during) ❖ Property acquired after/during sequestration/property accruing to the

sequestration insolvent after or during sequestration forms part of the insolvent
estate.

Inheritance
❖ Accepted and received by the insolvent debtor during his
sequestration period forms part of the insolvent estate.
❖ The trustee is generally obliged to adhere to any conditions or
directions associated with a bequest, which would typically be
binding on the insolvent heir.
➢ The testator may include a direction in his will stipulating that, in
the event of the heir being an unrehabilitated insolvent at the
death of the testator, the bequest shall pass to some other person
or that the executors of the estate may in their discretion divert it
to some other person.
➢ The trustee will then have no right of inheritance.
➢ A testator is not capable of bequeathing an inheritance in such a
manner that the inheritance will accrue exclusively to the
insolvent, and then creditors and the trustee of the insolvent
estate are denied any rights to the inheritance.

Badenhorst v Bekker
❖ Assets that are bequeathed exclusively to a spouse married in
community of property in a will vest in the trustee of the joint insolvent
estate.
❖ Therefore, a direction in a will that a bequest shall not be liable to
attachment at the instance of a beneficiary’s creditors has no effect.

Pensions
❖ Pension benefits after the date of sequestration do not form part of
the insolvent estates 23(7) of the Insolvency Act.
❖ Pension benefits received before sequestration are not protected
S37B of the Pension Fund Act.

Excludes:
❖ Compensation for defamation and personal injury.
➢ Received before and after sequestration is protected S23(8) of the
Insolvency Act.
➢ Includes the right to “general damages” and “special damages”.
➢ Personal injury is not limited to bodily injury.
❖ Compensation for occupational injuries and diseases.
❖ Unemployment insurance benefits (UIF).
Salary, remuneration for work done or professional services
rendered.
❖ Section 23(9).

51
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ The insolvent may keep his salary (lawful source) received

after/during his sequestration BUT only in so far as such money is
necessary to support his dependents.
➢ Income earned illegally will vest in the trustee.
❖ Thus, the trustee may claim any money which in the opinion of the
Master is not necessary (surplus income) to support the insolvent and
his family, S23(5) by writ of execution from the Master.
➢ The trustee may even claim the surplus income directly from the
insolvent’s employer.
➢ The Master may order an insolvent who receives a fixed income to
pay a certain portion of that income to the trustee on a monthly
basis.
➢ Insolvent is after his sequestration, not entitled to cede his right
to earnings.
❖ The insolvent must keep record of his disbursements, and all assets
required and must supply the trustee with these records in
reasonable time if requested.
❖ Assets purchased with salary money not claimed as surplus remain
assets of the insolvent and do not form part of the insolvent estate
until claimed as surplus.
➢ The insolvent’s remuneration and any property bough or acquired
remains the property of the insolvent until the Master certifies
that there is a surplus remuneration.
➢ The insolvent may apply for a court order declaring such property
does not form part of his estate.

Indemnification of a third party

❖ If a person has insured himself against liability, and he incurs such
labiality against the 3rd party, the latter may claim damages directly
from the insurer on sequestration of the insured party.
❖ S156 – creates a statutory right and a procedure for the 3rd party to
claim directly from the insurer instead of claiming against the
insolvent estate of the insured,
❖ The claim must be brought within S156 and establish (David Trust v
Aeigis Insurance Co Ltd):
➢ Insured (insolvent) must have incurred a liability to the 3rd party.
➢ Quantum of such liability
➢ Insurer must be obliged in terms of the insurance policy to
indemnify the insured in terms thereof
➢ Amount that he insurer would have been obliged to pay the
insured.

Cases Du Plessis v Pienaar NO 2003 (1) SA 671 (SCA)

❖ Legal issue
➢ Whether debts incurred during a marriage in community of
property recoverable only from the joint estate, or can creditors
also recover from the separate property of a spouse that falls
outside the joint estate.
52
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Judgement
➢ The SCA clarified that in marriages in community of property, both
spouses are generally liable for debts incurred by either spouse.
➢ Creditors can claim against both the joint estate and any separate
property of either spouse, even if such property was excluded
from the joint estate by a will.
➢ The distinction between joint and separate property is relevant for
the spouses' rights inter se, but does not limit the rights of third-
party creditors upon insolvency.

De Villiers v Delta Cables (Pty) Ltd 1992 (1) SA 9 (A)

❖ Facts
➢ Mr. Matthews (the insolvent) and his wife, married out of
community of property, executed a deed of suretyship in favour of
Delta Cables (Pty) Ltd to secure the debts of V H Cables (Pty) Ltd.
➢ Mrs. Matthews subsequently signed a power of attorney to
register a surety mortgage bond over immovable property she was
to purchase.
➢ The property was registered in Mrs. Matthews' name on 21 May
1986.
➢ Mr. Matthews' estate was provisionally and then finally
sequestrated in June 1986, and the appellant (De Villiers NO) was
appointed as trustee.
➢ On 1 October 1986, after sequestration, Delta Cables registered
the surety mortgage bond over Mrs. Matthews’ property using the
power of attorney.
➢ Delta Cables obtained a default judgment against both Mr.
Matthews and Mrs. Matthews and sought to enforce the bond,
resulting in the attachment and sale of the property.
➢ The trustee contested Delta Cables’ claim to be a secured
creditor, arguing the bond was registered after sequestration and
without the trustee’s consent, so Delta Cables should only be a
concurrent creditor.

❖ Legal Issue
➢ Does the property of a solvent spouse (here, Mrs. Matthews),
which is subject to the operation of S21 due to the sequestration
of the other spouse’s estate, vest in the trustee to the extent that
the trustee acquires ownership and control over it?
➢ If so, could a mortgage bond registered after sequestration
(without the trustee’s consent) confer secured creditor status on
Delta Cables?

❖ Judgement
➢ The court held that, upon sequestration, the property of the
solvent spouse (acquired before sequestration) vests in the

53
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Master and, upon appointment, in the trustee, for the benefit of

the insolvent estate’s creditors.
➢ The court reasoned that this vesting is not merely a formality or a
temporary holding: it amounts to a transfer of ownership
(dominium) of the solvent spouse’s property to the trustee for the
duration of the sequestration.
➢ As a result, the solvent spouse loses the right to deal with her
property during this period, and any transactions (such as the
registration of a mortgage bond) after sequestration and without
the trustee’s consent are ineffective in conferring preference or
secured status on creditors.
➢ The court found that Delta Cables, having registered the bond
after sequestration and without the trustee’s consent, did not
acquire the rights of a secured creditor. Delta Cables was thus
only a concurrent creditor in the insolvent estate

Snyman v Rheeder NO 1989 (4) SA 496 (T)

❖ Legal issue
➢ Whether the solvent spouse could reclaim property vested in the
trustee of the insolvent estate, and what the requirements were
for such a release.
➢ The court had to interpret what constitutes a “title valid as against
creditors” under S21(2)(c) of the Insolvency Act, especially in light
of the changes brought by the Matrimonial Property Act 88 of
1984, S22, which made donations between spouses valid and
enforceable, as opposed to the previous position where such
donations were generally invalid.

❖ Judgement
➢ The court confirmed that when one spouse is sequestrated, all
property of the solvent spouse also vests in the trustee, except for
property acquired by the solvent spouse by a title valid against the
creditors of the insolvent.
➢ The onus is on the solvent spouse to prove that the property in
question was acquired by a valid title and not through a simulated
transaction or with the intention to defraud creditors.
➢ The court emphasized that the trustee must release the property
once the solvent spouse has discharged this onus, showing the
property was not acquired by improper means intended to
prejudice creditors.
➢ The court cited Kilburn v Estate Kilburn (1931 AD 501) to reinforce
that the true nature of the transaction must be examined, not
merely its outward form.
➢ The Matrimonial Property Act 88 of 1984’s effect was considered:
after 1984, even a donation between spouses could be a valid
title, provided it was not collusive or intended to defeat creditors.

54
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 8 – Foundational concepts DO NOT STUDY FOR EXAMS

Introduction Overview
❖ Waving the rights to property in insolvent estates and advantage to
creditors.
❖ S27 of the Insolvency Act
❖ Disqualifications of insolvent debtors from certain employments.
❖ The unequal treatment of NINA debtors.
Waving of rights Article
to property in Roger Evans “Waiving of rights to property in insolvent estates and
insolvent estates advantage to creditors in sequestration proceedings in South Africa”
and advantage to 2018 De Jure
creditors
Question
❖ Can an insolvent waive certain rights in the Act to inflate/increase his
estate to comply with the advantage requirement?

The legal provision in insolvency law

Section 6, 10 and 12
❖ Requires sequestration to be to the advantages of creditors before the
sequestration order can be granted.
❖ Voluntary surrender
➢ Applicant debtor must show that the surrender of his estate will
be to the advantage of creditors.
❖ Compulsory sequestration
➢ Applicant creditor has to show that there is reason to believe that
it will be to the advantage of creditors.
❖ Advantage to creditors must be established before the sequestration
order can be granted.
➢ The insolvent has enough assets that when sold they can pay for
the costs of sequestration and there will also be a payment to a
substantial portion of the creditors.
➢ If not, no advantage to creditors.

❖ Property of the insolvent estate vesting in the trustee after

sequestration
➢ Movable and immovable property S20
➢ See definition “property” S2
❖ Certain of the above property is excluded
➢ Wearing apparel, bedding, household furniture, tools of
trade/subsistence (S82(6))
➢ Remuneration for work done
➢ Therefore, the excluded property is protected from execution
(sold to benefit the creditors) and the insolvent has rights to
use/receive etc.

Problems brought about by the legal provision

❖ Conflict in judgments

55
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Ex parte Anthony 2000 4 SA 116 (C)

❖ Held that an insolvent may renounce (waive) in favour of his creditors,
the protection from execution afforded by the Act to certain assets.

Ex parte Kroese and Ex parte Hattingh (2015) 1 SA 405 (NWM)

❖ The court ruled that the rights in S82(6) of the Act (wearing apparel,
bedding, household furniture, and tools of subsistence) cannot be
waived.

Constitutional implications of the issue

Ex parte Kroese and Ex parte Hattingh (2015) 1 SA 405 (NWM)
❖ The court’s refusal to allow the waiver in question was based,
amongst other aspects, on constitutional imperatives.
❖ The court scrutinised the constitutional aspects arising from the
waiver of the rights in question, in particular S10 (right to dignity); S25
(right to property) and S22 (right to practise a trade, occupation or
profession freely) in the BOR.
❖ Held that one’s dignity could be infringed by the renunciation of any
benefits found in the Insolvency Act.
❖ The court questioned whether S82(6) was constitutionally valid in
view of its discretionary nature because it could leave the insolvent
and his family destitute, depriving them of basic necessities, if the
waiver is granted.

Evans critique
❖ Evans agrees with the outcome of the Kroese case but not the
reasoning. He states that it was not necessary for the court to wonder
into the constitutional implications in the Kroese case.
❖ He argues that the courts should have commenced by asking whether
the rights in question, which were sought to be waived (S82(6)) were
actually in existence prior to the sequestration application.
❖ The court held that they did not exist prior to granting the
sequestration order.
❖ Evans agrees because at the time of having to prove an advantage to
creditors (at the sequestration application stage), the rights in S82(6)
had not kicked-in, thus there were no constitutional rights of the
debtor to infringe because the sequestration order had not been
granted (it was before sequestration).
❖ Evans says, if the question whether constitutional rights will be
infringed by the waiver, was asked after sequestration than it would
have been necessary to deal with the constitutional implications,
because at that stage, the rights would have kicked in.
❖ Once the rights kick-in, the trustee can accept the waiver or reject it
as per S82(6) and only then can the court entertain the constitutional
implications to the debtor of the waiver or refusal to accept the waiver
by the trustee.
❖ But the problem Evans says, is the fact that, if you cannot even prove
an advantage to creditors at the sequestration application stage, the

56
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

sequestration order will not be granted and the debtor has no access
to the law of insolvency and cannot even test his constitutional rights
to property (or any other rights) that he may be entitled, had his estate
been sequestrated.
❖ Evans says that the problem is the advantage to creditors
requirement because it prevents certain debtors from accessing the
sequestration process.
❖ He refers to the Sarrahwitz judgment in which the judge confirmed
that the right to equal protection and benefit of the law in S9(1) of the
BOR applies to everyone including vulnerable purchasers.
❖ Evans argues that S9(1) also applies to vulnerable debtors who
cannot access the sequestration process because they cannot prove
an advantage to creditors.
❖ He says that there is not only a differentiation between debtors at the
point of application for a sequestration order but there is also then a
differentiation between creditors who are affected by the inability to
share in the proceeds of an insolvent estate when a sequestration
order is unobtainable.

