INSOLVENCY

Summaries

CHAPTER 1
INTRODUCTION
1.1. Meaning of Insolvency
o Insolvent person = unable to pay debts
o 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.
o Legal test:
o Whether the debtor’s liabilities [fairly estimated] exceeds his assets [fairly
valued]
o Person who has insufficient assets to discharge liabilities [although satisfy test of
insolvency] not treated as insolvent 4 legal purposes
o ESTATE MUST BE SEQUESTRATED BY ORDER OF COURT
o Sequestration order = formal declaration that debtor insolvent
 Either by debtor [voluntary surrender]
 debtor’s creditors [compulsory sequestration]
o “Sequestration” and “Sequestration Order”
o STRICTLY reference to person’s estate
o Debtor not sequestrated, ONLY its estate
o “Insolvent”
o Describes a debtor
o Two meanings:
 Debtor’s estate is sequestrated
 Debtor’s liabilities exceed assets

- 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.

Sequestration is a legal process in South Africa that deals with personal insolvency, providing a mechanism for individuals to
address their financial difficulties and manage their debts. Sequestration is when the estate of a person is sequestrated because the
person is insolvent i.e. no longer able to pay his/her debts due to uncontrollable circumstances (the person’s estate is surrendered by
order of the court). The estate of natural persons, partnerships and trusts can be sequestrated.

Liquidation of a company is a relatively simple process that involves the realisation of a company’s assets either
by way of a private treaty or by way of public auction in order to pay the costs and expenses incurred in the
winding-up process. Funds remaining after costs and expenses are distributed to creditors in their prescribed
order of preference and according to the creditors’ rights and interests in the company. To determine whether a
company should be placed in liquidation, the creditors, liquidator, owner, and court will establish if that company
can pay its debts as they fall due (de facto insolvency). The primary effect of a company being placed in
liquidation is that it ceases to trade unless continued trading is necessary and in the best interest of all creditors.
1.2. Purpose of Sequestration Order
 Secure the orderly and equitable distribution of debtor’s assets
o Where assets are insufficient to meet full claims of creditors
 Executing against property of debtor
o Few creditors paid
o Rest receives little/ nothing
 Ensure assets of debtor are liquidated and distributed among all creditors in acc w/
predetermined [and fair] order of preference.
 Once sequestration order granted  concursus creditorum established
o Creditors as groups preference over individual creditors
o Creditor’s right to recover claim in full, replaced by right to share with all
other creditors.
 Nothing may be done which prejudice rights of creditors
 Law of Insolvency  primarily benefit creditors
o Court will not sequestrate if it will not benefit the creditors
 If person only has one creditor, no sequestration, and latter already judgment against
debtor. Normal execution procedure less expensive means of exacting debtor of
amount payable.
 Also not sequestrated if nothing left for creditors
 Benefit to debtor:
o Alleviate from position as debtor
o Relief from legal proceedings by creditors
o Free himself from unpaid pre-sequestration debts
 Sequestration affects debtor’s personality  restrict capacity and freedom to enter
contracts, follow chosen vocation, litigate, hold office.

1.3. What may be sequestrated?

1.3.1. Meaning of ‘estate’
o Collection of assets and liabilities
o Debtor with only liabilities = estate for sequestration purposes
o Spouses in community of property
o One estate for purposes of insolvency
o Not separate estates [not even if have independent business]
o Spouses both debtors, upon sequestration both become insolvent
debtors for purposes of the act
o Divorce = separate estates – separate sequestration
o Divorce after creditor acquired right to apply for sequestration of joint
estate, creditor required to sequestrate separate estates of both
spouses
o Debtor who’s estate sequestrated may, during his insolvency, acquire new
estate under title valid against his trustee. New estate may be voluntarily
surrendered/ sequestrated at instance of creditor.

