INSOLVENCY

12 February 2024

THE LAW OF INSOLVENCY

- People who are not able to pay their debts.
Intro
- Natural debtors
- Distinguish between
o insolvency of natural persons
o and liquidation of juristic person
o s
- The person can be natural or juristic.
- Insolvency – a lot of provisions in companies act – insolvents in companies act.
o Insolvency act applies to the liquidation of companies where relevant.
 E.g. if one company pay debt of other company – go to voidable
disposition in insolvency act.
o Consequence of sequestration – pay creditor before sequestration – can set
aside that payment.
o NB TO TREAT CREDITORS FAIRLY – MUST SHARE EQUALLY IN
WHAT IS LEFT OF THE ESTATE
o Can’t choose to pay one creditor and not the other.
o Equality among creditors
- Very relevant to company law as well
- Two tier system
o Natural and
o Juristic persons
 WHY? Companies act [although passed and effective in 2011, retained
the liquidation provisions of the 1973 act provisions in respect of
liquidation]
 Nb to have one act that deals with all persons or entities [company,
close corporation, partnership, business trust, sole proprietor]
 Natural – companies act
 Companies – companies act
 Cc – insolvency act
 THE DIFFERENT ACTS ARE NOT YET CONSOLIDATED
- Companies act of 2011 applies to solvent companies’ liquidation.
- SOLVENT / INSOLVENT – determine which law to use.

- Capacity
o Even if major – capacity may be restricted under certain circumstances.
- Constitutional issues
o Even if married out of comm of property – poss for trustee to attach assets of
the solvents’ prop
- Common law
o If interrogation – btwn cred and debt – administrative action – what constitute
administrative action?
- “Administrative Action” – include any decision taken by organ of state or any failure
to take decision ***
WHAT IS INSOLVENCY?
- Inability to pay debts
- Can be insolvent in 2 ways
o Technical – Have assets, but your liabilities are more. The value of assets are
less than debt. If liabilities more, technically insolvent. either no assets or not
enough to pay debts

o Commercial - have the assets but not the cash flow. Assets may be more than
liabilities but have no cash. Need assets for business, or not easy to be sold.
Not really a market for the assets. Value can be significant but can’t sell it.
Cannot pay your debts as and when they arrive. Cash flow issue.

- Venter v Volkskas Bank

o We work with technical insolvency in this module
o Want to know how many assets and how many liabilities
o Court is only interested in what the state of assets are and the state of your
liabilities
o Even if can pay debts – not the test – the test is “are your assets less than your
liabilities”

- Options available for creditors?

1. As soon as someone can’t pay you- institute legal action- attach their assets -
sell assets
o Advantage: hierarchy of creditors
o If do not have security for claim – equal to all concurrent creditors
o Regardless when debt arose – not matter
 - first in time not relevant-
 Concurrent creditors – all equal – no matter when debt arose
 All fight for amounts
o If lucky as concurrent creditor – get very little
o MUCH GET INSOLVENT CLAIM AND HAVE PERSON’S ASSETS
ATTACHED.

2. Can take of person’s salary

3. Sequestration
a. all concurrent creditors

one of consequences of seq – if paid before seq- set aside the payment – will disturb payment
of other creditors

unless fraud involved – payment ito judgment cannot be set aside – payment is safe

distribution – not look at date of debt – as long as debt not prescribed – 10 year old debt same
as 5 y old debt.

Creditor friendly act

 Punish debtor for being sequestrated.

February 19, 2024

SARS v Hawker
- Sets out what must be done to be sequestrated

Trust?
- Trust not seen as a juristic person
- Despite resembles/ shows all characteristics of a juristic person
- Characteristics of juristic person?
o Profit motive
o Owns assets/ liabilities in its own name
Assets belongs to trust
= trustees [administer assets for benefit of beneficiaries.] assets not belong to the trustees
or beneficiaries.
Which act applies?
Sequestrate or liquidate a trust?

Magnum holdings case

 Question before court:
 Application for provisional sequestration
 Argument made – must be liquidated ito insolvency act
 Previous companies act – referred to ‘body corporate’ that
companies act apply to companies and body corporates
 Body corporate = churches, sports club, culture societies
 Nonprofit motive, but own constitutions
 Allowed to have bod corporate or jur person AS LONG AS
NOT PROFIT MOTIVE
 Question
 The trust deemed that the trust owns property
o Is it then a body corporate?
o Must then be liquidated?
 Trust shows characteristics of jur person, but is not
 THEREFORE insolvency Act applies

o NEW COMPANIES ACT – 2008 COMPANIES ACT

Melville case
- Has anything changed the magnum holdings case?
- Has the new act change anything?

- Argument raised – in companies act now – jur person definition = includes a trust
- Only in respect of COMPANIES ACT
 o ONLY WHEN DEALING WITH COMPANIES ACT
o Want to cover a trust eg holding company/ subsidiary
- If trust is juristic person = must be liquidated
o NOOOO
 In transitional arrangements the provisions of the old companies act
applies to the liquidation of insolvent companies
 The transitional arrangements in schedule 5 of new act states the
following:
 Ch 14 of the 1973 still applies to the liquidation of companies.
 It does not state juristic persons
 Ch 14 not apply to liquidation of juristic persons
 Therefore juristic persons and trusts cannot be liquidated but
must not be sequestrated.

What do you do with a solvent trust?

- Companies act or insolvency act?
o Insolvency act only deal with insolvent
o Company Act allows for dissolution of a solvent company

DIFFERENCE BETWEEN SEQUISTRATION AND LIQUIDATION?

Jurisdiction of Court

- HIGH COURT
o Deals with the state as a person
o Only high court have jurisdiction over state as person
o Normal magistrate court rules will kick in
 If fall in jur of magistrates court – mag court will have jur
 Declaration that sequestrated only be done by the HC
o Which court?
 Where Insolvent domiciled / place of business / has property
  Where lodge application as a creditor
 Determine domicile?
 Intention [circumstances and if have intention to be domiciled
in that place]
 If person has property?
 Fixed property easy - immovable property
 Property intangible = more tricky