Possible solutions
❖ He proposes that the advantage to creditors requirement be put
under constitutional scrutiny on the basis of differentiation between
“rich debtors” who can prove an advantage because they have assets
and “poor debtors” who cannot prove an advantage because they
have less or no assets and therefore cannot eventually get a fresh
start through rehabilitation and a discharge of their debts.

Additional case
Ex Parte Slabbert [2025] ZAGPPHC 286 (20 March 2025)
❖ Facts
➢ Three applications for voluntary surrender.
➢ All very similar:
o same attorneys used,
o similar assets in the statement of affairs was listed,
o similar/same creditors,
o similar estimated dividends to show advantage to creditors,
o all three cases waived their S82(6) protections and all three
did not disclose such the S82(6) assets in statement.
Suspicion of abuse of VS application.
❖ Legal Question
➢ Whether the applicants could validly waive the protections
afforded by S82(6) of the Insolvency Act, which excludes certain
assets from execution, and whether the applications exhibited
manipulative practices to artificially satisfy the dividend
threshold.
❖ Legal considerations
➢ The legal framework governing voluntary surrender was analysed

57
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Court emphasized the creditor-oriented nature of insolvency

proceedings.
➢ Key requirements include
o Factual insolvency, sufficient realizable property to cover
sequestration costs, and a demonstrable advantage to
creditors (typically a minimum 20-cent dividend per Rand).
➢ The duty of utmost good faith (uberrima fides) in ex parte
applications was underscored, requiring full and accurate
disclosure of all assets, including those potentially exempt under
S82(6).
➢ The practice of selectively disclosing assets to meet the dividend
threshold was criticized, as such manipulation undermines the
integrity of the process.
➢ The waiver of constitutional protections (e.g. dignity and trade
rights) tied to excluded assets was rejected. The valuator's
inconsistent and unreliable reports, along with the attorney's
reliance on incomplete disclosures, further eroded the credibility
of the applications.
❖ Judgment
➢ All three applications under consideration failed to satisfy the
requirements of the Act.
➢ In none of them were full and proper disclosure of the assets in
the respective estates made.
➢ The valuator’s reports were unreliable to the extent that a correct
calculation of the alleged advantage to creditors could not
reliably be undertaken.
➢ The applicants failed to disclose all assets, particularly those
exempt under S82(6) and the valuations were deemed unreliable.
➢ The similarities in dividend calculations and asset values across
the cases suggested a coordinated effort to manipulate the
process.
➢ There were no mala fides warranting referral to the Legal Practice
Council but a stern warning against such practices was issued.
S27 of the Article
Insolvency Act Mabe Z "Section 27 of the Insolvency Act 24 of 1936 as a Violation of the
Equality Clause of the Constitution of South Africa: A Critical Analysis"
PER / PELJ 2016(19).

Aim
❖ This paper points out S27 violates S9(3) of the BOR on the grounds of
marital status, sexual orientation and birth.

The legal provision in insolvency law

Section 27 (1)
❖ Antenuptial contracts
(1) No immediate benefit under a duly registered antenuptial
contract given in good faith by a man to his wife or any child to be
born of the marriage shall be set aside as a disposition without
58
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

value (see s 26), unless that man’s estate was sequestrated within
two years of the registration of that antenuptial contract.

❖ Only applies to marriages out of community of property where there

is a duly registered anti nuptial contract and not to marriages in
community of property.
❖ Upon the sequestration of the estate of a debtor married OCP, the
assets of the insolvent debtor and those of his solvent spouse vest in
the trustee of the insolvent estate.
❖ If the insolvent debtor had given a benefit (gift) to his wife in a duly
registered ANC mentioned above, that benefit would also vest in the
trustee in terms of S21 of the Act.
❖ The solvent spouse would then have to apply for a release of her
assets by proving that she acquired them in terms of a valid title.
❖ However, even after the release of these assets, they can still fall into
the insolvent estate by virtue of S26’s dispositions made without
value.
❖ Therefore, although donations between spouses are legal,
benefits(donations) given to a man by his wife in an ANC may still be
set aside In terms of S26 by a trustee of the estate.
❖ S27, therefore comes in to protect these benefits (gifts/donations)
given by a man to his wife in an ANC.

The problems brought about the legal provision

Marital status
❖ Marital status refers to the status of being married, single, divorced,
or living in a permanent heterosexual or same-sex relationship.
❖ The two important features underlying the prohibition of unfair
discrimination on the grounds of marital status are
➢ That all marriages enjoy equal status and
➢ All parties in a marriage relationship enjoy equal status.
❖ This ground of discrimination encourages reform aimed at removing
the favouring and promotion of marriages concluded in terms of the
Marriages Act over other forms of marriages or unions.
❖ Marital status has formed the basis for discrimination claims by
same-sex couples.
❖ S27 only protects benefits to be received by a wife, not those to be
received by a man or a civil partner.
❖ However, the benefit to the wife will only be protected if the man’s
estate is sequestrated and not when the wife’s estate is sequestrated.
❖ In this respect S27 discriminates against both spouses.
➢ The man cannot keep a gift given in an ANC and the wife can only
keep the gift if the man’s estate is sequestrated.
➢ This discrimination on marital status hinges on the second leg of
the prohibition that all parties in a marriage relationship should
enjoy equal benefits.

Birth

59
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Birth refers to circumstances where children are differentiated on the

basis of whether their biological parents are married either at the time
the child was conceived or when the child was born or marry after the
child’s birth.
❖ The prohibition seeks to do away with the differences created
between the rights afforded to children born within a marriage and
those afforded to children born outside of marriage.
❖ This prohibition also seeks to do away with the distinction that is
created by the word "birth", between children born in a marriage and
children who have been adopted by people in a marriage.
❖ S27 limits the benefit to children born in wedlock and does not extend
to children born outside of wedlock.
❖ As with the benefit to the wife, the benefits to children will only be
protected if the man’s estate is sequestrated and not when the wife’s
estate is sequestrated.
❖ As already indicated the reference to the word "born" separates the
benefits afforded to children born in a marriage and those afforded to
children who have been adopted by partners in a civil union.
❖ Although the Children’s Act states that an adopted child must for all
purposes be regarded as the child of the adoptive parent and vice
versa, S27 should also clearly indicate that it also applies to adopted
children. This discriminates on the ground of birth.

Sexual Orientation
❖ The prohibition of unfair discrimination on the ground of sexual
orientation protects those who are attracted to members of the same
sex.
❖ It prohibits the granting of benefits to married people that are not
granted to same-sex life partners.
❖ Also, the protection in S27 is limited to benefits given to married
females and does not consider benefits given in same-sex marriages.
❖ The reference to the word "wife" in this section further separates
those persons who have entered into a civil union in terms of the Civil
Union Act which advocates for the equal treatment of same-sex
parties.
❖ Therefore, S27 clearly discriminates on the grounds of sexual
orientation.
❖ In addition, the reference to the words "man", "wife" and "marriage"
implies that the benefit is only protected if it is given within a
heterosexual setup.
❖ In its current form, S27 violates S9(3) of the Constitution on the
grounds of sexual orientation, marital status and birth.

The constitutional implications of the issue

Section 9(3) prohibits unfair discrimination
❖ Equality
(1) Everyone is equal before the law and has the right to equal
protection and benefit of the law.

60
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

(2) …….
(3) The state may not unfairly discriminate directly or
indirectly against anyone on one or more grounds,
including race, gender, sex, pregnancy, marital status,
ethnic or social origin, colour, sexual orientation, age,
disability, religion, conscience, belief, culture, language and birth.

Mabe conclusion
❖ It was submitted that currently S27 violates the equality rights to
sexual orientation, marital status, and birth in S9(3) of the
Constitution.
❖ This is done by limiting the protection of benefits that can be given in
ANCs to those that are given by a man to his wife or to a child born in
their marriage without considering benefits given to a man by a wife
and benefits given by spouses in same-sex marriages.
❖ This, in turn, differentiates between the rights given to spouses in
heterosexual marriages and same-sex marriages (civil unions), and
the rights given to children born in a civil marriage or same-sex
marriage and children born outside of wedlock.
❖ This differentiation affects the human dignity of the affected persons
and harms them in a serious manner.
Disqualification Article
of insolvent Roestoff M “Insolvency Restrictions, Disabilities and Disqualifications in
debtors South African Consumer Insolvency Law: A Legal Comparative
Perspective” 81 THRHR 393 (2018).

Aim
❖ Investigates the legal position in respect of the insolvency
restrictions, disabilities and disqualifications that apply to natural
person debtors in terms of the Insolvency Act and other legislation.
❖ A legal comparative investigation with the aim of making
recommendations for law reform regarding current restrictions that
may be unnecessary and unjustified.

The legal provisions in insolvency law

Contractual capacity and capacity to litigate
❖ The limitation on the insolvent's capacity to contract and litigate are
based on the fact that sequestration is an asset-liquidation
proceeding.
❖ Thus, creditors' rights and interests in respect of the insolvent estate's
property need to be protected.
❖ Roestoff says that the restrictions in this regard are necessary &
justifiable.

Capacity to earn a living and hold office

❖ The restrictions on capacity to earn a living and hold office are not
aimed at punishing the insolvent.

61
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ They are aimed at protecting the interests of the general public in

order to ensure that persons holding positions of trust and
responsibility are people of "stability and integrity".

The problems brough about by the legal provisions

❖ The problem is that most restrictions are imposed merely on the basis
of the existence of sequestration proceedings.
❖ Roestoff submits that unless there is other evidence pointing to
dishonesty, incompetency or irresponsibility, simply being an
unrehabilitated insolvent should not exclude one from employment
opportunities or from holding office.
❖ The unfairness of the restrictions appears from the fact that a debtor's
failure to pay his debts, as evidenced by an application for
administration or debt review or the entering into an arrangement or
composition, does not serve as a disqualification from practising
many of the trades, occupations or professions or as a
disqualification from membership of many of the statutory councils,
boards or bodies.
❖ It is not clear why these debtors who, like unrehabilitated insolvents
have failed to pay their debts, are considered to be people of "stability
and integrity", while the latter are not considered to be so capable

Possible solutions
Roestoff Recommendations
❖ Submits that the current restrictions pertaining to the practising of
most of the professions in South Africa are sensible and justifiable.
❖ Most professions only disqualify a person from registering or
continuing in the relevant profession if his insolvency was caused by
his negligence or incompetency in performing the work pertaining to
the relevant profession.
❖ She submits that lawmakers should reconsider the many
disqualifications pertaining to occupations or positions where a
person's honesty and financial expertise are vital to the position.
❖ Unrehabilitated insolvents who are able to prove that they are fit and
proper to perform the relevant work should not be disqualified from
holding such positions purely on the basis of their insolvent status.
❖ She recommends that the South African legislator should, like English
law, introduce a comprehensive process of review and repeal of
legislative provisions that impose unnecessary and unjustifiable
restrictions on unrehabilitated insolvents.
➢ Under English law bankruptcy restrictions may be imposed after
discharge depending on the bankrupt's dishonest or blameworthy
conduct
➢ Under Australian law the issue of dishonest and/or irresponsible
debtors is dealt with by extending the period of bankruptcy.
➢ America, on the other hand supports the principle of non-
discrimination and restrictions are generally not imposed merely
on the basis of the existence of bankruptcy proceedings.