1.3.2. Meaning of ‘debtor’

o Natural person/ partnership/ estate which is a debtor
 o EXCEPT a body corporate / company / other association of persons who
can be placed in liquidation under law of relating companies
o Entity/ association of persons only debtors IF
 Able to possess estate and incur debts
o Entities that may be placed in liquidation
o Company & external company [outside sa borders] & body corporate

o DEBTORS:
o Natural person
o Partnership [even if all members juristic persons]
o External company [foreign]
o Entity / association of persons that is not juristic person [trust]

- Juristic Person = Known as a legal person. Have legal rights & obligations. Profit
motive and owns assets and liabilities in its own name. Examples of juridical
persons are states, agencies, corporations, associations, committees, partnerships,
ethnic and religious groups, positions to which individuals are nominated,
appointed, or hired, character groups (women, fathers, children, deceased
persons), the estates of bankrupt or deceased persons, counties, ...Includes a
foreign company and a trust.
- Trust = A trust is a fiduciary relationship in which one party (the Grantor) gives a
second party (the Trustee) the right to hold title to property or assets for the
benefit of a third party (the Beneficiary).
- Body corporate = non-profit motive but has own constitution. Has an independent
right of existence. A Body Corporate as a legal subject is an entity capable of holding
rights, duties and capabilities. Body corporates can therefore sue and be sued in
their own name, enter into contracts, incur debt, own property and transfer rights
and obligations. E.g. churches, sports club, culture societies.
- Partnership = two or more parties manage and operate a business together with
profit aim. Share ownership, profits, and liabilities in terms of the partnership
agreement. E.g. Smith & Johnson Law Firm.
- Association of persons = people come together for a common purpose. Not
separate legal personality recognized by law. E.g. neighborhood watch committee,
book club, non-incorporated sports team.
1.4. Jurisdiction of the Court
1.4.1. Which court has jurisdiction?
- High Court
- Mag Court
o Prosecution of criminals in terms of Insolvency Act, seat aside voidable
dispositions, jurisdictional limits as to offence, person, amount
imposed by Magistrates Court
1.4.2. Jurisdiction over a debtor and his estate?
(i) Jurisdiction of court where debtor domiciled / owns property/ entitled to
property.
a. On date when application for voluntary surrender/ compulsory sequestration
of debtor’s estate lodged w/registrar of court
(ii) Residence or business within jurisdiction in preceding 12 months
a. Not needed to be for entire 12 months – at any time
b. Not merely temporary stay
1.4.3. Jurisdiction in litigation against 3rd parties?
- When court has jurisdiction over debtor and his estate: not relevant where
trustee of estate litigate against 3rd parties.
1.4.4. Competing courts – removal to another court?
- Court that have jurisdiction over debtor may refuse surrender/ sequestration if
to court equitable / convenient that estate must be sequestrated by other
court. Transferee court # need original jurisdiction.
- Not court where sequestration order may be more conveniently granted, but
where estate more conveniently be administered. [WHAT HAPPENS AFTER
ORDER GRANTED.]

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.

CHAPTER 2
VOLUNTARY SURRENDER

Introduction

- 2 Ways how debtor estate sequestrated

1. Surrender of estate [voluntary]
2. Sequestration order [by creditor]
- Requirements for each method differ in material respects

2.1 Who may apply

- Debtor himself/ agent = estate of natural person

o Onerous process
o Reason: tired of receiving threats from creditors and asking for extension.
o Continuously defend against applications and summons
o If act allow – apply by yourself

- Executor = estate of deceased debtor

- Curator bonis = estate of debtor incapable of managing own affairs
- All members of partnership = partnership estate
- Both spouses = joint estate of spouses married in community of property
- General power of attorney cannot do this
- Sequestration to status of person, therefore
o Need specific authority
o General authority does not suffice
- partnership S13
o If partnership is sequestrated – estates of each individual partner must also
be sequestrated.
o 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 Hawker case – court only sequestrate with people with whom it can
sequestrate
2.2 REQUIREMENTS FOR APPLICATION

