Grahamstown • 6140 • South Africa

FACULTY OF LAW • Tel: (046) 603 8427/8 • Fax: (046) 6228960

Web Page: http://www.ru.ac.za/academic/faculties/law

LAW OF INSOLVENCY
&
WINDING-UP OF COMPANIES

2011

PART-TIME LECTURER: ADV JOCK MCCONNACHIE

1 INTRODUCTION

1.1 Acknowledgement

This study guide is used with the permission of Ms Sarah Driver who compiled it and
presented the course previously. However, a few changes have been made to the
structure of the course outline.

1.2 Overview

The Law of Insolvency is a compulsory final year LLB semester course. The course
will facilitate a systematic study of the law of insolvency, focusing on the legal
principles which apply to insolvent individuals and corporate entities.

The purpose of the course is to familiarise students with the scope, procedure and
effects of insolvency and winding-up.

1.3 Credit value

10 credits

1.4 Assumptions of prior learning

Students would need to know and be able to do the following in order to benefit from
this course:
 Be capable of communicating in written and spoken English;
 Be capable of critically analysing and extracting relevant legal principles from
case law, legislation and other source material;
 Have a working knowledge of matrimonial property law and corporate law;
and
 Be capable of independent learning.

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2 OUTCOMES

2.1 Critical cross-field outcomes

It is intended that successful participation in the course will assist students in

developing the following competencies:
 Identifying and solving problems;
 Organising and managing themselves;
 Collecting, analysing and evaluating information;
 Communicating effectively;
 Participating as responsible citizens.

1.5 Intended specific outcomes

It is intended that students will be able to do the following on successful completion

of the course:
 Apply the relevant legal principles applicable to insolvency and winding-up;
 Communicate the legal position as well as their own point of view;
 Demonstrate an understanding of the procedural aspects applicable to
sequestration and liquidation.

3. TEACHING METHODS

A detailed course outline including a reading list (cases and relevant articles) and
bibliography are provided for this course. Students are expected to read ahead of the
next lecture in order to acquire a basic familiarity with the relevant topic.

There are no tutorials in this course and there are two compulsory lectures per week
for the duration of the semester, although students may be absent without leave for a
total of three lectures during the course.

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4. STUDENT ASSESSMENT

Specific Outcomes Assessment criteria Assessment tasks

 Apply the  Identify and  Class discussion

relevant legal distinguish and questioning
principles between the legal (formative)
applicable to principles  Problem and
insolvency and applicable to theory questions
winding-up insolvency and in test and
winding-up with examination
reference to (summative)
factual situations  Draft a legal
 Apply statutory opinion as an
and common law assignment
principles to (summative)
given
sequestration
and winding-up
issues

 Communicate the  Demonstrate the  Class discussion

legal position as ability to critically and questioning
well as their own reflect on what (formative)
point of view has been read  Problem and
and learnt with theory questions
reference to a in test and

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 given context examination
 Describe, explain (summative)
and argue the  Draft a legal
relevant legal opinion as an
principles with assignment
reference to case (summative)
law and
legislation in a
given context
 Critically evaluate
the current law of
insolvency and
winding-up with
reference to a
given context

 Demonstrate an  Describe and  Class discussion

understanding of explain the and questioning
the procedural statutory (formative)
aspects procedures  Problem and
applicable to followed in theory questions
sequestration liquidation and in test and
and liquidation sequestration examination
(summative)

The class work component for the course amounts to 30% of the final mark and the
remaining 70% comprises a two-hour examination which will be written in November
2011.

Students are assessed for the class work component on the basis of two tests each
of which counts 15% of the final mark.

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The dates of the tests and the prescribed work for each will be announced in due
course.

The test and examination will contain:

 problem questions which require the application of statute and common law to
solve practical issues; and
 theory-type questions in which students are required to define and describe
fundamental concepts in the law of insolvency as well as to explain and
critically evaluate the current law.

5. BIBLIOGRAPHY

The following book is prescribed for this course:

 Sharrock et al Hockly’s Insolvency Law (2006), 8th ed, Juta & Co: Cape
Town

This text contains the Insolvency Act as well as precedents of documents and
liquidation and distribution accounts which you will need to have at hand
throughout the course.

The following books are highly recommended and will be referred to during the
course:
 Sharrock et al Hockly’s Insolvency Law Casebook (1999) Juta Cape Town
 Meskin on Insolvency Law (looseleaf), Butterworths: Durban (This is the
leading work on the Law of Insolvency in South Africa. The full text is
available on the My LexisNexis database on the RU Library webpage
under electronic information resources.)
 Loubser Casebook on the Law of Partnership, Company Law and
Insolvency Law (1992) Juta, Cape Town
 Gering Leading Cases on Insolvency (1994) Butterworths, Durban
 Meyerowitz on Administration of Estates and Estate Duty (2004) The
Taxpayer CC, Cape Town

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 COURSE OUTLINE

TOPIC 1: INTRODUCTION
Hockly Chapter 1

1) Historical overview
2) Object of Insolvency Act
3) Core concepts – meaning of insolvency
- meaning of debtor
- meaning of estate
- concursus creditorum
- advantage of creditors

4) Jurisdiction of the court

5) Condonation of irregularities/non-compliance with formalities

Case law
Walker v Syfret 1911 AD 141
Miller v Janks 1944 TPD 127
Magnum Financial Holdings (Pty) Ltd (in Liquidation) v Summerly and another
NNO 1984 (1) SA 160 (W)
Ex parte Slabbert 1960 (4) SA 677 (T)

TOPIC 2: VOLUNTARY SURRENDER

Hockly Chapter 2

1) Who may be considered a debtor?