62
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ However, dishonesty is dealt with harshly and will be punished by the

court by denying the dishonest debtor his discharge and fresh start.
Debts fraudulently incurred are also excluded from the discharge.
❖ Roestoff also address the issue of the 10-year automatic discharge
period in SA.
❖ She says that when comparing the automatic discharge period
applicable in other systems, the 10-year period in SA excessive
➢ In Australia, bankrupt debtors are relieved from restrictions after
their automatic discharge, three years after commencement of
the proceedings.
➢ In English law a bankrupt debtor will receive his discharge and be
relieved of all disabilities one year after commencement of the
proceedings
➢ Under American law a debtor will receive his discharge almost
immediately after commencement of bankruptcy proceedings.
❖ Roestoff submits that the "economic rehabilitation" of an insolvent is
paramount.
❖ Therefore, the emphasis should not only be on giving an insolvent a
discharge and a "fresh start", but also on providing him with a "new
start" by supporting him to get back on track.
❖ Therefore, she says Insolvency restrictions hamper an insolvent's
economic reintegration, and the ideal is that they should be
completely abolished.

The unequal Article

treatment of Coetzee H “Is the Unequal Treatment of Debtors in Natural Person
NINA debtors Insolvency Law Justifiable?: A South African Exposition” 2016
International Insolvency Review 36.

Aim
❖ To measure the South African natural person insolvency system
against the right to equality in terms of both the South African
Constitution and the Promotion of Equality and Prevention of Unfair
Discrimination Act (PAJA).

The legal position in insolvency law

❖ SA has three statutory debt relief measures

Sequestration procedure: Insolvency Act

❖ Discharge of pre-insolvency debt on rehabilitation (sequestration
ends)
❖ Primary SA debt relief measure - asset liquidation process
❖ Access requirement: advantage to creditors
➢ Lack of assets results in many debtors being excluded from the
sequestration process.
➢ Thus, the sequestration process differentiates between debtors
on the basis of those with and those without assets.
Administration order: S 74 of the Magistrates’ Courts Act
63
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Alternative relief measures - classified as repayment plan.

➢ No discharge of debts
➢ Access requirement
o Only debtors with less than R 50 000 in outstanding debts.
❖ Debtor needs a steady income.
❖ Thus, those with outstanding debt of more than R50 000 are excluded.
❖ Disposal income required, thus administration makes a distinction
between debtors with income & debtors without income.
❖ End date: when all administration costs and listed creditors have
been paid in full.
Debt review procedure: S 86 of the National Credit Act
❖ Alternative relief measure - classified as repayment plan.
➢ No discharge of debts
➢ Access requirement
o Only applies to credit agreements in terms of the NCA and
agreements in terms of which credit providers have
commenced individual enforcement procedures are
excluded.
❖ Debtor needs a steady income.
❖ Disposal income required, thus draws a distinction between debtors
with income and debtors without income.
❖ End date: upon issuing a clearance certificate even if all obligations
not paid but no discharge.

The problems brough about by the legal provision

❖ The majority of excluded debtors are people who have no income and
no assets (the so-called no income no asset (NINA) debtors).
❖ They resort to entering into voluntary negotiations with creditors to
agree on debt rearrangements.
❖ However, they are not in a position to negotiate because they cannot
offer any monetary return to creditors.
❖ Thus, voluntary rearrangements are not a realistic prospect
❖ In South Africa, a person can be ‘too broke to go bankrupt’

Coetzee opinion
❖ The broader insolvency system, differentiates between categories of
people as it distinguishes between those who have something to offer
to creditors, be it assets or income, and those who do not have
something to offer.
❖ The ‘haves’ are allowed access to the system, through one of the three
statutory debt relief measures, but the ‘have nots’ are excluded from
any form of statutory recourse.
❖ The system further differentiates/discriminates by offering a
discharge of debt only to those who qualify for the sequestration
procedure as such.
❖ This is because individuals with sufficient assets qualify for
sequestration and the resultant discharge from debt as opposed to

64
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

those with disposable income but insufficient assets to show that the
liquidation of their estates would result in a benefit to creditors.

The constitutional implications of the issue

❖ Coetzee tested the exclusiveness of the South African natural person
insolvency system against the right to equality in S9 of the
Constitution and the Equality Act.
❖ She argued that the differentiation amounts to unjustifiable unfair
discrimination on the basis of the excluded debtors’ socio-economic
status.
❖ She says that the discrimination is based on socio-economic status
and is in conflict with both the Constitution and the Equality Act.

Possible solutions
❖ In the interim, she suggests that the 'advantage to creditors'
requirement be severed/removed from the Insolvency Act's access
requirements.
❖ She says that allowing presently excluded debtors access to the
system via this route, the unfair discrimination resulting from only
providing a discharge in sequestration proceedings will also be
avoided.
❖ Further, the interim measure will save the debt review and
administration procedures from unconstitutionality (in the
meantime) as all insolvent situations may then be administered
through the sequestration procedure.
❖ In this manner, the debt review and administration procedures could
also be used for their originally intended purpose, namely, to assist
debtors through periods of (temporary) financial misfortune.

Additional case
Harksen v Lane
❖ Facts
➢ A solvent spouse alleged that S21 violated the equality clause
because it differentiated between solvent spouses and other
spouses & constituted an expropriation without compensation
(S8 and S8 of the Interim Constitution).
❖ Majority judgment
➢ S21 did not amount to expropriation
o There was difference between expropriation & and
depravation of property in the section;
o as divesting was temporary to ensure the estate not deprived
of property entitled to
o adequate mechanisms for a solvent spouse to get the
property back
o it served the purpose of preventing collusion between
spouses in marriages OCOP
o As to S8 the court held that 2 enquiries were to be answered:

65
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

▪ Does the provision differentiate between people or categories

of people?
▪ If so, did the differentiation bear a rational connection to a
legitimate governmental purpose?
➢ If differentiation served no government purpose, then violation-
provision served the governmental purpose of preventing
collusion between spouses in marriages OCP and assists the
trustee to identify which assets belong to the insolvent estate.

66
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 9 – Rehabilitation

Introduction Overview
❖ What is rehabilitation
❖ What is the effect of rehabilitation
❖ When does rehabilitation take place
❖ Rehabilitation by court order
❖ Discretion of the court
❖ Orders of the court
❖ Cases
What is ❖ Signals the end of the sequestration process.
rehabilitation ❖ A composition is an agreement entered into with the creditors to
reduce the process, to pay off all their debts etc.
What is the effect Section 129
of rehabilitation ❖ Allows the debtor the opportunity to make a fresh start.
❖ Pre-sequestration debts are discharged.
➢ Creditors cannot enforce debts that arose before sequestration
against the debtor.
➢ The discharge does not apply to debts that arose fraudulently.
❖ Rehabilitation relieves the debtor of all the disabilities,
disqualifications and limitations of sequestration.
❖ However, rehabilitation does not affect assets already vested in the
trustee.
➢ Those remain vested in the estate to benefit the creditors EXCEPT
in two instances:
o If the terms of a composition provide that the estate will
reinvest in the insolvent.
o If the basis of the rehabilitation was that no claims were
proved within 6 months of sequestration (s129(2)).
o If no claim was proven, then the debtor/insolvent will get back
the asset that vested in the trustee because no one proved a
claim so there is nothing that they can do with it.
❖ Rehabilitation also does not affect
➢ Sureties of the insolvent
o If the insolvent stood as surety for someone else’s debt,
rehabilitation does not discharge that surety.
➢ Impeachments under the Act
o S26 action where the asset is taken back from the solvent
spouse by the trustee.
➢ A right of action abandoned by the trustee during sequestration.

Thomas v Thomas (1223/2021) [2023] ZASCA 36 (31 March 2023)

❖ The brothers owned a farm.
❖ They had a fight where they accused each other of owing things.
❖ One brother applied for sequestration against the other.
❖ The other brother had a claim against the brother bringing the claim.
❖ This right transferred to the trustee.

67
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ A right of action that was abandoned by the trustees during

sequestration does not come alive after rehabilitation.
❖ Once trustees, as the owners of the asset, decides to abandon the
right of action, the right of action is extinguished.
❖ Therefore, the fact that the trustees abandoned the action does not
entitle the respondent (a rehabilitated insolvent) to lay claim to it after
rehabilitation.

❖ Vesting Order
➢ An insolvent may, as part of his application for rehabilitation,
request the court that a certain asset in the insolvent estate that
has not been realised (sold and distributed), vest in him and not
his trustee, upon rehabilitation.
➢ If the court does not grant such an order (vesting order), estate
property will remain vested in the estate after rehabilitation.

When does In SA, an insolvent debtor can be rehabilitated either by

rehabilitation ❖ Effluxion of time after the passing of 10 years, or by
take place? ❖ Making an application to the court to be rehabilitated before the 10
years.

Effluxion of Time S127A

❖ Insolvent is deemed to be rehabilitated after the passing of 10 years
from the date of sequestration (provisional order in case of
compulsory sequestration order).
❖ Unless an interested person opposes the automatic rehabilitation,
before the expiry of the 10 years, and the court grants the order
opposing automatic rehabilitation.

Engelbrecht NO v Naidoo [2023] ZAGPJHC 866 (3 August 2023)

❖ The trustee opposed the automatic rehabilitation of Mr Naidoo
indicating that his automatic rehabilitation would prejudice the
creditors of the insolvent estate and the public.
➢ Since the affairs and transactions of the insolvent had not been
investigated thoroughly,
➢ That the insolvent had delaying tactics, was not co-operating with
trustee and Master and
➢ That the sequestration of his estate was not to the advantage of
his creditors but to their prejudice.
❖ Court held that due to Mr Naidoo’s fraudulent conduct, non-
corporation and his general failure to be accountable to his creditors,
the trustees and the Master, he should not be rehabilitated yet.
➢ That should Mr Naidoo have been automatically rehabilitated, he
would have escaped accountability to his creditors, the trustees
and the Master, thereby evading all the consequences of his
insolvency.
➢ Therefore, the court refused the automatic rehabilitation.

68
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ An insolvent debtor has no right to rehabilitation

➢ The court has an inherent discretion to grant or refuse an
application for rehabilitation even in automatic rehabilitation,
opposing applications.
Rehabilitation by S124
court order How
❖ High Court application, preferably the court which ordered the
sequestration order.
❖ The short form (Form 2) Notice of Motion is used, with an affidavit.

When
❖ Depends on the ground of rehabilitation relied upon by the insolvent.

For whose benefit

❖ Interest of creditors

Requirements
Preliminary formalities (before the court hearing)
❖ Applicant must pay security for the costs of opposition, 3 weeks
before the hearing.
❖ Prepare a notice of intention to apply for rehabilitation to trustee,
Master and publish in the GG.

Substantive requirements (S124)

❖ If a composition of at least 50c in the rand to each concurrent creditor
has been accepted, and payment has been made or security for
payment accepted by creditors,
➢ The insolvent may apply for rehabilitation immediately.
❖ If no claims were proven against the estate after six months,
➢ The insolvent may apply for rehabilitation, six months from the
date of sequestration.
❖ If all proved claims were paid in full, with interest,
➢ The insolvent can apply immediately once the Master confirms
the plan of distribution.
❖ After a lapse of time after confirmation of the first account by Master
➢ The insolvent may also apply for rehabilitation:
o After 12 months have elapsed from the confirmation by the
Master of the first account,
o after 3 years have elapsed from such confirmation, or
o after 5 years have elapsed from the date of his conviction of
any fraudulent activities.
Discretion of the Discretion of the court
court ❖ There is no right to be rehabilitated.
➢ It lies within the court’s discretion.
❖ The insolvent bears the onus of showing that the discretion should be
exercised in their favour.
❖ The insolvent must convince the court that:

69
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ He has learnt from the insolvency and understands that the

sequestration could have prejudiced his creditors.
➢ He has learnt his lesson to trade honestly with others, and that his
behaviour will change going forward.
❖ Factors to be considered by the court on whether to grant the order
include:
➢ Whether sequestration was to the advantage of creditors
Roestoff article
Advantage to creditors is not only a stumbling block when entering the
process but also one for exiting the process.