Nahrungsmittel GmbH v Otto

A obtain judgment against B in Cape High Court

Winner gets cost order against loser
A gets cost order against B
A owes C money.
C wants to apply for sequestration of A’s estate
Goes to Cape HC
Does the court have jurisdiction over this case?
In this scenario, both in Europe. One in jail
Court states that this right that A has against B is a personal right
Attached to the person of b. Wherever B is, that court will have jurisdiction.
Not where A is. B owes A money.
Attached to the debtor.
With shares it is different. Property situated where the security’s register is
With companies different – share is personal right against company as shareholder, not attached to you as
shareholder where you live. Where security register of the company is.
Must be at the main place of business.
The act also provides that if have ordinary place of business or conducted place of business in courts
jurisdiction, or have domiciled in the in the jur of the court in the previous 12 months, that court will also
have jurisdiction.
Practical issue – conflict / concurrent jurisdiction
- Domicile in one place
- Assets in other city
- Worked or lived in other city in previous 12 months
- Therefore 3 options.
Court: what will be the most beneficial for the creditors
Look where majority of the creditors live
Or where is the majority of the assets [will have to have an auction]
Essence – most convenient for winding up of estate?
Not necessarily care where the insolvent live.
TOPIC 2: VOLUYNTARY SURRENDER

Sequestrated in 2 ways:
- Debtor [You yourself] do it [voluntary]
- Creditor brings the application [compulsory]

Why apply for own sequestration?

o Onerous process
o Reason: you are tired of receiving letters from creditors and asking for extensions
o Continuously defend against applications and summons
o If act allow – apply by yourself
 o Multiple creditors who all demand / threaten for payment

Creditor
o Very little benefit for creditor to apply.
o Only concurrent creditors apply

If debtor can’t do this, agent with authority can do this on behalf of the debtor
Cannot be a general power of attorney

General Power of attorney

if client goes abroad – nominate person to do anything on that person’s behalf . can do
anything including litigation
bringing litigation or defending litigation without consulting

Sequestration goes to status of a person

then need specific authority
then general authority does not suffice

o Marriage in community – must be both – one spouse cannot bring application on his
own. Must be both spouses

partnership S13
o If partnership is sequestrated – estates of each individual partner must also be
sequestrated.
S3(2)
o If a partnership apply for sequestration – must be brought by every partner in the
country
o Must have specific authority if have general power of attorney
o
o Hawker case – court only sequestrate with people with whom it can sequestrate
o If abroad, cannot do sequestrate the partner

21 February 2024

REQUIREMENTS FOR APPLICATION

o Req more onerous [more difficult] when debtor themselves apply for sequestration.
o Policy reasons in itself makes it more onerous for the dt.
o Dt tries to escape their debts and should make it as difficult as possible to have seq as
magical fix.

o Substantive and Procedural [formalities]

o S6 substantive requirements
1. Dt must be insolvent.
 Assets < liabilities
 Ex Parte Deemter
o Assets was more than the liabilities
 o Court nevertheless sequestrated the estate
o Debtor could not sell its estate
o Court inherent discretion still seq estate – cash flow
problem
o If get professional auctioneer – will be able to sell assets
much easier
o Test is technical, but court always has a discretion.
 Ex Parte Harmse 2005 (1) SA 323 (N)
 Cannot inflate or underestimate the value of your assets
 Have a sworn evaluator that evaluate your assets
 Have form of objective evidence of the value
 Liabilities are easier – monthly statements of creditors

2. Sufficient assets in free residue for sequestration costs

 Sequestration costs – trustee must be appointed and be paid.
 Trustee paid first out of free residue
 S 2 definition of “free residue”
o ‘free residue’, in relation to an insolvent estate, means that
portion of estate which is not subject to any right of
preference by reason of any special mortgage, legal
hypothec, pledge or right of retention
 Eg bought house woth 1.7 mil. Borrowed 1.7
mil from the bank to finance purchase of the
house
 Everything not subj to right of preference.
 Bank has mortgage over the house.
 Cannot take 1.7 as part of estate.
 If paid off 1mil of debt to bank and market value
is 1.7. still owe 700 000. 1 million is
unemcombered and part of residue.
 Value is still 1.7
Nieuwenhuizen v Nedcor Bank
o Couple married in community of property
o Nedcor said that the couple is not insolvent
o Nedcor not bring evidence to the contrary either
o Applicant show that evaluator showed there is enough
money
o Nedcor could not disprove it
o No reason to doubt application of couple
o Have to bring witnesses.
o Court on balance of probabilities must decide which
version more direct.
o Not need to believe creditor, just because the creditor is
intervening
 Ensure that creditor not become liable for sequestration costs
 Debtor has to show that there is enough money to pay all these
people .
 3. Sequestration must be to advantage of Ct.
 How prove that advantageous?
o There must be a financial benefit.
o Ct must show there is reason to believe that there are some
benefits.

Procedural requirements [formalities]

o S4 – you as debtor must before bring application to court
o First publish in gov gazette and in newspaper.
o Where principal case of business is. Give notice to creditors. Creditors should
be aware of your intention to bring application for your sequestration.
o Notice grant opportunity to creditors to intervene / oppose sequestration or not
o Not more than 30 days and not less than 14 days before application
o As soon as published – stop all sales and execution.
o Debts become unenforceable.
o Therefore, here is a abuse
o Voluntary surrender in august – payment holiday for months – therefore only
valid for a few days
o Debtor must not be able to abuse process.
o FOLI or FOLO.
1. Not count the date of publication but do include the court date.
2. Excluding weekends
o Ex Parte Trollip

o Newspaper?
o Think about the purpose of the publication.
o Why must publish notice?
o Intention: notice must reach all creditors so that they are aware of you
intention to apply for sequestration on certain date.
o Doesn’t satisfy the intention behind the publication. Not any newspaper, must
speak to the general public. Eg cannot be the Worcester Standard.
o National newspaper like rapport, Sunday times, die burger, business day[not
because only certain people interested]
o Ex Parte Goldman
1. Community newspaper only in Hebrews
2. Was weekly but not speak to general community
3. Debtor published in his notion in thant
4. Court: not satisfy requirement for newspaper

o Smith
o Once published, must provide copy to all creditors whose addresses you know
o Email will suffice
o Employee is also a creditor

What if do not comply?

 x Not notify, or not correct amount of days, or forget about SARS

When / should the notice be defective because of non-compliance with the formalities
Is it fatal if did not comply to a formality?