 The court may accept the surrender of a debtor’s estate only if it is

satisfied that:

 the debtor’s estate is, in fact, insolvent;

 the debtor owns realizable property of sufficient value to defray all

costs of the sequestration which will, in terms of the Act, be
payable out of the free residue of his estate;

 sequestration will be to the advantage of creditors (s 6(1)).

o Debtor’s estate insolvent

 Total liabilities > value of all assets

 Ex Parte Deemter
o Assets was more than the liabilities
o Court nevertheless sequestrated the estate
o Unsuccessful in selling major assets
o No other source of income
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

o Test is whether it is established that debtor is without funds to pay

his debts in full and it is improbable that assets will realize enough
for purpose

o Applicant’s statement indicated excess of assets over liabilities, only

evidence that adduced to prove otherwise certain letters written by
estate agents or valuers.

o Cannot inflate or underestimate the value of your assets

o Have a sworn evaluator that evaluate your assets

o Have form of objective evidence of the value
o Liabilities are easier – monthly statements of creditors

 Court not bound to valuation in statement – may make finding of insolvency

where assets exceed liability.

o Even if sufficient assets, but assets cannot sell, or no buyers for type
of assets, and no other source of income, can be sequestrated.
o Free residue sufficient to pay costs of sequestration

- ‘free residue’ = portion of the estate which is not subject to any right of
preference by reason of special mortgage, legal hypothec, pledge or right of
retention.
- ‘costs of sequestration’ include costs of surrender and general costs of
administration
o Trustee must be appointed and paid.
- Trustee paid first from free residue
- Calculating the amount of free residue: surplus in value of encumbered
assets over amount of encumbrances must be taken into consideration.
- Goods bought by debtor part of free residue
 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 unencumbered 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 correct.
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 .

o Sequestration to be to advantage of creditors

- How prove that advantageous?

o Voluntary: Dt prove that sequestration will be advantageous 4
creditors
o Compulsory: Ct must show there is reason to believe that there are
some benefits.
- Onus more strenuous in voluntary surrender than compulsory sequestration
 - Reduce risk of debtor abusing sequestration procedure and resorting
sequestration when holds little/ no real benefit 4 creditors and simply gives
debtor means of escaping liability

2.3 PRELIMINARY FORMALITIES [PROCEDURAL REQUIREMENTS]

2.3.1.Notice of intention to surrender

o Publish notice of surrender in GG & newspaper circulating in magisterial district

where resides / if trader where principle place of business.
o Notice include:
o the full names, address and occupation of the debtor;
o the date upon which, and the particular Division of the High Court before
which, the application for acceptance of the surrender will be made; and
o when and where the debtor’s statement of affairs will lie for inspection as
required by
o TIME LIMIT
o Notice in GG NOT MORE THAN 30 days and NOT LESS THAN 14 days
before date stated in notice [date of hearing application]

30 DAYS ******* 14 DAYS

HEARING

o Purpose of notice

o Alert creditors of intended application, if wish to oppose

o In newspaper for GENERAL reader [daily, weekly publication]

 Ex Parte Goldman

 Weekly journal devoted to Jewish interests and printed in

Hebrews

 Not newspaper for purposes of the statute.

  Must circulate where the Dt’s Ct’s are located, even if Dt no longer
resides there/ business there.

o 14 days:

 sufficient opportunity for creditors to peruse statement of affairs &

decide whether want to oppose application

o 30 days:

 Dt’s should not be able to give long notice, months beforehand, in

that way keep creditors from levying execution and in meantime
dissipate all the assets.

 Not adhere  fatal to application

 Ex parte Harmse

 S157(1)

 Therefore does not automatically invalidate the application

unless it caused substantial injustice that cannot be remedied
by a court order.