Ex parte Purdon and Ex parte De Villiers, Engelbrecht v Naidoo

❖ Advantage to creditors is also a requirement in rehabilitation.
❖ Confirmed in De Villiers as well.
❖ Must show advantage to creditors in entering the process and exiting
the process
❖ Must show as such in the affidavit.

➢ Whether the insolvent is a person who ought to be allowed to

trade with the public on the same basis as any other honest
person;
➢ Whether the insolvent is a fit and proper person to participate in
commercial life free of any constraints and disabilities;
➢ Trustee and Master’s Reports;
➢ Conduct of the insolvent, before and during the sequestration
process.

Orders of the ❖ The court may grant an unconditional rehabilitation

court ❖ The court may grant a conditional rehabilitation
❖ The court may postpone rehabilitation
❖ The court may refusal rehabilitation
Cases Ex Parte Snooke 2014 (5) SA 426 (FFB)
❖ Facts
➢ The applicant had previously applied for voluntary surrender of
his estate, which was accepted.
➢ He subsequently applied for rehabilitation under S124(3) on the
basis that no claims had been lodged against his estate after
sequestration.
➢ Snooke claimed that his only asset was R65,000 paid into the
Guardians’ Fund, despite describing himself as a self-employed
contractor.
➢ His statement of affairs listed ten creditors, but no claims were
lodged by these creditors.

❖ Court’s Findings
➢ Instead of serving creditors' interests, the process appeared to
benefit the debtor, which contradicts the fundamental principle

70
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

of insolvency law that sequestration should advantage creditors,

not the insolvent.
➢ The statement of affairs was not fully disclosed, and the court
questioned the veracity of the applicant’s claims regarding his
assets.
➢ The court was critical of the excessive sequestration and
administration costs charged, which were much higher than
usual for unopposed applications.
➢ The court noted that these costs were not properly
communicated to the court during the voluntary surrender
application, effectively misleading the court.
➢ The short turnaround time for creditors to lodge claims was
deemed insufficient, potentially prejudicing their ability to
participate in the process.

❖ Outcome
➢ The court did not grant the rehabilitation order immediately.
➢ Instead, it postponed the proceedings and issued specific
directions, including requiring better notice and explanation to
creditors to allow them to lodge claims if they wished.

❖ Legal Significance
➢ The case underscores that sequestration and subsequent
rehabilitation should not be manipulated for the benefit of the
debtor.
➢ The judgment serves as a warning against the abuse of
sequestration proceedings and emphasizes the need for full
disclosure and transparency in insolvency matters.
➢ The court reaffirmed that sequestration is a remedy primarily for
the benefit of creditors, not for insolvent persons seeking to
escape their debts without adequate accountability.

Ex parte Fourie [2008] 4 All SA 340 (D)

❖ Legal Issue
➢ Whether the court should exercise its discretion to grant Fourie’s
application for rehabilitation after sequestration, especially in
light of his conviction for fraud and the circumstances
surrounding his insolvency.

❖ Court’s Reasoning
➢ The court emphasized that an insolvent has no automatic right to
rehabilitation; it is a matter of judicial discretion.
➢ This discretion is heavily influenced by the conduct of the
insolvent, particularly regarding the business affairs that led to
insolvency and any criminal conduct such as fraud.
➢ The onus is on the applicant to demonstrate why the court should
exercise its discretion in their favour.

71
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Key Principles from the Judgment

➢ The court reiterated that rehabilitation is not a right but a privilege,
dependent on the applicant’s conduct and the circumstances of
the insolvency.
➢ The court’s discretion must be exercised judiciously, considering
factors such as the reason for sequestration, the applicant’s
conduct, and any criminal convictions related to the insolvency.
➢ Applicants must provide full and frank disclosure of their conduct
and the circumstances leading to insolvency, especially where
fraud or dishonesty is involved.

Uncompleted contracts

Introduction Overview
❖ Uncompleted contracts
❖ Immovable property
❖ Immovable property – Sequestration of the buyer
❖ Cash sale of moveable property - Sequestration of the buyer
❖ Sequestration of the buyer - Credit sale transactions
❖ Sequestration of the buyer - Instalment agreements
❖ Sequestration of the seller – Credit sales
❖ Sequestration of the seller – Instalment agreements
❖ Position with lease agreements
❖ Employees
❖ Cases

Uncompleted What is an uncompleted contract?

contracts ❖ The contracts that are part of the insolvent estate that have not been
completed.
❖ When the insolvent natural person or company is unable to pay its
debts is a party to a contract and in terms of which performance or
full performance has not taken place before sequestration or winding
up.
❖ Important questions to consider
➢ Which contracting party’s estate is being sequestrated?
The type of contract and which party is the owner?
➢ Common law, Insolvency law, etc?

What happens to the contract now that the insolvent is sequestrated?

❖ Common law general rule: The insolvent is sequestrated; nothing
happens to the contract and the contract is still in place.
➢ Interests of the general body of creditors takes preference over
the individual interests.
➢ The trustee is appointed, and trustee can decide whether to
proceed with the contract (comply, pay) or repudiate the contract
(not cancel, a form of breach of contract).
➢ The trustee must give clear notice within reasonable time.

72
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ The creditor cannot ask for specific performance because the

debtor is insolvent, but the creditor (solvent party) can cancel the
contract and claim for restitution and damages and there will be
a concurrent claim.
➢ The trustee can demand specific performance form the other
party in terms of the contract, provided that he tenders complete
performance (only when contract contains reciprocal obligation).
➢ Any right already acquired by the other party in the contract is
retained.
❖ This may be unfair
➢ In instances where an insolvent sits with money and a property
where the property was not yet transferred and now the creditor
has a concurrent claim.
➢ There must be a special rule for this person.
Immovable Scenario 2
property ❖ If the ALA and Sarrahwitz case does not apply, the buyer would be at
a detriment where the seller is sequestrated before registration of the
transfer in the name of the buyer.
❖ The buyer will not be able to demand transfer of the property even
though he had already paid the purchase price in full.
❖ Should the trustee elect to repudiate, the buyer will have a concurrent
claim only for the repayment of the purchase price or a portion
thereof, already paid.
❖ Common law rules won’t help.

ALA S18 – S22

❖ If he pays for the flat in instalment (2 or more over 1 year) for
immovable property for residential purposes, and registerable in
Deed’s office, he will receive protection.
❖ The contract must also be recorded in the Deed’s Office by means of
endorsement against the title deed of such land.
❖ If sequestrated, the purchaser has the right to claim transfer of the
property. If he cannot take transfer and the property is sold (mortgage
is claimed) he has a claim over the balance.
❖ If not instalments, common law will apply.

What if he pays all money in one instalment:

Sarrahwitz v Maritz
❖ Miss S did not pay instalments, she paid all the money in cash and the
seller got sequestrated.
❖ She was not protected by ALA and it was discriminatory based on how
she paid for the immovable property.
❖ The court considered the impact of S26 (the right to adequate
housing) on the requirement under the ALA.
❖ The court affirmed this and said that the requirement of 2 or more
declared unconstitutional when dealing with vulnerable purchaser
(someone with no place to stay if she cannot take transfer of the
property).
73
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ The court defined a “vulnerable purchaser” as a buyer of land “who

runs the risk of being rendered homeless by a seller’s insolvency”.
❖ The court limited the protection of the situation where the
administration of the seller’s insolvent estate has not been finalised.

❖ “Land” also includes a sectional title unit, the right to claim transfer
of land and an undivided share in the land.
➢ The protective measures regarding the land that is registerable in
a Deed’s Office:
o The trustee and creditors lose their right to elect to repudiate
the contract.
o The trustee is obliged to allow the buyer to take transfer of the
land on payment of certain prescribed amounts by the
transferee.
o The contract need not be recorded in the Deed’s Office.
➢ Where the buyer cannot or does not want to take transfer, he
obtains a preferential right to claim repayment of the amount
already paid by him.
o These must be paid out of the balance available after the
mortgage bonds over the property registered before the
recording of the contract have been cancelled or paid.
o The contract of sale in instalments must be registered at the
Deed’s Office.

Scenario 3
❖ If a purchaser pays more than 50% - S27 of the ALA
❖ He may take transfer of the property subject to the condition that he
registers a mortgage bond in favour of the insolvent estate for the
outstanding amount

Scenario 4
❖ S26 of the ALA - If the land is unregistrable, the seller may not receive
the money from the alienation until the stand or sectional title unit is
registerable and the contract is recorded against the title deed of the
property.
❖ Exceptions
➢ An attorney or estate agent who has a trust account may receive
payment in trust.
➢ A person who obtains an irrevocable and unconditional guarantee
from a bank or insurer in favour of the buyer may also receive
payment from such a buyer as soon as latter receive the
guarantees.
o The bank or insurer must repay to the buyer any amounts
already paid by him, when the alienator becomes insolvent
before the property becomes registerable.

Immovable What if the buyer is sequestrated?

property S35
74
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Sequestration of ❖ Write to the trustee to see if they will continue or repudiate the
the buyer contract (in a reasonable time)?
❖ When the trustee fails to exercise his right within 6 weeks, the seller
can approach the court and ask for a cancellation of the contract and
an order directing the trustee to restore to the seller the possession
of the relevant property.
❖ If it is to the advantage of creditors, the trustee will proceed with the
sale such as if the asset is worth a lot.
❖ The seller may prove a concurrent claim against the insolent estate
for damages suffered based on breach of contract.
Cash sale of Common law
moveable ❖ Ownership of moveable property sold on cash basis is transferred to
property the buyer after delivery and full payment of the purchase price.
Sequestration of ❖ Presumption in favour of a cash sale.
the buyer
S36
❖ Applies to cash sales and property which at the time of sequestration
is for other reasons in the possession of the insolvent but belongs to
someone else.
❖ The buyer receives delivery of the property before paying the
purchase price and his estate is subsequently sequestrated, the
seller will in terms of S36 be entitled to cancel the contract and
reclaim the property.
❖ Requirements of S36
➢ The seller must give written notice to the buyer, trustee or Master
within 10 days after the date of delivery of the property that he is
reclaiming the property, irrespective of whether sequestration
takes place within those 10 days or later.
➢ The seller must return any part of the purchase price already
received.
➢ If the trustee, after receiving notice of the right to restitution,
despite such right, the seller must within 14 days upon receipt of
the notice of dispute institute action to indicate his right
➢ If the trustee tenders full purchase price instead of the goods, the
seller must accept the purchase price.
❖ The seller gives notice to prevent loss of ownership.
❖ He is not entitled to reclaim the goods other than by adhering to the
provisions of S36
❖ Noncompliance with the notice period results in the seller losing his
right to reclaim the property, leaving him with a concurrent claim only
for the payment of the purchase price.

Sequestration of Sequestration of the buyer

the buyer ❖ Common law – ownership of moveable property sold on credit is
Credit sale transferred to the buyer on delivery of the property to the buyer.
transactions
Section 36 mentioned above DOES NOT apply

75
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Ownership of the property has already passed to the buyer and the
seller will not be able to reclaim goods in terms of S36.
❖ The seller will only have a claim for the balance of the purchase price
against the insolvent estate, which claim will be of a concurrent
nature.