S157(1)
o Lesser-known sections of the act
o Harmse case
o Provides: nothing done under act will be invalid by reason of formal defect or
irregularity unless substantial injustice has been done that a court states that
cannot be rectify by order of court
o Amplify importance of this S
o Section neglected prior to Harmse case.

o Context dependent whether formality or substantive

o Notice period = formality
o Something stated = substantive

NOTE: MUST BE FORMAL DEFECT, NOT SUBSTANTIAL

Oosthuizen case
o Non compliance with 30 days, court could not condone it
o court didn’t look at S157
o reason does not look at S157  if look at S4 provide:
o The notice shall not be published more than 30 days, or less than 14 days
1. SHALL NOT BE  uses peremptory language
o Inherent tension between 2 sections of act
1. Broad discression of S 157, BUT S4  you SHALL NOT PUBLISH …
days…
o How will you as judge go about tension?
o Can you reconcile the two?
o If there is conflict  which takes preference?
1. One is general, one is specific…
2. S157 is general in nature, S4 is specific…
o S157 at end, in terms of structure, maybe indicative while knowing what said
before? Preference to what stated later?
o Court:
o Must look at language of s4 in context of S157, and the rest of the Act
o 1. Was this non-compliance with a formality?
o 2. What was the intention of the legislature when it drafted S4? Primary purpose?
o Creditors must be enabled to oppose the application.
o Creditors may not be prejudiced, therefore they have to receive notice of the
debtor’s application.
o Attachment orders, judgment debts etc is extended by this
o Find balance between abuse by debtor and rights of creditors
o Court look at its discretion ito S157, what should court take into consideration
 o If 32 days, gave notice, but contravention is not that serious… 2 days…
o When was 32 days, how much harm is there, versus a creditor receiving no
notice.
o Look at level of non-compliance
1. Vast distinction
2. Not only look at number of days, can deduct from notice what debtor
tried to do?
good faith publication or want to disturb the creditors
3. Give creditors opportunity to inspect status of affairs
4. Determine the correct value, did debtor just make up values? Are
evaluations rational/ well thought through?
5. Seek legal advice
o What was the prejudice
1. S157 “… unless substantial injustice has been done”
 Cannot be remedied by order of court : no notice.
 Nice tool for judge if there was non compliance
2. Cannot only look at s4
3. Intention of the legislature
4. If the irregularity cannot be fixed – cannot be condoned

Lodging statement of Affairs

o Must make statement to
o Must lie open for 14 days.
o In notice in GG and newspaper will state: “my statement of affairs will be
open from [date] to [date]”
o Start looking at what the insolvent or debtor is disclosing to determine
o Statement of affairs is done under oath
o If debtor lie [about value/ nature of assets] – could be perjury
1. Cannot thumb suck value
o “From day 16 until court date, my statements will be available for inspection.”
1. 14 days are the absolute minimum
2. Creditor may determine whether debtor’s assets are correct
o Must list every single thing? E.g. pencils
o Assets of value
o When does value start?
 What can at an auction be sold for value?
 2 pens are negligible… but 1000 pens can be sold in bulk… therefore
disposable. Value them as a collective. NB to get an appraiser.
o If benefit has vested,  then an asset

NOW NOTICE IS PUBLISHED

FNB case
o Abuse of process
o Suspends sale in execution.
o How would auctioneer know?
o Arrange that creditor has obtained judgment.
 o Attachment order
o Creditor got auctioneer.
o Publication of notice for voluntary surrender
o If delivery has taken place and the purchaser has done purchase in good faith –
the sale will stand.
o Otherwise, it is unlawful – if sheriff knew that the auction shouldn’t continue,
but purchaser bought in good faith and delivery done = purchaser is protected
o Only owner when given into hand.
1. Ownership perfected.
o Delivery not yet taken place – purchaser not protected.
o Be mindful of day/ time entered into contract and the delivery.

Purpose of Statements

Withdrawal of statement
o Ex Parte Viviers
o When applcation for voluntary surrender, but opposed by creditor
o Creditor raises 2 points in limine
1. Notice not properly withdrawn [previous notice of surrender]. The D
applied 3 times previously for voluntary surrender. 2 times do not pitch
at court. 3rd time court rejected the application. Argument: because
notices never withdrawn, this application cannot now go ahead. This
current notice must be void. Acc to creditors there are still previous
notices of surrender hanging.
o Has it not lapsed...? if something has lapsed, how can you withdraw it ?
o Something that has lapsed cannot be withdrawn

2. Res iudicata. Debtor used the same statement of affairs in this

application than in previous application, especially one where
application was rejected by the court. There is res judicata – the
court / judge has spoken, cannot bring the same case to court. Once
pronounced on matter, cannot come back again.
If assets and liability remain the same, why cannot use it?
Statement of affairs that was lodged previously was not the reason why previous court
rejected the voluntary

Both points in limine rejected.

Debtor want opportunity to withdraw notice

- Not want him to be able to withdraw at a whim
- Not want debtor to withdraw notices just to publish and withdraw and publish etc etc
etc
- Must be good reason to withdraw
 - Master has consent
- Act further provide  debtor does not pitch
o Court grant application
 Becomes irrelevant, notice disappears
o Court rejects application
o Debtor does not pitch on date / in 14 days thereafter
o Debtor withdrew the notice

- When can a debtor withdraw

o On good cause shown to Master
o Debtor must publish withdrawal in GG and where originally published
o Good cause / good faith
o inherit money that would cover your debts
o Good Samaritan pitched to pay all your debts for you
Ex parte Ford
- Interaction between Insolcency Act and National Credit Act
- Court has inherent power to refuse an application
- Court has a discression
- Interaction between Insolvency Act and National Credit Act
o Nb aspect of credit act
 Regulation of reckless credit
 Power of court to suspend reckless credit agreement
- No creditors opposed the application for voluntary surrender.
- Corut rejects the application on its own.
- Court looks at following:
o D could used the mechanisms/ provisions of nat credit act [review and restructuring
of “skuld”]
o Other Remedies in Act in stead of sequestration
o Sufficient evidence of the possible granting of credit which was reckless
- Applicants not open to court – not state to court how got credit and why not use National
Credit Act.
- If judge conclude that not being honest or are hiding something. Court show displeasure by
rejecting the application.
- Debtor MUST be open and Transparent and Disclose all material facts.

Has the National Credit Act become an additional ground for a Debtor to overcome?

- Remedies of National Credit Act not attractive to a case.

- Where there are credit agreements entered into, especially if reckless
- Inherent discretion of court
- National Credit Act
 COMPULSORY SEQUESTRATION

• Is application in terms of Rule 6 of Uniform High Court rules – notice of motion

• Investec Bank v Mutemeri 2010 (1) SA 265 (GSJ)
• Naidoo v ABSA 2010 (4) SA (SCA)
• Both cases indicate that purpose not really to enforce a debt but to bring creditors
together and achieve orderly distribution of assets

Purpose of sequestration – orderly distribution of the estate’s assets.