 Proving notice of surrender = affidavit enclosing copies of relevant GG

and newspaper

o Context dependent whether formality or substantive

 Notice period = formality
 Something stated = substantive

 NOTE: MUST BE FORMAL DEFECT, NOT SUBSTANTIAL

Oosthuizen case
o Noncompliance 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 looks 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

2.3.2 Notice to creditors and other parties

 Within 7 days after publication of notice of surrender

o Debtor furnish copies of notice to creditors & other parties

 o Compliance with requirement proven by affidavit giving details of
steps taken

i. Notice to each creditor

o Deliver / post copy of notice to every creditor whose

address knows / can ascertain

o Further protection to creditors who wish to oppose

ii. Notice to trade unions and employees

o Debtor post copy of notice to every registered trade

union that, to his knowledge, represents his employees.
ALSO notice to employees themselves – copy of notice to
notice board, front of gate, front door of premises.

iii. Notice SARS

o Send copy of notice

2.3.3 Preparation and lodging of Statement of Affairs

i. Preparation of Statement

a. Statement of affairs contains:

i. Balance sheet

ii. Immovable assets w/ value. Details of mortgages on asset.

iii. List of movable property w/ value

iv. List of debtors w/ residual and postal address, details of

debt

v. List of creditors w/ addresses and particulars of each claim

and security help for it

vi. Detailed list of causes of Dt’s insolvency.

b. Ex parte Nel

i. Court dismiss application. Failure to provide detailed stock

sheet.

ii. Lodging of statement

 a. Lodged in duplicate at Master’s office

b. Statement lie for inspection by Ct’s at all times during office hours
for 14 days [stated in notice of surrender]

c. In notice in GG and newspaper will state: “my statement of affairs

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

c. Ex parte Viviers

i. Court accept Dt who has alredt made unsuccessful attempt

to surrender his estate/ same statement of affairs used in
earlier application, relevant facts and reasons for
surrender unchanged. No law against reuse, therefore
permitted.

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.

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.
 Has it not lapsed...? if something has lapsed, how can you
withdraw it?
 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

- 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.

2.4 Effect of notice of surrender

2.4.1 Stay of sales in execution

o Notice of bankruptcy published.

o Selling seized property banned unless sheriff unaware.
o Court or Master can permit sale if property value low.
o Creditors must prove sale benefits all.
o Sale proceeds held by Master until process ends.
o Ban likely until court decides on application.
o Unlawful sale can be stopped by debtor.

2.4.2 Curator bonis may be appointed

- Dt still liberty to deal w/ property as chooses

- Sell / pass mortgage bond over it
- Sefeguard against estate Court can appoint curator bonis to debtor’s estate
- C.b. obliged to take estate into custody & assume control of any business /
undertaking of debtor, as Master may direct.
- Estate vested in debtor.

2.4.3 Potential compulsory sequestration

 Publish notice of surrender, but not lodge statement of affairs 

incorrect and incomplete in material respect  COMPULSORY
sequestration

2.4.4 No withdrawal of notice without consent

 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
 Court grant application
o Becomes irrelevant, notice disappears
 Court rejects application
 Debtor does not pitch on date / in 14 days thereafter
 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

2.4.5 Lapse of notice of surrender

 Lapse if

o court # accept surrender

o notice of surrender properly withdrawn ito act

o Dt fails to make application 4 surrender within 14 days after date

advertised as date of hearing of application

2.5 Application for surrender

2.5.1 Form and contents of application

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.

2.5.2 Filing of application at court

 Notice of motion + founding affidavit

 Filed with registrar of HC prior to date advertised in Notice of Surrender.

2.5.3 Copy of application to ‘consulting party’

 If debtor is an employer, he must @ time of application provide

‘consulting party’ w. copy of application

 Employer must consult:

o Person whom required to consult ito collective agreement

o No collective agreement  workplace forum & registered trade

union of employees likely affected by dismissals

o No forum  registered trade union whose members are likely to

be affected by dismissal

o No trade union  employees affected by proposed dismissals

2.5.4 Master’s report

 Must be obtained and filed prior to set-down of application.