Sequestration of Section 84 applies

the buyer ❖ Where it is an instalment agreement in terms of S1 of the NCA
Instalment ❖ The sale of immovable property in terms of which
agreements ➢ All or part of the price is deferred and is to be paid by periodic
instalments.
➢ Possession and use is transferred to the consumer.
➢ Ownership passes to the consumer only when the agreement is
fully complied with.
❖ S84(1) only applies where these requirements are met, even if the
NCA is not applicable.
➢ Upon sequestration of the buyer, the seller obtains a hypothec
over the object sold (security for outstanding purchase price).
➢ If requested by the creditor, the trustee must return deliver the
property to the creditor.
➢ Ownership of the object sold will pass from the seller to the
insolvent estate (you cannot have a hypothec over your own
property).
❖ S84(1) will not apply for the sale of a business and the sale of goods
in which the purchase price is payable in one lump sum in the future.
❖ S84(1) applies when the trustee has not yet obtained possession of
the goods as required by S69.
❖ S84(2) If the buyer surrendered goods to the seller within 1 month
before sequestration, trustee may demand the delivery of the goods
or the value thereof as on the day of its surrender to the seller.
➢ The trustee must simultaneously pay the outstanding balance of
the purchase price under the original transaction or deduct it from
the value of the goods.
➢ This enables the trustee to reclaim the asset for the benefit of the
creditors where the goods are worth more than the outstanding
purchase price.
❖ S84(2) will not apply where the instalment agreement has otherwise
been validly cancelled prior to the sequestration of the buyer’s estate.
➢ Payment by the creditor after the cancelation would be indebiti
and recoverable by way of an enrichment claim.
Sequestration of Common law
the seller ❖ Ownership transferred on delivery even though the purchase price is
Credit sales not paid in full.
❖ The trustee of the seller’s insolvent estate must collect outstanding
purchase together with other outstanding debts.

Sequestration of Common law

the seller ❖ Insolvency act does not regulate.
76
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Instalment ❖ Trustee must elect to perform or repudiate his obligation in terms of

agreements the contract.
❖ There is no principle in terms of which the buyer’s possession can be
deprived by an order of court.
➢ The buyer is entitled to continue with payments as he has more
than a mere subjective right.
➢ He has a contingent right to the property which becomes
unconditional when the last payment is made
➢ The fulfilment pf the condition depends on the buyer; therefore
reservation of ownership is a form of security for the seller.

Position with Sequestration of the lessor

lease S37
agreements ❖ Nothing happens if landlord is sequestration – does not terminate the
lease.
❖ The property will be sold as part of the insolvent estate and huur gaat
voor koop will apply and property will be sold with lease.
❖ If a mortgage bond is also registered on the leased property prior to
the lease, the rights of the lessee are subordinate to the mortgage
(unless mortgagee waives rights).
➢ If it is not enough to cover the mortgage, they can sell the property
without the lease agreement only if the mortgage has been
registered prior to the lease agreement.
➢ The lessee will have an unliquidated concurrent claim for
damages for breach of contract against the estate.
❖ If not, preference is given to the lease agreement.

Sequestration of the lessee

S37
❖ Does not terminate the lease.
❖ If the lessee or tenant is sequestered, the trustee will be appointed
and decide whether to proceed with the lease or not.
❖ The trustee may cancel the contract with written notice
➢ The lessor will have an unliquidated concurrent claim against the
estate for damages for the breach.
➢ The estate loses the right to claim compensation for
improvements unless the lessor agreed to allow improvements.
❖ If no decision is reached the lease will be terminated in 3 months.
If the trustee wises to continue with the lease, he is bound to all
conditions pertaining to a prohibition on the transfer of the lessee’s rights.
Any stipulation in the lease that the lease will terminate or be varied upon
sequestration of the parties will be null and void (S37(5)).
❖ The lessor has different types of claims
➢ Secured claim for all rent that in arrears prior to sequestration
(hypothec over moveable property on premises).
➢ Preferential clam for all rent due from sequestration till
termination of contract (costs of sequestration.
➢ Penalties payable (damages) will be a concurrent claim.
77
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Employees Sequestration of the employee’s estate

❖ No effect
❖ Unless disqualified from holding position in terms of legislation.

Sequestration of the employer’s estate

S38
❖ S38(1) If employer is sequestrated, the employment contract is
suspended.
➢ The employee has no right to remuneration and will not be
required to render services.
➢ No employee benefit accrues to the employee.
➢ Employees are entitled to unemployment benefits in terms of
Unemployment Insurance Act.
❖ S38(4) The trustee has the power to terminate the contract.
❖ S38(5) This power may not be exercised unless the trustee has
entered into consultations with relevant parties.
➢ Persons in terms of a collective agreement (S213 of the LRA).
➢ A workplace forum (S213 of the LRA).
➢ Registered trade unions who’s members are likely to be effected.
➢ With the employees or representatives.
➢ Consultation is aimed at reaching consensus on appropriate
measures to rescue the business or part of it.
❖ S38(6) Appropriate measures
➢ Sale of the business or part of it.
➢ Transfer in S197A of the LRA.
o New employer replaces old employer automatically (for
contracts in place prior to winding up)>
o All rights and obligations between old employer and
employee will remain as such between the old employer and
employee.
o Contracts of employments will revert to new employer.
o Contracts that were terminated will be reviewed.
➢ S197B - Employer that is facing financial difficulties that may
reasonably result in the winding up or sequestration of the
employer must advise a consulting party contemplated in section
189(1).
➢ Scheme of compromise in S311 of the Companies Act 1973.
➢ Any other business rescue measures.
❖ S38(7) Grants relevant parties 21 days to make written proposals to
save the business.
➢ Trustee may not exercise right to terminate unless 21 days (from
date of final appointment) has expired.
❖ S38(8) – A creditor of the insolvent employer may with the consent of
the trustee participate in the consultations.
❖ The contract will lapse 45 days after appointment.
❖ S38(10) – An employee whose contract of services has been
suspended or terminated is entitled to claim compensation for loss
suffered (concurrent claim).

78
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ May also claim severance benefits in accordance with S41(2) of

the Basic Conditions of Employment Act (preferential in terms of
S98).
❖ If the contracts are terminated, the employees have claims.
➢ S98A – employee has preferential claim for salary and wages (max
3 months and R12 000)
➢ Claim for leave (year of insolvency or previous year R4 000)
➢ Paid absence (Max 3 months and R4 000)
➢ Severance pay (R12 000)
➢ Pension fund, provident fund, medical aid, unemployment fund
(Max R12 000).
➢ Balance will be a concurrent claim.

Case Thomas Construction (Pty) Ltd v Grafton Furniture Manufacturers

(Pty) Ltd 1988 (2) SA 546 (A)
❖ Legal Issue
➢ Whether the employer (Grafton) was obliged to pay amounts
certified in interim certificates immediately to the liquidators, or
whether payment could be withheld until completion and final
accounting, as per the contract.
➢ The validity and effect of contract clauses that suspend or
postpone payment obligations upon the contractor’s liquidation
and contract cancellation.
➢ Whether the liquidator acquires greater rights than the insolvent
company under the contract.
❖ Judgement
➢ The Supreme Court of Appeal held that the liquidators were not
entitled to immediate payment based solely on the interim
certificates.
➢ The court found that the relevant contract clause, which
suspended payment of certified amounts until after completion
by a replacement contractor and a final accounting, was valid and
binding-even against the liquidator.
➢ The liquidator steps into the shoes of the insolvent company and
cannot claim rights greater than those the company itself would
have had under the contract.
➢ The right to payment on interim certificates was not absolute or
unconditional; it was subject to the contract’s terms, including
the postponement of payment after cancellation and pending
final accounting.
➢ The court further confirmed that an employer could issue a
breach notice to the liquidator after liquidation, and if the
liquidator failed to remedy the breach or elect to continue with the
contract, the employer could validly cancel the contract and
appoint a new contractor.
❖ Significance

79
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ The case confirms that, in construction contracts, the employer’s

obligation to pay amounts certified in interim certificates can be
suspended or postponed by contract terms, especially after
cancellation and in the context of the contractor’s liquidation.
➢ Liquidators do not enjoy enhanced rights under the contract; they
are bound by its terms as the insolvent company would have
been.
➢ Employers are entitled to protect themselves contractually by
withholding payment until the final cost of completion is known,
ensuring they are not prejudiced by the contractor’s insolvency.

❖ How does this case relate to uncompleted contracts?

The Thomas case provides the general principle that applies to
uncompleted contracts - that these contracts do not terminate
automatically upon sequestration, the rights of the trustee and other
contracting party, and the contractual consequences of the choice
exercised by the trustee (repudiation, damages and the inability to
enforce specific performance, the type of creditor that the other
contracting party would be in the estate).

80
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 10 – Corporate Insolvency

Overview Overview
❖ Revision
❖ Winding – up of insolvent companies
❖ Corporate rehabilitation
❖ Public creditors’ interrogation
❖ Case law
Revision Please see week 1 -page 5 to 6 “Corporate Insolvency
Winding up of Introduction
insolvent ❖ Companies or close corporations can be wound up/liquidated in
companies solvent or insolvent circumstances.
❖ The process entails the initiation of winding-up either voluntarily by
means of a shareholder's or members resolution, or by means of a
court order.
❖ As from commencement certain consequences follow by operation
of law, and the control of the liquidated entity will vest in the liquidator
appointed to finalise the administration of the estate.
❖ The shareholders or members, the creditors, and the employees have
interests in the outcome of these proceedings.
❖ The purpose of liquidation is to pay the debts of creditors (if any) and,
if any surplus remains, to distribute such surplus to the corporation.
❖ Once the liquidation of assets and the debts are paid, the
company/close corporation dissolves and cease to exist as a legal
entity.
❖ The initiation of liquidation of solvent companies is regulated by the
2008 Companies Act.
➢ Allows for an application to court for an order to convert the
voluntary winding up in terms of the 2008 Act to an insolvent
winding-up, in which case, Chapter 14 of the 1973 Companies Act
will apply.
❖ The liquidation of insolvent companies is regulated in terms of
Chapter 14 of the 1973 Companies Act (S339).
➢ S339 - The provisions related to insolvency law (ie. the common
law and Insolvency Act), shall be applied if the Companies Act
does not specifically provide otherwise.
❖ The Close Corporations Act and selected provisions of the 1973
Companies Act primarily regulate the winding-up and liquidation of
close corporations.
➢ However, the 2008 Companies Act rendered. some of its sections
applicable to-close corporations.

Winding up (liquidation) of companies

❖ In terms of the 1973 Companies Act, an insolvent company can be
wound up by the High Court, or voluntarily by creditors, the latter of
which commences upon special resolution of shareholders.
❖ For purposes of winding-up, insolvency means that the company is
commercially insolvent, that is to say that it cannot pay its debts as

81
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

they fall due in contrast to factually insolvent, where the liabilities

exceed the assets.

Liquidation by court order in terms of the 1973 Companies Act

S344 Grounds for winding up a company
(a) the company has by special resolution resolved that it be wound
up by the Court;
(b) the company commenced business before the Registrar certified
that it was entitled to commence business;
(c) the company has not commenced its business within a year from
its incorporation, or has suspended its business for a whole year;
(d) in the case of a public company, the number of members has
been reduced below seven;
(e) seventy-five per cent of the issued share capital of the company
has been lost or has become useless for the business of the
company;
(f) the company is unable to pay its debts as described in section
345;
(g) in the case of an external company, that company is dissolved in
the country in which it has been incorporated, or has ceased to
carry on business or is carrying on business only for the purpose
of winding up its affairs;
(h) it appears to the Court that it is just and equitable that the
company should be wound up.