Not debt-enforcing mechanism
Appoint someone to take control of assets and liquidate the assets
Partially debts are extinguished, but not main purpose

Requirements for application

- Creditor must have locus standi
o R100 liquidated claim or combined liquidated claim of R200
o Claim must be pecuniary
o Liquidated claim?
 Liquidated – monetary, fixed amount or easily ascertainable. Claim for
damages in delict not a liquidated claim. Or delivery of a vehicle.
 Includes provisional judgment
 Strange…
 VBS cases
 Curators appointed to investigate the fraud that was
committed.
 Billions that was stolen
 Actual amount directors was due – not entirely certain yet
 Court was more generous and liberal in interpreting a
liquidated claim.
 Amount was > R100
 Even if amount due to debtor is in dispute, but obvious that
above R100
 More purposive interpretation for what constitutes a liquidated
claim
 Can put anything in dispute in delict claim
  Distinguish those 2 scenarios

Debtor commits act of insolvency

- Difficult to prove insolvency
- Legislature creates 8 acts of insolvency to assist CT
- Creates rebuttable presumption that DT is insolvent
- ABSA v Chopdat
What can Ct do to prove insolvency of Dt?

- S8(b) creates 2 acts.

o Execution order served on debtor, and he cannot satisfy / cannot indicate
sufficient disposable assets.
o Not served on DT and sheriff does not find sufficient disposable assets.

- Try to rise technical points before fight merits

- Sheriff did not make any attempt to find the debtor
- No allegations as sheriff
- Once sheriff find debtor – demand payment – no payment – demand assets enough to
settle debt- sheriff 2 choices
o – look at disposable property and not think assets can be sold to raise enough
funds to pay debt
- If you are creditor
o Sheriff not attach assets or held auction
o Dt states assets were enough – sheriff too lazy
o Onus shifts to Ct – state If look at assets – was not enough – Ct now must put
value on assets that the sheriff found
o Onus shifts to Ct to show insufficiency of assts
o Strategic perspective – want auction to be held to show that assets not enough
to cover judgment
o Much more clever to attach assets than sheriff stating assets not enough
- If personal service by sheriff not possible  can go to (ii)  try to serve order but
could not find debtor
- Looked for assets, not find assets  Rather hold auction and not sell enough.

- Sheriff not have a choice

o Must find debtor wherever it would be possible
o Not have election between the two
- Service at dwelling / workplace not required
- Burden of proof on creditor
- De Wet v Le Riche
o Deputy sheriff searched for assets
o The main sheriff signed that not found assets
o Was defective
o Defective nulla bona
o Must be person who looked for debtor must sign
o One person cannot look and the other person sign
 - Disposable assets?
o Sheriff say could not find movable property
o States that looked for movable property, but no statement of immovable
property
 Defective – must look for all property
o Must state that looked for ALL categories of property

- Movable and Immovable property

o Could extend to intangible assets
o Shares does not have to be registered in the owners name in the company’s
security register.
- Immovable property under mortgage?
o The asset / property is not disposable
o Sheriff will state that found house, but not disposable because under mortgage
with bank X
 Unless the bank is the one instituting the claim
 Holder of the security

S8(c)
- The Dt makes (i) disposition or (ii) attempts to make disposition which prejudices CT
or prefers one CT above the rest
o To make or attempt to make disposition
o Effect: all creditors will be prejudiced, or you are preferring one over the rest
 Pay one creditor above the rest
 Make donation to someone, that is not a creditor – prejudices the
creditors
 About to sign contract and creditors are aware of this
 Difficult to know if person is attempting to make a disposition
 These are dispositions
 Actual disposition much easier to show
- Intention is not relevant
o If choose to pay X instead of other Ct’s
o Intention of Dt not important – court not interested in why made disposition
o Only care what is the effect of the disposition
o Aware of attempt – will not get interdict
- Objective test used
Section 8(c)
DISPOSSESSION
- Dt makes i. disposition or ii. Attempts to make disposition which prejudices CT or
prefers one CT above the rest
- Intention not relevant
- Objective test used
- Tend to think of physical property
o Property beyond tangible assets – can be intangible
- Not only disposition
- but also ATTEMPTED ABANDONMENT.

How do you abandon property?

- Technical meaning:
o Unilateral act
o How abandon intangible assets?
 Have Dt that owe you money – personal claim for R1 000 vs person –
asset in estate – prescribes in 3 years – not do anything to claim the
money – 3 years pass – do no claim the money – abandon right to
claim against Dt – act of insolvency – literally ito definition of disposal
– disposed of property because failed to follow up on claim against her.
o Vehicle
 Parent buy you a vehicle – put in parent’s name
 Name is in the guardian but you are the owner
 The person who brought vehicle is insolvent
 How prove owner without saying that actually just want to mislead
insurance company?
 How prove ownership
 Was there transfer of the vehicle?
o Shares
 When have shares in private company
 Must restrict transferability of shares
 1. The board must consent to whoever you want to sell your shares to
 2. Right of preemption
 Agreement that will offer shares to fellow shareholders first
 If party act in good faith

 Smuts case

 What is the meaning of transfer of shares

  Whatever definition is given to transfer, There is a restriction
on it
 Judge Cameron
o Contract of sale / donation / bequeath shares
[underlying causa is transfer]
o Cession  meeting of the minds. Share is not tangible.
When have physical object – ownership passes  but
with shares no physical paperwork  paper is not
creating the sale  meeting of mind
o Shares certificate merely evidence of your shareholding
o Right exist independently of the share certificate – if
lose certificate, still have ownership.
o Use agent when have company shares
o Name not mentioned in the register
o No one knows that you have shares
o To the public and the company the person you nominate
is the owner
o Whoever’s name is in the register is the person with
whom the company deals.
o Why would company only deal with person mentioned
in the register
 Owner’s name is nowhere – remain anonymous.
o Take risk to put shares in someone else’s name – the
business pays into the nominee’s account – not the
company’s problem to solve if nominee steals money
o Register transfer takes place – judge Cameron
 Even though still owner – someone else is the
rights holder
 There has been a transfer

o SHOW DISPOSAL & PREJUDICE TO CREDITORS

 Can dispose by changing agent
 Really difficult to prove
 Tricky to prove act of insolvency
 Not think of property in sense of physical assets

- Not the same as transferring ownership rights – e.g. donation

- Transfer involves 2 people

Section 8(d)
Removal of property
More difficult to prove because must show intention
REMOVAL [Not work with disposal]
DISTINGUISH abandonment with disposal
Removal is not the same as dispossession  intention is different
DT i. removes property or ii. Attempts to remove property WITH intention to prejudice
CT / prefer one above the rest

- Requirements:
1. Removal [easy to prove]
2. Intention of the person when removing property [difficult to prove]
- Simply want to hide the assets, not want to abandon it

- How determine if have intention to disadvantage creditors

o Tell Ct to hold the painting of Picasso
 Not transfer to Ct
o All creditors are prejudiced, but the receiving creditor not benefitted, because
cannot sell or keep the painting
- Cannot prove that disposed of it – but can prove that removed it
o Was in place A, and now not in place A anymore
- Removal is fairly straightforward
o Intention problematic

Property
- Tangible property:
o There was removal
o Determine intention?
o Easier to determine removal
 Take from one place and move to somewhere else
 House? Asset is not the house, cannot remove an immovable object.