2.5.5 Opposition to application

 Ct right to oppose even if claim less than amount required 4 compulsory

seq, even if claim disputed by debtor

 Ct deliver 1 or more affidavits, prior date application, set out grounds of

opposition

 Dt may deliver replying affidavit

2.5.6 Adjudication on application

 Date of application, present:

o Notice of motion + supporting affidavits

 o Dt’s statement of affairs [verified affidavit]

o Sworn valuation

o Proof of publication of notice of surrender in GG & newspaper

o Affidavit that applicant delivered / posted copies of notice of

surrender as required.

o Certificate from master – statement of affairs has lain for

inspection as advertised

o Report by master

o Opposing affidavits of creditors

o Debtor’s replying affidavits

2.6 Court’s discretion

 Court satisfied that above req’s satisfied and preliminary formalities

observed  still discretion to reject surrender.

 Ex Parte Hayes: reasons who court my refuse

o Dt display gross extravagance when ran up debts

o Ct’s not pressing for payment & willing to give time/ accept
payment in monthly instalments

o Dt have ulterior motive in applying – avoid paying or defeat right of

creditor

o Dt fail full & franl account of position

o Papers deficient

2.7 Costs of surrender

• Costs incurred in surrender included in costs of sequestration. Payable out

of estate.

• General rule: costs occasioned by unsuccessful opposition to application

must be bourne by creditor concerned.

o Court may order to be paid from estate.

 2.8 Setting aside sequestration order

- No appeal against refuse of surrender of estate

o BUT party aggrieved by order accepting appeal may appeal.

- Appeal # halt execution of order & Act's provisions continue to apply.

- Realization of property from sequestrated estate requires insolvent's written
consent.

- Section 149(2)

o enables court to
 rescind / vary orders BUT
 # for rehearing unless application defective / involves
unnecessary hardship or exceptional circumstances.
 Rescission of a sequestration order does not release the debtor
from liability for debts, restoring them to their pre-sequestration
status.
 Does NOT authorize court to suspend its order's operation.

- Section 54(5) allows the Master or the insolvent, with consent, to apply to set
aside a sequestration order if no trustee is elected at a creditors' meeting.

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
CHAPTER 3
COMPULSORY SEQUESTRATION

Introduction

Application i.t.o. Uniform HC Rules  notice of motion

Application made by 1/ more creditors.
Not to enforce debt, but equal distribution among creditors.
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

3.1 Requirements

Court grant application if satisfied that:

 - Applicant established claim wh/ entitles him to apply 4 sequestration of Dt’s estate
- Dt committed act of insolvency / is insolvent
- Reason to believe to the advantage of creditors of Dt if estate sequestrated.
Onus throughout on sequestrating Ct’s  no onus on Dt to disprove anything

3.1.1 Applicant entitled to apply in terms of s 9(1)

o S9(1) allows proceedings 4 compulsory sequestration of Dt’s estate to be instituted

by:
o Creditor have locus standi
o Creditor [or agent] w/ liquidated claim vs debtor >R100
o 2/more Ct’s who have liquidated claims against debtor amounting, in
aggregate, to not less than R200
o If agent apply on behalf of Ct – must be authorised to do so prior
o “liquidated claim” = monetary claim, claim 4 transfer of property, amount fixed by
agreement, judgement, price of goods sold & delivered.
 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

3.1.2 Debtor committed act of insolvency or is insolvent

(i) Acts of Insolvency

Rebuttable presumption that Dt insolvent
If plays out  shows insolvency
Which version is more credible in the eyes of the court – decision to sequestrate.
a. Although Ct good reason to believe Dt insolvent, # in position to prove Dt’s
liabilities exceed assets.
b. Legislature designated certain acts/ omissions by Dt as ‘acts of insolvency’
3. If Ct establish Dt committed 1/more of these acts  seek order sequestrating Dt’s
estate
 #Need prove debtor is actually insolvent.
 ANY creditor right to apply if Dt act of insolvency
c. Estate may be sequestrated even though technically solvent.
 d. Act of insolvency by partner in marriage in comm of property
3. As if both spouses committed act
4. If informs Ct by email that cannot pay – act of insolvency.
Even if other spouse said do not send the email.
One spouse not agent of other