S345 read with S344(f)

(1) A company or body corporate shall be deemed to be unable to pay its
debts if
(a) a creditor, by cession or otherwise, to whom the company is
indebted in a sum not less than one hundred rand then due—

(i) has served on the company, by leaving the same at its registered
office, a demand requiring the company to pay the sum so due; or
(ii) in the case of any corporate body not incorporated under this
Act, has served such demand by leaving it at its main office or
delivering it to the secretary or some director, manager or
principal officer of such body corporate or in such other
manner as the Court may direct, and the company or body
corporate has for three weeks thereafter neglected to pay the
sum, or to secure or compound for it to the reasonable
satisfaction of the creditor; or

(b) any process issued on a judgment, decree or order of any court in

favour of a creditor of the company is returned by the sheriff or the
messenger with an endorsement that he has not found sufficient
disposable property to satisfy the judgment, decree or order or
that any disposable property found did not upon sale satisfy such
process; or

82
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

(c) it is proved to the satisfaction of the Court that the company is

unable to pay its debts.

❖ S 348 - In the case of a liquidation by court, the liquidation

commences on the date on which the application for liquidation is
presented.

❖ The affidavit in support of the application for winding-up must broadly

cover the following aspects:
a) Description of the applicant;
b) Description of the respondent (the insolvent company);
c) Jurisdiction (a provincial or local division of the High Court in
whose jurisdiction the registered office or the main place of
business of the company is situated);
d) That the following formalities have been complied with:
i) Security for costs at the Master's office;
ii) Copy of application furnished to
1. every registered trade union that, as far as the
applicant can reasonably ascertain, represents any of
the employees of the company;
2. employees of the company by affixing it to any notice
board to which the applicant and employees have
access inside the premises of the company. If there is
no access to the premises, by affixing it to the front
gate and if that is not possible, to the front door of the
premises;
3. the South African Revenue Service; and
4. the company (unless the application is made by the
company itself or where the court is satisfied that it is
in the interests of the company with this requirement);
e) The intention to serve the application on the Master must be
stated;
f) The basis of the application must me mentioned:
i) Under insolvent circumstances, the basis will probably be
the inability to pay debts;
ii) where any other ground is relied upon, such as just and
equitable, a further allegation that the company is
insolvent; and
g) Relevant annexures to affidavit and supporting documents.

❖ The court hearing the matter has the discretion to grant a provisional
or final liquidation order, dismiss the application, adjourn the matter
conditionally or make any other order it may deem just.
❖ Once a liquidation order has been granted, the company is no longer
or unconditionally, under the control of the directors.
➢ The Master takes control, whereafter it is relinquished to the
liquidator.

83
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Voluntary liquidation in terms of the 1973 Companies Act

❖ An insolvent company can be voluntarily wound-up by creditors in
terms of S349-351 of the 1973 Companies Act.
❖ The voluntary winding-up by creditors applies when the company is
unable to pay its debts (thus in insolvent circumstances).
❖ Even though it might appear that this process is initiated by creditors,
it is initiated by a special resolution by members or shareholders of
the company.
➢ Once a special resolution is passed the company must give
notice of the voluntary winding-up in the Government Gazette and
issue a copy to sheriffs and registrars.
➢ After the registration of the special resolution, the procedure is
the same as a winding-up by the court. The creditors will
nominate a liquidator, and the insolvency law would apply with
the necessary changes.

Corporate Compromise with creditors in terms of section 155 of the 2008

Rehabilitation Companies Act
❖ Unless a company is engaged in business rescue proceedings, the
board of the company, or a liquidator of the company being wound
up, may propose an arrangement or compromise of its financial
obligations to all its creditors, or to all the members or any class of its
creditors at a meeting convened with notice to the creditors and the
Commission.
❖ Creditors, or a class of creditors, adopt a proposal if it is supported by
a majority in number, representing at least 75% in value of the
creditors or class present and voting In person or by proxy, at a
meeting called for that purpose.
➢ If proposal is adopted, the company may apply to the court for an
order approving the proposal.
➢ The court may, in terms of S155(7), sanction the compromise as
set out in the adopted proposal, if it considers it just and
equitable to do so, having regard to:
(a) the number of creditors of any affected class of creditors
who were present or represented at the meeting, and who
voted in favour of the proposal; and
(b) in the case of a compromise in respect of a company
being wound up, the report of the Master required in terms
of the laws contemplated in item 9 of Schedule 5.
➢ A proposal sanctioned by the court is final and binding on all the
company's creditors or all of members of the relevant class of
creditors as of the date on which the court order is filed with the
Commission.

Public creditors’ 1)Public creditors negotiations (S64, 65, 65(2A) & 66 of the Insolvency
interrogations Act and S415 and S416 of the 1973 Companies Act)
Interrogation of the insolvent and other witnesses
❖ Interrogations may take place at any meeting of creditors.
84
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ The insolvent must attend the first and second meetings and be
available for interrogation.
❖ The trustee can also convene a special meeting of creditors for the
purpose of questioning the insolvent.
❖ The insolvent and any other person present at the meeting, who was
or might have been summoned in terms of S64(2), may be
interrogated by the trustee, any creditor who has proved a claim or the
agent, the presiding officer of any of these parties.
❖ The persons against the estate, mentioned in section 64(2) are those
who are known, or on reasonable grounds believed to:
a) possess or to have possessed property belonging to the insolvent
or his spouse prior to his sequestration;
b) be indebted to the estate; or
c) be able to provide information regarding the insolvent's or his
spouse's affairs or property belonging to the insolvent estate or to the
insolvent's spouse.

❖ In terms of S65(1) the insolvent or other witnesses may be

interrogated about matters relating to the insolvent or his business or
affairs, and any property belonging to his estate, or the business,
affairs and property of the insolvent's spouse.
➢ However, the presiding officer must disallow any questions that
may be irrelevant or prolong the interrogation unnecessarily.
➢ The insolvent and other witnesses can be obliged to take an oath
and is entitled to be assisted at his interrogation by counsel, an
attorney, or other agent.
➢ The insolvent must be required to make a declaration that he has
made a full and true disclosure of all his affairs.
➢ Persons being interrogated may as a rule not refuse to answer
questions.
➢ Where a person gives evidence and is obliged to answer
questions that may incriminate him or which may prejudice him
in his subsequent criminal prosecution, the presiding officer
must hold the investigation in camera (thus in private or in
chambers), and
o under these circumstances, no questions or answers may be
published.
o Incriminating evidence may not be admitted in any criminal
proceedings, unless it relates to a failure to take the oath or to
the giving of false evidence or the failure to answer lawful
questions fully and satisfactorily.
❖ Unless the person-summoned or the insolvent, as the case may be,
satisfies the presiding officer that he had a reasonable excuse for his
failure to appear at or attend such meeting, produce such books- or
documents, or refusal to take an oath or to answer questions,
➢ the presiding officer may commit him to prison until such time
that he is brought before the presiding officer for questioning and,
if necessary, to detain-him.

85
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ These powers can be exercised only by a presiding officer who is also

a magistrate.
❖ If it appears from any statement made at an interrogation that there
are reasonable grounds for suspecting that any person has
committed any offence, the Master must refer the matter to-the
National Director of Prosecutions.

Interrogations by directors and others

❖ In every winding-up of a company unable to pay its debts, every
director and officer must attend the first and second meetings of
creditors unless the Master after consultation with the liquidator
provided prior written permission for such absence.
➢ Directors and officers of the company must also attend any
subsequent or adjourned meetings of creditors if required to do
so by written notice of the liquidator.
➢ The presiding officer may also subpoena any director or officer of
the company or any other person who is known or on reasonable
grounds believed to be in possession of any property of the
company, or indebted to the company or who has any material
information regarding the company, to be interrogated at the
meeting of creditors.
❖ Any one of these persons may be interrogated under oath.
❖ The interrogation must be relevant and may relate to any matters
concerning the company, its affairs, or property.

2)Private interrogations by the Master (S152 of the insolvency Act and

S417, 41 of the 1973 Companies Act
Private interrogations of insolvent and others
❖ If at any time after the sequestration of the estate of a debtor and
before his rehabilitation the Master is of the opinion that the insolvent
or the trustee of that estate or any other person is able to give any
information which the Master considers desirable to obtain,
concerning the insolvent, or concerning any claim against the estate,
➢ he may by notice in writing and delivered to such person summon
him to appear before the Master and to provide such information.
➢ This type of interrogation is deemed to be private and
confidential.
❖ Although it can be accepted that the presiding officer at a S152(2)
enquiry must apply principles relating to procedural fairness
regarding the conduct of the interrogation, the Master need not in
general provide information on which the decision to hold the enquiry
was based.
➢ This would not amount to an infringement of the aggrieved persons'
right of access to information in terms S35 of the Constitution.

Private interrogations of directors and others

❖ Where any company unable to pay its debts is being wound up, the
Master or the court may, at any time after it has made the winding-up

86
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

order, summon the following persons to appear before him or the

court-to be examined;
a) any director or officer of the company;
b) any person known or suspected of having property of the company
in his possession;
c) any person believed to be indebted to the company; and
d) any person whom the Master or the court deems capable of giving
information concerning the trade, dealings, affairs, or property of
the company.
❖ The Master or the court may examine any such person under oath or
affirmation and may reduce his answers to writing and require him to
sign them.
❖ The Master or the court may also appoint commissioner to take
evidence or to hold an inquiry in terms of the Act.

3)Interrogations of a creditor wishing to prove a claim

4)Interrogations of the insolvent at a special meeting upon request
from a creditor and with the permission of the Master.

Case Law Boschpoort Ondernemings (Pty) Ltd v Absa Bank Limited 2014 (2) SA
518 (SCA)
❖ Background and Facts
➢ Absa Bank applied to the High Court to wind up Boschpoort
Ondernemings (the appellant) on the basis that it was unable to
pay its debts, relying on S344(f) and 345 of the 1973 Companies
Act, alternatively on S81(1)(c)(ii) of the 2008 Companies Act.
➢ Boschpoort Ondernemings had been in arrears with Absa Bank
for over R29 million and owed other creditors including First Rand
Bank and SARS significant amounts.
➢ The company was served with a demand under S345 of the 1973
Act and was in default.
➢ Boschpoort conceded it was "commercially insolvent" but argued
it was "factually solvent" because its assets exceeded its
liabilities on the balance sheet.
➢ The High Court ordered winding-up on the basis it was "just and
equitable" under the new Act's S81(1)(c)(ii).
➢ Boschpoort appealed this decision.

❖ Legal Issues
➢ Whether the winding-up application should be governed by the
1973 Companies Act or the 2008 Companies Act.
➢ The meaning of "solvent company" under the new Act,
particularly whether solvency means assets exceeding liabilities
(factually solvent) or the ability to pay debts as they fall due
(commercially solvent).
➢ Whether a company that is commercially insolvent but factually
solvent can be wound up.

87
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Supreme Court of Appeal Findings

➢ The SCA held that the 1973 Companies Act provisions (S344(f)
and 345) applied to this case because the company was
commercially insolvent in the generally accepted sense — unable
to pay its debts as they fell due.
➢ The 2008 Companies Act’s S81(1)(c)(ii), which allows winding-up
on just and equitable grounds, was incorrectly applied by the High
Court.
➢ The SCA distinguished between "factually solvent" (assets
exceed liabilities) and "commercially insolvent" (unable to pay
debts when due). The latter is the relevant test for liquidation
under the 1973 Act.
➢ The appeal was dismissed because the High Court reached the
correct outcome (winding-up) but for the wrong legal reasoning.
➢ The court confirmed that a company can be factually solvent but
still commercially insolvent, justifying liquidation

88
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Week 11 – Impeachable Transactions

Overview Overview
Introduction
Common law remedy
Statutory remedies
Legal proceedings concerned with impeachable transactions
Realisation of assets
Case law

Introduction Impeachable Transactions

❖ It is possible for an insolvent to have entered valid transactions with
other parties in the normal course of business before his insolvency.
❖ When the insolvent conducted these transactions while insolvent,
they raise concerns.
➢ The reason for concern lies in the principle of concursus
creditorum.
❖ Where the insolvent sold an asset below market value or donated an
asset to a third party, the estate incurred a loss, because the value
received in return does not equal the value lost.
➢ For donations – the asset is lost without anything received in
return.
❖ This results in a decrease in the value of the estate, subsequently
reducing the available funds from which creditors can claim.
❖ Where the insolvent provided security to a creditor who initially had
none, the preference of such creditor is affected, meaning he will
receive payment ahead of other creditors.
❖ Transactions like these are referred to as impeachable transactions.
❖ 5 Impeachable transactions – 1 is common law, 4 are in the
Insolvency Act.