- Intangible?
- Share / liquor license
o Smuts v Booyens
 BEFORE SMUTS
 If change nominee , or change my name to someone else’s
name  get an agent  removal of property
 AFTER SMUTS
 NOT REMOVAL  DISPOSSESSION
- Restaurant license
o Reregister in agent’s name  still owner removed right ?
o Putting in someone else’s  problem  if Smuts example of what happens to
intangible rights – removal not only removal, but transfer.
o If too much noise in bar – agent will be dealt with

• S v Levitt iro “remove”

• Is a disposition a removal?
• Able to move from one place to another
• Some impossible to move
• Intangible assets
 • Is a disposition in terms of section 2 a removal?
• When is transfer [disposition]
• Eg various licenses  if changing name constitute transfer or removal
• Shares = transfer not removal
• Would the act of insolvency then make sense?

QUICK RECAP
To what extent does disposition difre from removal
- Intangible asset – how removed?
- How remove immovable property?
Removal of immovable is ONLY through disposition
Shares  prior to 2000 the legislature not thought that changing share register of the
company [replace one name to other name - agent] results to transfer of the property if
change the name. transfer of rights or shares. Transfer is included under disposition therefore
cannot be a removal .
Be careful where dealing with property / removal/ disposition

If hear that Dt make donation to 3rd party – in application state that disposed of property by
means of dfonation to 3rd party – must only show effect thereof.
Tehre is value change in estate
Not disposition – just removal
Never donated

Confronted with [esp donation] – must prove was a disposition and not a removal
If it was a removal – BURDEN OF PROOF IS HIGHER – not show effect anymore – must
now prove intention

8c and d can pose challenges ito burden of proof – especially donation and removals

S8(e)
• DT settles or makes settlement offer
• Laeveldse Koöperasie Bpk v Joubert 1980 (3) SA 1117 (T)
• Admission that cannot pay

- There is a settlement between Dt and Ct, or Dt makes a settlement offer.

- 2 forms
o Settlement offer – I owe you 1 000 , say I will pay 900 cash. Offer to pay less
than what owe, but actually going to pay.
o Want to get money for months, state to Ct that will only accept 900 – offer
from Ct  therefore he cannot make offer to settle debt and run to court to
have Dt sequestrated
o If this act of insolvency – not have to be brought by this specific creditor –
other creditor see this settlement – thinks the debtor is insolvent – can take
 him to court for sequestration because he has settles with another creditor for a
lower amount.
o His hands are still clean – who made offer and who implemented the
settlement agreement

- Laeveld Koorporasie
o Even if 3rd party pays the settlement agreement – still act of insolvency.
o VERY NB – THIS SETTLEMETN OFFER MUST SHOW A INABILITY TO
PAY, NOT A REFUSAL TO PAY.
o Must be because CANNOT pay

o If dispute amount of debt, but tired of harassment  not worth fighting about
 pay 900  dispute the amount  therefore not showing an inability to pay
1000  truly just dispute that that was the incorrect amount.

o MUST DISTINGUISH BETWEEN INABILITY TO PAY AND REFUSAL

TO PAY
o DISPUTE AMOUNT DUE – WILLING TO PAY JUST FOR CREDITOR TO
GO AWAY – NOT AN ACT OF INSOLVENCY. IF DISPUTE NOT ACT OF
INSOLVENCY
- IF WANT TO PAY THE DUE AMOUNT IN A LUMP SUM
o The contract state that must pay the amount in one lump sum  can pay 1 000
a month? = make settlement offer – not in line with contract  act of
insolvency
o Try to negotiate different than what agreed upon
o Is this inability to pay, or is there other reason for making offer to the creditor?

S8(f)
- DT publishes notice of surrender; does not lodge statement of affairs; or statement
materially incorrect; or DT does not arrive at court
- Distiguish 3
- Over and above that, notice have not lapsed. Creditor must satisfy a number of things
o No statement of affair
o Or
o One lodged but materially incorrect – info that would inform informed
decision whether tooppose application or not
o Or
o On day of the application the Dt does not pithc
- Dt did not ask Master’s permission to withdraw
o Msut be in court – not permiison – not appear – still live application
o If 14 days expire – the notice lapses
o If do not – notice of voluntary surrender lapses
- S8f – if rely on this section  must be aligned with notice
- And 14 day period
 - Will be in court for application on X March 13, 2024
o By 27 march notice expires
 You as creditor brin gapplication based on this acto of insolvency
before 27 march – because after this date it lapses
- Difficult to rely on – not know if going to pitch on 27th or not
o See if there is application
- Difficult for creditor to rely on this
- If no statement of affairs – tehre is no statement – or if statement of affair not provide
for asset – know that dt does own assets
o KNOW MATERIALLY INCORRECT
- Not pitch at court on due date = challenging

S8g
Unable to pay debtor
- Give written notice that can’t pay
o Requirement = must be in writing
o Cannot be verbal
o Must be clear that cannot pay
o Refusal to pay / disputing the amount is not admission of inability
o When the debtor writes to creditor that cannot pay  look at language used.
o Craft letter in language that indicate that you are disputing the amount or that
there is other reason why you are not paying the amount
o Steer clear of language that unable to pay. Look at language that you use
o How would reasonable person understand this letter>
o There are indicators
 If ask for postponement  mean that not have the means to pay =
insolvent
 If you ask to pay in instalments  actually should be paid in one go –
shows insolvency
 Unwillingness to pay not same as admittance that cannot pay.
 If another creditor find out that made statement
 Other creditor that want ot apply for sequestration can also rely
thereon.
- Objective test

- If have mechanisms available for national credit act

- Debtor – all debt from credit agreement – applies for debt review ito National Credit
Act and restructuring payments to credit provider
o Constructively say that cannot pay them.
o Admission that cannot pay

COURT STATES NOT AN ACT OF INSOLVENCY

UNDERLYING DEBT MUST HAVE AROSE UNDER A CREDIT AGREEMENT
APPLICATION FOR DEBT REVIEW IS SETTLEMENT OFFER
EARLIER ACT OF INSOLVENCY WILL BE USED.

MSUT BE A CREDIT ACT TO BE ABLE TO USE NCA.