2) Meaning of - free residue
- advantage of creditors
3) Formalities/ procedural requirements
4) Effect of notice of surrender
5) Court’s discretion

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Case law
Ex parte Harmse 2005 1 SA 323 (N)
Ex parte Ford and others Case No 21084/0899 (see www.saflii.org)
Ex parte Alberts 1937 OPD 2
Ex parte Goldman 1930 WLD 158
Ex parte Barton 1926 CPD 252
Ex parte Van Heerden 1923 CPD 279
Ex parte Henning 1981 (3) SA 843 (0)
Ex parte Van den Berg 1950 (1) SA 816 (W)
Ex parte Logan 1929 TPD 201

Articles
Roestoff, M and Burdette, D ‘Premature publication of a notice of surrender of an
insolvent estate – is it fatal to the application? Ex parte Harmse 2005 1 SA 323
(N)’ 2005 (4) THRHR 681-686.

TOPIC 3: COMPULSORY SEQUESTRATION

Hockly Chapter 3

1) Requirements for sequestration

(i) locus standi of applicant
(ii) acts of insolvency

Section 8(a):
Estate Salzman v Van Rooyen 1944 OPD 1
Abell v Strauss 1973 (2) SA 611 (W)
Bishop v Baker 1962 (2) SA 679 (D)

Section 8(b):
Nedbank v Norton 1987 (3) SA 619 (N)
Rodrew v Rossouw 1975 (3) SA 137 (O)

Section 8(c):
De Villiers v Maursen Properties 1983 (4) SA 670 (T)

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 Nahrungsmittel GmbH v Otto 1991 (4) SA 414 (C)

Section 8(e):
Joosub v Soomar 1930 TPD 773
Laeveldse Kooperasie v Joubert 1980 (3) SA 1117 (T)

Section 8(g):
Court v Standard Bank 1995 (3) SA 123 (A)

Section 8(h):
SA Spice Works v Spies 1957 (1) SA 679 (T)

(iii) Advantage of creditors

Absa Bank Ltd v De Klerk and related cases 1999 (4) SA 835 (E)
Hillhouse v Stott (1990 (4) SA 580 (W).

2) Friendly sequestration
Craggs v Dedekind 1996 (1) SA 935 (C)
Esterhuizen v Swanepoel 2004 (4) SA 89 (W)
Epstein v Epstein 1987 (4) SA 606(C)

3) Application procedure – Notice to debtor

Stride v Castelein 2000 (3) SA 662 (W)

4) Court’s discretion
Amod v Kahn 1947 (2) SA 432 (N)

Articles
Evans, R and Haskins, ML ‘Friendly sequestrations and the advantage of
creditors’ 1990 (2) SA Mercantile Law Journal 246-251.
Smith, A ‘‘Cast a cold eye’ Some unfriendly views on friendly sequestrations’
1997 JBL 50.

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TOPIC 4: THE EFFECTS OF SEQUESTRATION
The legal position of the insolvent and vesting of assets of the insolvent

Hockly Chapters 4 and 5

Primary focus: which property/assets fall into the estate of the insolvent and
which are excluded?

The vexed question of insurance policies

Case law
Vorster v Steyn NO en Andere 1981 (2) SA 81 (O)
Warricker and Another NNO v Liberty Life Association of Africa Ltd 2003 (6) SA
272 (W)
Du Plessis v Pienaar NO and Others 2005 (1) SA 309 (SCA)
Love and Another v Sanlam Life Insurance Ltd and Another 2004 (3) SA 445
(SEC)
Shrosbree NO v Love & Others 2005 (1) SA 309 (SCA)
Brink v Kitshoff NO 1996 (4) SA 197 (CC)

Articles
Evans, R ‘Can an inheritance evade an insolvent estate?’ (2003) 15 SA
Mercantile Law Journal 228-236.

Evans, R and Boraine, A ‘Considerations regarding a policy for the treatment of

certain beneficiaries of life insurance policies in the law of insolvency’ 2005(2)
De Jure 266-294.

Smith, A ‘The protection of insurance policies from insolvency under Section 63

of the Long-term Insurance Act 52 of 1998’ 2000(12) SA Mercantile Law Journal
94-108.