Common law Actio Pauliana

remedy ❖ Any transaction aimed at defrauding the creditors can be set aside
with-the actio Pauliana if the transaction indeed defrauds the
creditors.
❖ Creditors in an insolvent estate can thus use the actio Pauliana as a
remedy.
❖ This common law remedy is also available to creditors after the
debtor has been liquidated.

89
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ Creditors can use the actio Pauliana to recover the assets the
insolvent disposed of as well as any benefits that might have accrued
from the fraud.
❖ A sequestration order is not required.

❖ Requirements
➢ Alienation diminished the debtor's assets.
➢ Recipient must not have received his own property, that is, the
recipient must not have received an asset to which he was
entitled, such as the settlement of a pre-existing debt.
➢ Debtor-alienator must have had the intention to defraud his-
creditors, but if he received value, the recipient must have been
aware of such an intention to defraud.
➢ Defrauder must have caused the detrimental consequences
(insolvency) for the creditors.
o This means that the alienation must have increased or caused
the insolvency of the debtor.

Statutory The Insolvency Act

remedies ❖ These transactions have one thing in common
➢ Creditors were prejudiced or one creditor was preferred above the
others.
❖ In the event of such a transaction the trustee can initiate legal action
to set these transactions aside.
➢ In this way it is attempted, as far as it is practically possible, to
maintain equality amongst the creditors retrospectively up to the
date of actual insolvency.
❖ Where the trustee fails to institute action, creditors can initiate
proceedings to set transactions aside.
❖ A sequestration order is required.

Requirement 1 – Timing
❖ It occurs before sequestration; hence the date of sequestration is
important.
➢ Compulsory sequestration = date of provisional sequestration
order.
➢ Voluntary surrender = date of (final) sequestration order.
❖ There are special time periods linked to each type of disposition.

Requirement 2 - The meaning of “disposition” S2

❖ An abandonment of property or rights to property.
❖ This includes a sale, lease, mortgage, pledge, delivery, payment,
release, compromise, donation, or any contract providing therefore
suretyship is also included (Langeberg case).
❖ The property disposed of must be property to which the debtor has a
provisional right.

❖ Exclusions
90
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ A disposition made in compliance with an order of court,

o Provided that the insolvent personally effected such
disposition to comply with the order of court.
➢ The repudiation or refusal by a nominated beneficiary of life
insurance policy benefits or an heir of an inheritance.
o Since the beneficiary merely has a competence or power to
accept the inheritance but not a right in the property before
such acceptance.

Requirement 3 – Type A or B
❖ Type A (fraudulent = causes or increases insolvency)
➢ Was the value that left not the same/much less than the value
that "came back"?
➢ It diminishes the value of the estate (which means less money
available for the creditors) = called a disposition without/not for
value.
➢ Immediately after the disposition, the debtor was insolvent (L > A)
❖ Type B (preference = settle debt of a creditor or improves the
creditor's ranking position and there is a issue with the solvency of the
estate).
➢ Was the value given to a creditor to whom the estate owed
something?
➢ It prefers ("favours") one creditor above another = called a
preference.
➢ Unable to pay all creditors but nevertheless paid one or more in
full (favour).

Different types of impeachable dispositions

Fraudulent dispositions which include dispositions made without
value
❖ If the insolvent disposes of the property of the estate and adequate
value is not received in return, the value of the estate will diminish.
❖ This means that the estate will have less-assets that can be realised
to pay the creditors of the estate.
❖ Such disposition can either cause the insolvency of the debtor or
further increase his insolvency.
❖ Examples:
➢ Instances where the insolvent sold an asset below market value
➢ Donated an asset to a third party
➢ Provided security to a creditor who previously had none.
❖ Distinguishing characteristic: Money out with nothing back in

S26
❖ A court can set aside any disposition not made for value by the
insolvent if the trustee can prove,

91
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ In instances where the disposition was made more than two-

years before date of sequestration,
➢ that immediately after the disposition was made
➢ the person disposing of the property was insolvent (L>A).
❖ The court can set aside the disposition if it was made less than two
years prior to sequestration, if the person who benefited from the
disposition cannot prove that
➢ the assets of the insolvent exceeded his liabilities immediately
after the disposition was made.
➢ If the beneficiary can prove that despite the disposition, the
assets of the insolvent exceeded his liabilities immediately after
the disposition was made (A>L).
❖ The closer you get to 2 years, the higher the burden on the beneficiary
to retain the benefit.
❖ The person who benefited from a disposition need not necessarily be
the person to whom the disposition was made.
❖ It must be proven whether the insolvent was insolvent immediately
after the disposition, he does not need to be solvent before, it could
just deepen his insolvency.
❖ Where it is proved that at any time after such a disposition has been
made, the insolvent's liabilities exceeded his assets by less than the
amount of the disposition, the extent to which it can be set aside is
limited to the amount of such excess.
❖ If the disposition without value has been set aside or if the insolvent
did not complete the disposition, the beneficiary cannot compete
with the creditors of the estate.
❖ Where the disposition arose by way of suretyship, guarantee or
indemnity and has neither been completed nor set aside in terms of
section 26(1), the beneficiary concerned can compete for an amount
not exceeding the amount with which the insolvent’s assets,
immediately preceding the disposition, exceeded his liabilities.
❖ Disposition “without value”(Requirement 2)”
➢ No technical meaning
➢ Should be interpreted in the ordinary sense of the word, namely,
without reasonable value or for inadequate value.

Langeberg Koöp Bpk v Inverdoorn Farming and Trading Co Ltd 1965 (2)
SA 597 (A)
❖ The Appellate Division clarified that the concept of “value” is not
confined to monetary or tangible consideration.
➢ The court must look at all the circumstances surrounding the
transaction to determine if the insolvent estate received value in
return for the disposition.
❖ The court also emphasized that for a disposition to be regarded as
made for value, some benefit must have actually accrued to the
insolvent or at least have been reasonably likely to accrue in the
future.
➢ A remote or illusory benefit does not qualify as value.

92
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ The test suggested is whether a reasonable board of directors,

after proper investigation, would consider the disposition as
providing a fair and adequate return to the company, especially in
light of its potential insolvency.
❖ The court rejected the notion that any potential for financial stability
or benefit to a group of companies automatically constitutes value.
➢ The benefit must be real and substantial, not speculative or
merely possible

Strydom N.O. and Another v Snowball Wealth (Pty) Ltd and Others
2022 (5) SA 438 (SCA)
Legal Issue
❖ The appellants (liquidators of DexGroup) sought to set aside the sale
of 27 million DexGroup shares to Snowball Wealth for R8.55 million,
alleging the transaction was a disposition "not made for value" under
S26.
❖ Snowball and other respondents argued that since DexGroup
received payment, the disposition was for value, even if the price was
below market value.
❖ The key question was whether "not made for value" requires no value
at all or merely inadequate value

Court’s Analysis
❖ S26 applies only when no value is given, not when the value is
insufficient or unequal to market value.
❖ DexGroup received R8.55 million for the shares, which constituted
value, even if the price was allegedly below market value.
❖ Expanding S26 to cover inadequate value would introduce
uncertainty, as courts would need to assess "fair" pricing in every
transaction.

Decision
❖ The SCA dismissed the appeal, upholding the High Court’s ruling that
➢ The transaction was not voidable under S26 because DexGroup
received payment, fulfilling the "value" requirement.
➢ Inadequate value ≠ no value: A disposition cannot be impeached
under S26 solely because the consideration was less than market
value.

❖ "Value" is not necessarily limited to monetary value and the financial

stability of a group of companies can also be included in the concept
of value.

❖ Where an immediate benefit under a duly registered antenuptial

contract is given in good faith, the disposition cannot be set aside if it
is made
➢ to the insolvent's spouse
➢ within three months from date of marriage,

93
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ or to a child born out of their marriage.

❖ However, the husband's estate should not be sequestrated within two
years from date of registration of the antenuptial contract.
❖ This section might militate against the equality clause in that the
same defence is not available to man under similar circumstances.

Voidable preferences (1st type of preference)

❖ A voidable preference is a disposition made by the insolvent
➢ within six months prior to sequestration or his death (if beyond
this time frame, resort to undue preference),
➢ with the effect that one creditor is preferred above the others, and
➢ that immediately after the making of such disposition, caused the
debtor's labilities to exceed the value of his assets that is, the
value at date of the disposition (L>A).
❖ Must show effect
❖ Examples
➢ Where the insolvent settles the claim of one creditor in full
➢ Where the status of a concurrent creditor is improved by providing
real security to the latter.

S29(1)
❖ A disposition by the insolvent can be set aside as a voidable
preference if it appears that the debtor, due to his dire financial
situation, was unable to pay all his creditors fully but nevertheless
favoured one or more of his creditors by making full payment of his
debts to them.
❖ Statutory defence:
❖ If the beneficiary can prove that the disposition was made in the
ordinary course of business and that it was not intended thereby to
prefer one creditor above another, the beneficiary will be able to avoid
the setting aside of the disposition.
❖ The test to determine whether a disposition was in the ordinary
course of business is objective.
➢ Whether an ordinary, honest, and solvent businessman would
have acted in the same manner in similar circumstances or
➢ Would have thought the transaction extraordinary.
➢ A disposition must be
➢ A disposition must be valid and legal to bring it into the confines
of the ordinary course of business
➢ All the surrounding circumstances should be taken into account,
o Including trade usages within the different sectors of the
business world.
o As well as the conduct of all the parties to the transaction.
➢ The personal opinions of the parties with regard to what types of
transactions fall within the ordinary course of their business and
their true intention with the disposition are r not relevant in this
regard.

94
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Although payment in terms of a valid contract between solvent

persons and in accordance with the terms of the contract is
usually regarded as in the ordinary course of business, a deviation
from the agreed payment method can be indicative of the
contrary.
➢ Knowledge of insolvency does not necessarily cause the
disposition not to be in the ordinary course of business.

Gore NO and Others v Shell South Africa (Pty) Ltd [2003] 4 All SA 370
(C)
Background and Facts
❖ The applicants, acting as liquidators, sought to set aside certain
payments made by the insolvent company to Shell South Africa (Pty)
Ltd, alleging these were not made in the "ordinary course of business"
and thus constituted voidable preferences.
❖ The central question was whether the payments were made with the
intention to prefer Shell over other creditors, or if they were legitimate
business transactions.
Legal Issues
❖ What constitutes a disposition "in the ordinary course of business"
under the Insolvency Act?
❖ Is the intention to prefer a specific creditor relevant, or is the focus on
the objective nature of the transaction?
❖ How should courts distinguish between legitimate commercial
transactions and those designed to prefer one creditor?

Key Findings and Reasoning

❖ The court clarified that the "ordinary course of business" test is
objective:
➢ It asks whether, in the context of the business relationship, the
transaction would appear anomalous or unbusinesslike to an
ordinary businessperson.
➢ Payments made regularly for supplies within stipulated periods,
as part of ongoing business, are generally considered ordinary.
❖ The court distinguished between purpose (the commercial motive,
such as obtaining supplies) and intention (the legal intent to prefer
one creditor).
❖ Even if a transaction has the effect of preferring a creditor, if it was
done in the ordinary course of business, it is not voidable under S29.
❖ The onus is on the party seeking to set aside the transaction to show
it was not ordinary or was intended to prefer.