S8h
• Trader who gives notice ito sec 34(1) and can’t pay debts thereafter
• Sec 34(1) notice if sale of business/assets/goodwill and not in ordinary course of
business
• Have shop and sell various produce
• Dealing with people / persons under insolvency act. Natural persons, not
companies
• Have daily sales to customers
• Sell all assets in shop – not ordinary course of business
• Ito s34 – publish notice in GG that selling of assets
• MUST PUBLISH NOTICE
• If publish notice that disposing of assets out of business  accelerates all
payments due
• As soon as publication that going to sell assets out of business –
activate all debts
• Suddnely creditors can demand payment immediately l
• You are selling all business assets – they cannot have relief – nothing
to attach anymore
• Accelerates payment
• Not willing to publish this
• Unwillingness to publish by DT

• SA Spice v Spies
• Court states that even if debts due and payable after notice and debtor does
not pay – it must be because debtor cannot apy
• Unwillingness to pay not same as inability to pay
• Must look at the language the debtor use – admission of inability to pay or
simply refusing to pay ?
• If the amount in dispute = DEBTOR’S DEFENCE.
• Be careful about language

Advantage for creditors

• Reasonable prospect suffices
• Must be financial benefit
• London Estates v Nair
• Read: Cohen v Jacobs and Van Rooyen v Van Rooyen

The fact that can be administered – not have to be immediately ***

• Stratford v Investec 2014 ZACC 38

• S 9(4A)
• Def of employee
• Constitutionality
• Peremptory language?
FRIENDLY SEQUESTRATION
• Easy way to abuse process
• Van Rooyen v Van Rooyen and Epstein v Epstein
• R v Meer 1957(3) SA 616 (N)
• Van Eck v Kirkwood 1997 (1) SA 289 (SEC)
• Dunlop Tyres v Brewitt 1999 (2) SA 580 (W)

IF DT and want to seq self – very cumbersome – get a family member to apply for you or
friend
Write an email to brother/ sister/ friend and state ‘that loan you loaned me – I cannot pay you
back ’
Friend appl y
Act of insolvency
You get a friendly creditor to apply for you
Creditor can intervene and ask for proof of this debt
Only make-belief?
Courts careful where close relationship between Ct complying

TOPIC 4
THE EFFECTS OF SEQUESTRATION

4.1 The Legal position of the insolvent

Capacity to Act
• Capacity to act restricted to a degree
• Eg insolvent [s23] – assets belongs to the insolvent estate  cannot enter
agreement that would be prejudicial to the estate ie disposing assets.
• Property includes conditional rights. Not only includes rights that has vested.
• Sec 23(1) all property belongs to insolvent estate
• Sec 23(2) no disposition from estate

• Insolvent requires consent of trustee for prejudicial contracts / contributions ito

sec 23(5) prejudiced
• Must obtain the consent of the trustee
• Conditional rights  the intermediary hold the property for the eventual
beneficiary. This beneficiary has right to one day enforcre this right. Eg
grandparent leaves asset to grandchild, but in mean time held by the parent. If
dissolve  belongs to the grandchild. Grandchild has contingent right.
• What can do with contingent right? CANNOT dispose of this right. Included
as property.
• Property = movable or immovable property, INCLUDING contingent rights,
BUT NOT the contingent right of the fide commisionary heir.
• Would assume that fidei commissary heir is free to dispose of the
contingent right, because specifically excluded from the clause.
• Will be seen as a disposal
• Insolvent would be seen as to have disposed of the asset
 • THE COURT ERRED, BECAUSE LEGISLATION
EXPRESSLY EXCLUDES fch.

• Income is usually excluded from the estate

• Life goes on for insolvent  must still pay school fees, daily needs
etc.
• Therefore builds up second estate from income that make in the
meantime.
• INTERMS OF 23(5)
• If earn A LOT OF MONEY – Master can state that you have to pay
surplus. Only need X amount for basic needs, and what is left will be
attached for the creditors.
• Not all income necessary for your upkeep.
• When give up surplus income – insolvent cannot enter agreements that will
influence the surplus
• Needs consent of the trustee
• Enters into agreements where you need consent
• Enters agreements where not need consent
• Contract for employment. Insolvent can sign.
• Mere fact that the insolvent may enter into agreements without the
trustee’s permission does not mean that if there is a breach of contract
by other party to agreement, that the insolvent will be able to enforce
the contract.
• Cases state unless insolvency act give insolvent the power to
enforce – in all other cases the trustee must permit.
• Usually the trustee enforced, unless the insolvency act gives
power to the insolvent.
• Signed by insolvent, but the insolvent did not have permission?
• Not make sense to make contracts void
• Could be insolvent good salesperson and sold assets for
much more than what eth asset is actually worth.
• Was this sale beneficial to the estate or not?
• Trustee has a choice whether to stick to the contract or not.
• Contract is voidable at the election of the trustee
• Trustee will look at the facts, value of asset, and make a
determination if it was a beneficial agreement by the
insolvent.
• If was a contract of sale  look at 3rd party
• Sold assets from insolvent estate to innocent 3rd
party  sale  3rd party paid  do we protect
3rd party or creditors?
1. Weigh up the interest of the respective
parties.
• Legislature seeks a compromise in s24(1)
1. Must be a bona fide purchaser
• Not know of seq
2. Must be an asset acquired after
sequestration
3. Must be a sale [cannot be a donation]
4. Must be for valuable consideration
 5. Cant simulate donation by pretending it
to be a contract of sale
6. The price must be related to the value of
the asset. Cannot just be any
consideration.
7. If sold for R100 clearly a donation
8. Cannot have hard and fast rules when
simulation becomes a true sale
9. If exchange asset, and then sell  that is
not a new asset – only substituting old
asset with a new asset.
10. Inheritance will be a new asset that did
not have before.

• Contracts that are allowed are valid and binding

Effect of prohibited contracts?

• Voidable
• WL Caroll & Co v Ray Hall Motors (Pty) Ltd 1972 (4) SA 728 (T);
• Sec 24(1) protection for bona fide purchaser
• Must be property acquired after sequestration

Freedom of economic activity

• No interest in the business of general trader or manufacturer without consent of the
trustee and may not be employed by general dealer/manufacturer without consent of
the trustee
• Do not know what indirect business is with manufacturer or trader
• Need permission to work for a manufacturer or a traded
• Must be a general dealer
• No written consent = criminal offense.
• Employed by?
• R v Joffe
• J worked for his wife but she did not pay him
• Argument: it was not a crime because he was not paid by his wife.
• Court: NO – payment is irrelevant. Simply being employed suffices to
contravene this section.
• As long as employed.