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TOPIC 5: THE EFFECTS OF SEQUESTRATION (CONT)
Vesting of the assets of the solvent spouse

Hockly Chapter 6

Case law
Harksen v Lane 1998 (1) SA 300 (CC)
Chaplin v Gregory 1950 (3) SA 555 (C)
Janit v Van den Hever 2001 (1) SA 731 (W); 2001 (1) SA 1062 (W)

Articles
Evans, R ‘Release of a solvent souse’s property under section 21( 2) (c) of the
Insolvency act 24 of 1926’ 2004 (1) Stellenbosch Law Review 193-200.

Evans, R ‘A critical analysis of section 21 of the Insolvency Act 24 of 1926’ Parts

1 and 2 in 1996 (59) THRHR 613 and 1997 (60) THRHR 72.

TOPIC 6: THE EFFECTS OF SEQUESTRATION (CONT)

Uncompleted contracts

Hockly Chap 7
Case law
Ndima v Waverley Blankets Ltd; Sithukuza v Waverley Blankets Ltd 1999 20 ILJ
1563 (LC)

Articles
Hutchinson, D and Reid, F ‘The exercise of contractual rights or powers against
an insolvent estate’ 2003 SALJ 776-785

Pappadopoulos, S and Roestoff, M ‘ The effect of recent amendments to the

Insolvency Act and Labour Relations Act on employment contracts – a new era;
or is it?’ 2004 (67) THRHR 302-311

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TOPIC 7: IMPEACHABLE DISPOSITIONS AND VOID TRANSACTIONS

Hockly Chapter 12
Sections 26-31 of the Insolvency Act

1) Meaning of disposition
Wessels v De Jager 2000 (4) SA 924 (SCA)
2) Dispositions which may be set aside
Galaxie Melodies (Pty) Ltd v Dally, NO 175 (4) SA 736 (AD)
Section 26 - CIR v Bowman 1990 (3) SA 311 (A)
Section 29 - Paterson v Trust Bank 1979 (4) SA 992 (A)
Section 30 - Pretorius v Stock Owners Co-op 1959 (4) SA 462 (A)
Section 31 - Meyer v Transvaal Lewendehawe 1982 (4) SA 746 (A)
Gert de Jager v Jones 1964 (3) SA 325 (A)

3) Void transfer of a business

Ensor v Rensco Motors 1981 (1) SA 815 (A)
Gore v Saficon 1994 (4) SA 536 (W)

TOPIC 8: ADMINISTRATION OF INSOLVENT ESTATES/COLLECTION

OF ESTATE ASSETS

Hockly Chapters 8, 9, 10, 11, 13 and 14

1) Taking charge of the estate

2) The trustee
3) Meetings of creditors and proof of claims
4) Interrogation of the insolvent and other witnesses
5) The duties of the insolvent

Case law
Cooper NO v FNB 2001(3) SA 705 (SCA)

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TOPIC 9: REALISATION AND DISTRIBUTION OF ASSETS
Hockly Chapters 15-17

Focus on creditors’ claims and their rankings

Case law
Snyman v The Master 2003 (1) SA 239 (T)
Potgieter NO v Daewoo Heavy Industries (Edms) Bpk 2003 (3) SA 98 (SCA)

Articles
Knobel, I ‘The tacit hypothec of the lessor; Eight Kaya Sands v Valley Irrigation
Equipment 2003 2 SA 495 (T)’ 2004 (67) THRHR 687-697.

TOPIC 10: COMPOSITION AND REHABILITATION

Hockly Chapters 18 and 19

1) Automatic rehabilitation
2) Rehabilitation by court
3) Courts’ discretion
4) Effect of rehabilitation

Case law
Ilic v Parginos 1985 (1) SA 795 (AD)
Ex parte Hittersay 1974 (4) SA 326 (SWA)
Ex parte Parker 1946 CPD 536
Ex parte Goshalia 1957 (2) SA 182 (D)
Ex parte Porritt 1991 (3) SA 866 (N)
Ex parte Le Roux 1996 (2) SA 419 (O)

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TOPIC 11: WINDING-UP OF COMPANIES, JUDICIAL MANAGEMENT AND
WINDING-UP OF CLOSE CORPORATIONS
Hockly Chapters 23, 24 and 25

1) Winding-up by the court

2) Voluntary winding-up
3) The Liquidator
4) Interrogation
5) Liquidation and distribution accounts
6) Dissolution

Case law
ABSA Bank Ltd v Rhebokskloof (Pty) Ltd 1993 (4) SA 436 (1)
Rand Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345 (W)

See Companies Act 71 of 2008 for the important new issue of business rescue.
In particular, chapter 6 (sections 128-154).

These sections deal with the following issues:

Requirements for business rescue;
Commencement of business rescue;
Effect of business rescue;
The business rescue plan.

TOPIC 12: CROSS-BORDER INSOLVENCY

Hockly Chapter 26

Article
Smith, A and Ailola, DA ‘Cross-border insolvencies; an overview of some recent
developments’ 1999 (11) SA Mercantile Law Journal 192-209

ADV JOCK MCCONNACHIE

JULY 2011

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