❖ Beneficiary must prove-that the debtor did not intend to prefer one
creditor above the others.
❖ Proven independently from the first part of the defence.
❖ Subjective test

95
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Subjective intention of the debtor, which often, in the absence of

direct evidence, must be inferred from the surrounding
circumstances.
➢ These circumstances may include situations where the insolvent
makes the disposition while contemplating sequestration.
➢ A mere proposition that the debtor-made the disposition with the
hope of tiding over his financial difficulties, is not per se sufficient
to discharge this onus-of -proof.
➢ The defendant can convince the court that the dominant motive
was not to prefer him but rather to avoid, for example, criminal
prosecution, or that the debtor, due to severe pressure, had no
other choice but to pay the debt.
➢ The insolvent, if proven to be a reliable witness, can also testify to
the fact that he had no intention of preferring the defendant and,
in the absence of any other circumstantial evidence such as
friendship or family ties between the insolvent and the defendant
it might be sufficient to prove the absence of such intention.

Undue preference (2nd type of preference)

S30
❖ A disposition of assets,
❖ Made at any time before sequestration and while the liabilities of the
debtor exceeded his assets,
❖ With the intention of preferring one creditor above others.
❖ There is no statutory defence.

❖ The trustee must prove the abovementioned, as well as the intention

of the debtor.
➢ The intention of the debtor may be proven where it can be shown
that the debtor was aware of his insolvent state or
➢ Contemplated sequestration but nevertheless made the
disposition, or
➢ The intention can be inferred from the debtor's actions or
statements.

Application of voidable preference vs undue preference

❖ A voidable preference cannot apply if the disposition was made more
than six months before sequestration. As an undue preference is not
linked to a specific time before sequestration, it is possible that the
provisions of an undue preference and a voidable preference may
apply to the same set of facts (see Meskin par 5.31.6.4) – in that case,
the trustee should rather opt for the voidable preference as it is easier
to prove (he does not have to prove intent – the counterparty needs to
prove the absence of intent).
❖ An undue preference cannot apply if the debtor's assets only exceed
the liabilities after the disposition is made as an undue preference
only applies where the debtor is already insolvent: if the disposition
caused the insolvency (meaning that the liabilities only exceeded the

96
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

assets after the disposition, it can be a voidable preference provided

that it occurred 6 months or less before sequestration).
❖ For a voidable preference, there is a defence available. For an undue
preference, no such statutory defence exists and the trustee’s case
must be countered as in an ordinary civil process (considering the
burden of proof).

Collusion (own category)

S31
❖ Where the debtor intentionally colluded with another person (be it a
creditor or any other person) to prejudice his creditors or to prefer one
creditor above the other, and
❖ Where the debtor then disposes of his assets,
❖ The disposition can be set aside by the court.

❖ Intentional collusion is required and both parties must have

intended the result.
❖ “I go to mom and say, ‘give me your banking details’ because the other
creditors get paid before you’ and mom agrees and says that she need
the money more”.
❖ It is recommended that it should be determined whether the
disposition had the intended effect at date of sequestration.
❖ It does not matter how long before sequestration the collusion took
place, whether the debtor was already insolvent when it happened,
or whether the person with whom the insolvent colluded benefited
from such collusion.
❖ It is also irrelevant whether such-person was a creditor.
❖ If the person the insolvent colluded with was a creditor, he is liable for
damages (penalties) suffered by the estate.
➢ The creditor forfeits all of his claims against the insolvent estate.
➢ The court can also order such person to pay a fine (as determined
by the court) to the estate.
➢ The court may not impose a fine exceeding the amount by which
the person would have benefited from the disposition had it not
been set aside.

Legal Who can institute proceedings to set aside impeachable

proceedings dispositions?
concerned with ❖ The trustee (who cannot cede his right of action as plaintiff) must in
impeachable his representative capacity institute proceedings to set aside an
dispositions impeachable disposition.
➢ If he fails to do so, any creditor may institute such proceedings,
provided he has indemnified the trustee against the legal costs
thereof.
❖ The pleadings must clearly set out the cause of action.
➢ The court confirmed that the claim of a trustee is a debt that
prescribes in terms of the 1969 Prescription Act
➢ Prescription starts to run as from the appointment of the trustee.
97
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

❖ The trustee is entitled to institute proceedings irrespective of whether

the matter was already the subject of an action between the
defendant and the insolvent.
❖ There is no obligation on the part of the recipient to restore or repay
what was received in terms of the impeachable disposition before the
disposition is set aside.
➢ However, a court may award mora interest as from the day of the
judgment on which the disposition is set aside.
❖ The recipient of the disposed property, who will be the opposing party
in a lawsuit based on a claim to void a transaction that occurred prior
to sequestration, will have the right to defend himself.
➢ Some provisions provide statutory defences for the recipient,
such as S27 or S29(2) of the Insolvency Act.
➢ The rules of civil procedure must be followed to decide whether
the claim must be instituted by way of action or application
procedure

Validity of impeachable disposition

❖ In the event of dispositions not made for value, voidable and undue
preferences, and collusion, the transaction is valid until set aside by
the court.
❖ The court must declare a disposition void when the statutory ground
to set a disposition aside, is proved.

Consequences of setting aside an impeachable disposition

❖ When setting aside a disposition, the court must declare that the
trustee is entitled to recover the property itself or the value thereof,
whichever is the greater, at the date of disposition or at the date on
which the disposition was set aside.
❖ Payment of interest may be ordered from the date of the order setting
aside the disposition, but not from the date of the demand for
payment or the date of the actual disposition.
❖ An application can be made for an interdict restraining the person
who benefited from the disposition to part with the property
❖ Creditors who participate in the proceedings enjoy a preference over
those who do not participate, regarding the proceeds of the reclaimed
property.
➢ Any creditor is aware that proceedings have been instituted and
who delays proving his claim until judgment is given, is not
entitled to share in the distribution of any proceeds of any
property so recovered.
❖ It cannot be expected from the defendant, who had in good faith
parted with any property or security in return for the disposition, to
restore the subject matter of the disposition unless the trustee
indemnifies him against the consequences of having done the having
done so.

98
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

➢ Must prove his good faith and the extent of counter-performance

delivered, while a reciprocity between the disposition and the
transfer of property must exist.
❖ The rights of third parties who, in good faith and for value, received
property from a person other than the insolvent are also unaffected.
➢ For the purposes of S33 parting with property under
circumstances that are not ordinary has to be considered
holistically, having regard to the general intention of the parties
and the overall result of the agreement.
Realisation of After second meeting of creditors
assets S82(1)
❖ The trustee is obliged to sell all property under his control after the
second meeting of creditors
❖ The sale must comply with the creditor’s instructions.
➢ Where no instructions are given, the property must be sold by
public auction or by public tender.
➢ Any sale of property auction or public tender should be preceded
BY notice in the GG or any other notices that the Master may
direct
➢ In the absence of directions from the creditors regarding the
conditions of sale the property should be sold the conditions
directed by the Master.

S82(7)
❖ The trustee, auctioneer, their partners, employers, employees and
representatives may not buy any estate property unless the court
allows it.
➢ Any sale in contravention of S82(7) is nonetheless valid if the
buyer bought the assets in good faith.
➢ However, the trustee shall be liable to compensate the estate for
twice the amount loss which the estate suffered from because of
the contravention.

Before second meeting of creditors

S80bis
❖ Where necessary, the estate property may be sold before the second
meeting of creditors, where it is deemed necessary and where the
Master approves of such a sale.
➢ Fresh produce
❖ Assets may also be sold where their price is suddenly exceptionally
high. A provisional trustee may sell assets only with the prior consent
the court or Master.
➢ However, where provisional trustee concluded the sale before his
appointment and subject to a suspensive condition that the sale
be authorised by the Master in terms of S8Obis read with S18(3),
the Constitutional Court held that a legally binding sale came into
effect as soon as the Master's authorisation was obtained.

99
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Realisation of securities
S83
❖ Security in terms of a special mortgage, tacit hypothec, pledge, right
of retention.
❖ The creditor must, before the second meeting notify the Master and
the trustee in writing that the goods are in his possession.
➢ If such property consists of securities, a bill of exchange, a
financial instrument, or a foreign financial instrument, the
creditor may himself realise the property before the second
meeting of creditors in the manner and on the conditions stated
in S83(8).
➢ Other movable property may be taken over by the trustee at a
value agreed upon between the trustee and the creditor, or at the
full amount of the creditor's claim.
➢ The trustee must do SO within seven days after receipt of the
abovementioned notice or from the date of his appointment,
whichever is the latest.
➢ Should the trustee decide not to take over the property the
creditor may after expiration of the said period, but before the
second meeting realise the property by Public auction.
➢ Where no trustee has been appointed before the second meeting
the creditor may also, with the written consent of the Master,
realise the property himself.
➢ After realising the property, the creditor must pay the net
proceeds of the realisation to the trustee or to the Master and
prove his claim in terms of S44, whereafter he would be entitled
to payment out of the proceeds of the property, provided the
trustee or Master is satisfied that the claim was indeed secured
by the said property.
➢ However, where a creditor realised property held as security in
respect of claims That arose out of a "master agreement" in terms
of S35B(2), the creditor may retain the proceeds of the property to
settle his claim
➢ If the net proceeds exceed the value of the claim, the balance
must be paid to the trustee or Master, which amount will then be
added to the free residue of the estate.
o However, if the net proceeds are less than the value of the
claim, the creditor will be entitled to rank as an unsecured
creditor against the estate for the difference.
➢ Where the creditor has not realised the property before the
second meeting, he must, as soon possible after
commencement of the meeting deliver the property to the trustee
whereafter he may prove his claim and place a value upon the
property in terms of S44(4).
o The trustee may then, if authorised by the creditors, take over
the property (whether movable or immovable) at such value.

100
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.
 Pass & Prosper

Cases Van Wyk Van Heerden Attorneys v Gore N.O and Another 2023 (1) SA
80 (SCA)
Key Legal Issue
❖ The dispute centred on S26(1)(b) of the Insolvency Act 24 of 1936,
which allows courts to set aside dispositions made by an insolvent
estate to creditors shortly before sequestration.
❖ The respondents (liquidators) sought repayment of R1.525 million
deposited into the appellant attorneys’ trust account, alleging these
funds constituted dispositions liable to be set aside.

Court’s Reasoning
❖ The SCA highlighted that the attorneys had no knowledge the
deposits originated from an insolvent estate.
➢ The court distinguished between funds deposited with attorneys
acting as mere conduits versus fiduciaries.
➢ Since the attorneys were unaware of the insolvency, they could
not be deemed to have received the funds in a fiduciary capacity.
❖ The court reaffirmed that funds in an attorney’s trust account create
a standard debtor-creditor relationship with the bank, not a fiduciary
relationship with the depositor.
➢ This principle limited the attorneys’ liability unless negligence or
complicity in fraud was proven.
❖ The SCA ruled that s26(1)(b) does not impose strict liability on
recipients of insolvent-derived funds.
➢ Instead, it requires proof of unfair prejudice to creditors or
collusion.
➢ Absent evidence of the attorneys’ knowledge or collusion, the
deposits could not be set aside.

Outcome
❖ The SCA dismissed the liquidators’ claim, protecting the attorneys
from repayment obligations.
❖ The judgment clarified that recipients of funds in good faith, without
knowledge of insolvency, are shielded from liability under section
26(1)(b)

101
Disclaimer: These notes are provided by Pass & Prosper for free and are drafted by Pass and
Prosper tutors for their own studying benefit. These notes are not sold for profit and therefore,
there may occasionally be minor mistakes. In such an event, please contact the tutor to effect
the correction. Note we are in no way affiliated or a branch of the UP Law Faculty as we are an
independent service.