• by general dealer/manufacturer?
• S v Van der Merwe
• A general dealer is a person that deals in one specific spot in a variety
of goods.
• Eg is Takealot general dealer? in 1930 not think of.
• Working for general dealer, no matter how small your role  may not
• But you can eg open a restaurant, butchery, stationary shop etc. WITHOUT
CONSENT
• Makes no sense.
 Need commission of trustee to work for a manufacturer or general dealer

Effect on locus standi

• Retains locus standi for status matters and what does not affect estate
• E.g. divorce  not need the trustee
• Can appear in court and appoint an attorney for status issue
• Defamation and personal injury
• Can act in own name, not trustee who institutes legal action for defamation.
• Claims for services rendered
• Can enter into contrafcts of employment in own name
• Reversionary right in estate
• If trustee not administer assets correctly
• Have reversionary right – institute action against trustee or 3rd parties
• Not lose all rights  certain rights will remain ineffective

4.2 Effect on the estate of the insolvent

Introduction
• Remember purpose of sequestration
• Sec 20(1)(a) – being divested of estate
• Fourie v Edkins 2013 (6) SA 576 (SCA)
• Insolvent retains personal right in estate

Property in insolvent estate

• Sec 2 definition of property
• Includes contingent rights except rights of fideicomm. heir
• Ex Parte Wessels
What about inheritances?
• Read Du Plessis v Pienaar, Durandt v Pienaar
• Wessels v De Jager
Assets excluded from insolvent estate
• Remuneration for services rendered
• Remember sec 23(5)
• Ex Parte Van Dyk
• Singer v Weiss 1992 (4) SA 362 (T)
• POCA 121/1998
Rens v Gutman 39
• Pension after sequestration
• Damages for defamation / personal injury
 • De Wet v Jurgens
• Clothes, bedding etc
• Insurance policies
• Sec 63 of Long Term Insurance Act

Section 63(1) Long term Insurance Act

Subject to subsections (2) and (3), the policy benefits provided or to be provided to a
person under one or more assistance, life, disability or health policies in which that
person or the spouse of that person is the life insured and which has or have been in
force for at least three years (or the assets acquired exclusively with those policy
benefits) shall, other than for a debt secured by the policy—
(a) during his or her lifetime, not be liable to be attached or subjected to execution
under a judgment of a court or form part of his or her insolvent estate; or
(b) upon his or her death, if he or she is survived by a spouse, child, step-child or
parent, not be available for the purpose of the payment of his or her debts.

Section 63(2) Long term Insurance Act

The protection contemplated in subsection (1) shall apply to:
a) policy benefits and assets acquired solely with the policy benefits, for a
period of five years from the date on which the policy benefits were
provided; and

Section 63(3) Long term Insurance Act

Policy benefits are only protected as provided in-
a) subsection (1) (b), if they devolve upon the spouse, child, stepchild or
parent of the person referred to in subsection (1) in the event of that
person's death; and
b) subsection (1) (a) and (b), if the person claiming such protection is able
to prove on a balance of probabilities that the protection is afforded to
him or her under this section.

Accrual and Trusts?

• Marriages outside community of property subject to accrual system?
• Trusts?

Fourie
- Seller demanded transfer
- Decision of the trustee to transfer
o The asset does not vest in the insolvent anymore
o The trustee should decide
o Think practically
 Sold at market value – trustee will stick to it
 Sold below market value  why would stick to contract if not
beneficial
 Option for trustee to look at it and see how beneficial is the
sale for the estate
 Maintain a personal right
 - All property includes contingent rights EXCEPT RIGHTS OF FIDECOMMISSARY
HIER
- Although the right of FCH is excluded  MAY STILL NOT DISPOSE OF THE
RIGHT
- The heir may not dispose of their rights
- Moving property abroad
o Property in the republic
 Movable assets abroad
 Cross border insolvency
o Immovable property abroad  ALWAYS EXCLUDED
o Some movable property abroad  May be included

- Think practically
o Property abroad excluded potentially?
o How does trustee get hold of it ?
 Difficult to administer that property
 Vehicle in Europe
 Trustee must find it
 Not know where to put advertisements
 Bank take commissions
Etc etc etc

 Movable property should be easy to

Testative freedom – overarching principle

Constitutional dispensation
Discriminatory provisions in wills
To what extent can testator put provision In will excluding insolvent estates?
- Ig heir married in community of property to spouse?
o Spouse can have separate estate even if have property in estate
 Eg give ring to X , X marry Y, Y is insolvent, ring will form part of X
estate.
o You cannot as testator exclude the benefit from the mutual or common estate.
- Co-ownership?
o Testator leave holiday house to 3 children in 3 equal shares
 One of children insolvent
 Cannot cut property up in 3 3rds
 Undivided share
 1/3 is disposable – it is an asset
 Is there a market value ?
 The other two not known
 That 1/3 is part of estate and has value
 Depending on rights attached -

From testator perspective – how circumvent

Concern that beneficiary insolvent at your debt
 - Option 1:

Assets– part of the insolvent estate unless specifically excluded

Not want to build up assets post-sequestration

Wessels v de Jager
- If adiation is automatic – doesn’t it invest in insolvent and by repudiating you are
dissolving
- Substitute – never came to insolvent
- With repudiation – insolvent state not want it
o Is this a disposition?

Wessels v de Jager relevant

- First article of prof
- Is it disposition or not

Singer v Vice
- Corruption
- Drug dealer – all income through illegal activities
- Want to keep illegal income
o Can trustee command that income?
- Court :
o Unlawful derived income IS PART OF THE ESTATE

Fight between state v creditors.

Assets excluded
- All of these difficult to comprehend
o Practical
- Pension excluded
o Pension before sequestration?
 Lump sum – progressively paid
 Pension is dependant on specific piece of legislation regulating that
tension
 Pre sequestration received or not
o General tensions act
 NOT part of the insolvent estate
o The insolvent
 Paid out after insolvent
 Insolvent could have blown it
 Exclude pre- sequestration assets
 How determine money still there?
 Pre-sequestration tension excluded
 Not serve any purpose
 Would have blown anyway [is in fact solvent]
 If 1 000 pay out, only small amount left in estate
  Cannot exclude
o Think of it practically

 Defamation or personal injury

o Woman sue lover of husband
o Personal injury here not restricted to physical injury,
also include emotional harm
o Cannot sue someone for destroying marriage or
relationship anymore
o Delict committed pre or post sequestration?
 Damages received pre or post-sequestration?
o If damages paid to insolvent prior to her sequestration,
how can repense it?
 Damages include personal loss.

 Clothes, bedding and furniture

o Antique furniture that is valuable?
o Linen etc?
o Is the item required for the subsistence of the insolvent?

TRICKY ONE [ASSIGNMENT]

 INSURANCE POLICIES
 Life policies
 Distinguish between taken out when you or spouse dies
 Not have to be linked to death
 Can take out life policy over self without having to die for it to
pay out
 Take out policy over someone’s life and nominate 3rd party to
be beneficiary
 Read the long term insurance act carefully
o Insolvent Take out policy  person or spouse life
insured
o Enforced for 3 years
 R50 000 restriction
o 50 000 restriction has been removed
o Scenarios –
o 1. policy must be at least 3 years old
o 2. Who is life ensured
 Must be a spouse
o Cases dealing with this 
 In textbook – Discovery
o Insolvent must till be alive and policy must still be in
existence

MISSSEDDD CLASSESSS
Procedure to deal with spousal assets
• Sec 21(3) – notice and wait 6 weeks
• What about CT of solvent spouse?
• Can prove claims against insolvent estate

Provides that after the trustee must give her 6 weeks to object or to
bring any steps to avoid selling the assets.
All the assets are under the insolvent estate – if not respond in 6
weeks– the trustee can dispose of it

WHAT ABOUT THE CT OF THE SOLVENT SPOUSE?

The assets of the solvent spouse vest in the insolvent spouse
Her bank account frozen – still have to pay for daily needs
She cannot access her bank accounts
If her individual car installments – cannot pay it
She can independently do act of insolvency
She tells her creditors she cannot pay them – her money frozen
= act of insolvency

Protection of solvent spouse

• Sec 21(4) – should CT apply for sequestration of estate court may make appropriate
order

Look what is her assets, and what is not her assets

Brought a corut application or submitted proof to the trustee that those are his assets and
wait for bank account to be unfrozen and will then pay creditors
Court may postpone the application

S21(5) = strange provision

o Her creditors shall be nentitled to prove thei rclaim against the insolvent
spouse …
o Shall be able to share in the proceeds in the property …
o BUT CANT SHARE IN THE INSOLVENT ASSETS

S21 – HER CREDITORS FIRST RIGHT AGAINST HER ASSETS

AFTER THS THE INSOLVENT PERSON’S CREDITORS

HER CREDITORS HAVE NO RIGHTS OVER THE INSOLVENT’S ASSETS.

Why so ?
 If the assets not released by the trustre of the insolvent estae
 Means that she could not prove that it his hers
 If it is not his , why can huis creditors share it
 If it is not hers her creditors cannot share in it
 Why give rights to her creditors that I technically not hers
 If they want her debts to be paid – look at the assets that has been
released
 Cannot look at the attached assets – not hers
 Indirectly it is an admission that those assets are hers
 If it is hers the trustee should have released her
  Called “her assets” – but not hers, because if was hers would have been
released back to her
 Fact that not given back to her – means it is her husbands assets.
 Her CTs has first right to his assets

S21 tries to find relationship between spouses

The legislature got a balance between the rights of the solvent and insolvent creditors
21(5) messes up the logic of s21

4.4 Effect of sequestration on incomplete contracts [assignment]

Contract concluded prior to sequestration
Neither of the parties performed at seq or only one has performed
No full performance of contract yet
Contract incomplete if only one or neither performed
Insolvency act does not deal with all contracts, only some of them
Common law also applies
Contract of Agency
- X appointed to sell Ys house
- Y is principle, X is agent
- Contract automatically terminated if sequestrated – the principle not control over
estate anymore
- If agent insolvent – not matter – not affect agent’s estate
o Agent on behalf of principal
Trustee decide
- Is maintaining contract beneficial or not
- Trustee cannot renegotiate the terms of contract
- Must take contract a they received it
General principle
- Unless act automatically terminate
o Have election whether to continue or not to continue
o Election whether to continue or not
o

Introduction
• Performance has not occurred
• Insolvency Act and Common Law apply

Contracts ito Common law

• Some contracts automatically terminate
• Trustee has election
• Read:
• Bryant & Flanagan v Muller
• Building contract
• Building incomplete
• Keep the builder to continue?
• If finished valuable to sell
• Make a choice as trustee
 • How much still due
• If 90% done – still owe 50 000. If done can be sold for 15 mil. In this
scenario trustee states that willing to spend money to finish the house
– gets asset worth more money
• Trustee looks at benefits for maintaining the agreement
• See what get in return
• If building works just started
• Look at what stage the contract is
• If contract maintained – administration costs
• Secured creditors paid – first in line after secured creditors are
preferred creditors
• First in line = administration costs.
• Preferred creditor  unless there is a limit for outstanding salary –
everything else is a concurrent claim
• For certain debts there are limits
• If 50 000 a mont – only 12 000 is preferrent
• Other is concurrent
• Administration cost PAID IN FULL
• If contract maintined the creditor will say hopefully enough money is
left – sold at a huge profit
• Enough money ot pay preferred creditors = FIRST IS
ADMINISTRATION COSTS
•

• Ellerine Brothers v McCarthy

• When does the right to cancel vest?
• Usually have scenario where say in all contracts if not perform the innocent
party can cancel contract
• 7 days to rectify breach
• In the middle of that -not pay by 5 April
• If the contract states other date  ?
•

• Contract is administration cost

WHERE NOT APPLY

Immovable property contract and insolvent is purchaser

• Sec 35 of Insolvency Act
• Trustee has election
• Practically within 6 weeks
• If movables included?
• Courts stated that it becomes an indivisible contract
• Cannot separate the sale of immovable property from the movable property

S35 protects the seller

 Seller not necessarily worse off either way
Already have money from insolvent estate
If seller realise could have sold for more  purchaser insolvent  the seller
can get out
Seller not necessarily worse of if contract continue or not

practically in practice should not happen any more

bond approved for purchaser
if the seller not really mind on bond  ask if really want to protect
must give notice to trustee that must decide what to do – cancel or maintain
Act is silent on what now happens
Seller must go to court to cancel the agreement

Contract of sale for immovable property and insolvent is seller

• Alienation of Land Act 68/1981 and Common Law
• Purchase price payable in 2 or more instalments over longer than 1 year period
• Residential property
• What if cash sale?
• Sarrahwitz v Maritz 2015 (4) SA 491 (CC)

Contract of sale for movable property for cash where insolvent the purchaser
• Sec 36 of the act
• Seller has 10 days from delivery to reclaim
• Distinguish from credit sale

Lease agreement and insolvent the lessee

• Sec 37 of the act
• Trustee has election which he has to exercise within 3 months of appointment
• No right to compensation for improvements unless lessor consented
• Ellerine Brothers v McCarthy

Lease Agreement where insolvent the lessor

• Trustee has election
• Huur gaat voor koop
• Mortgage over property which is older
• Prior in tempore potior in iure

Contract of sale for movable property on credit on instalments and insolvent is purchaser
• Sec 84 and National Credit Act since 1/6/2006
• Ownership is reserved
• Owner vests hypothec over property

Credit sale and insolvent is seller

• Ordinary rules apply