e. ACTS OF INSOLVENCY
Some of these deeds are outdated seeing that old act
3. Absence from republic
 Leaves country
 Leaves/ absent from dwelling and remains dwelling
 Unless fugitive, why would leave country? Hide from debts?
 Leaving dwelling not mean cannot be found
 People traceable.
 Just leaving not enough
 Must have INTENTION to evade or avoid paying creditors.
How determine intention
o Subjective
o Not what reasonable person would have thought
o Person deny leaving away to avoid debts
o Court look at surrounding circumstances.
o Even if not give forwarding address or not tell anyone where
going  not dsme today as padt
o BISHOP V BAKER
 Spouse to New Zealand
 Reasons linked to health / asthma / climate better for person
 Application by creditor that leaving for NZ and not coming back = act of
insolvency
 Show medical evidence that medical condition – not healthy for that
condition
 Climate abroad better for health condition
 Enough doubt that story true
 Harshness of sequestration  court accept medical reason
 No evidence that reason for leaving is to avoid dabts.
 If not pay for 10 months and then leave – no med condition – may be act
of insolvency
 Balance of probabilities
 Story of debtor for leaving because of health reasons
 Weigh out competing versions.

o Intention is subjective – dominant intention

o Dwelling does not have to be permanent – where physically
living prior to your disappearance.
o Fairly easy for debtor to show reason for leaving
4. Failure to satisfy judgment debt
S8(b)
 S8(b) creates 2 acts:
 1. Execution order served on debtor and he fails to satisfy it
or to indicate to the sheriff disposable property sufficient to
satisfy
 2. Writ not served on Dt and sheriff does not find sufficient
disposable assets to satisfy judgment and states fact in
return
2nd only applies if first cannot be established.
 Return = nulla bona
 Judgment order against – if not pay in x days – get
attachment order over dt assets - sheriff find person – tell
dt that owe R10 000 – Dt state not have R10 000 – sheriff
ask for property of R10 000 - take assets – hold public
auction
 Dt doesn’t satisfy judgement debt , or not sufficient assets to
satisfy the judgment debt.
 Alternatively – sheriff cannot find debtor  not only search
where person lives or works. Not restricted to dwelling or
place of work. Sheriff not just give up. Find person’s house,
seek sufficient assets at person’s property. Sheriff not have
choice.
 FIRST try to find person, then person must indicate that
cannot pay.
 If not find the person, after all possible attempts, THEN just
take the assets.
 Sheriff consider whether assets enough – otherwise proceeds
will not be enough
 If you are the creditor
a. If sheriff not attach the assets or hold auction, but
debtor states there are enough assets and sheriff just
lazy – ONUS shifts to the Creditor to show insufficient
assets.
b. Strategic perspective – want auction to be held to show
that assets not enough to cover judgment
c. Much more clever to attach assets than sheriff stating
assets not enough

De Wet v Le Riche
f. Deputy sheriff searched for assets
g. The main sheriff signed that not found assets
h. Was defective.
i. Defective nulla bona
j. Must be person who looked for debtor must sign
k. One person cannot look and the other person sign
  States that looked for movable property, but no statement of immovable
property
 Defective – must look for all property
 Must state that looked for ALL categories of property

- Movable and Immovable property

 Could extend to intangible assets
 Shares does not have to be registered in the owners name in the company’s
security register.
- Immovable property under mortgage?
 The asset/property is not disposable
 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

3. Disposition prejudicing creditors or preferring one creditor

- S8(c) – DISPOSITION
- The Dt makes (i) disposition or (ii) attempts to make disposition which prejudices CT
or prefers one CT above the rest

- 2 sets of circumstances
1. Actual disposition of property
a. Must have the effect of prejudicing debtor’s creditors / preferring one
creditor above other.
2. Attempted disposition of property
a. Would, if completed, have same effect
- only EFFECT of disposition considered
o not look at intention
- examples
o make disposition deliberately to favour one creditor
o refuse to meet one debt while paying another in full
o sell asset below market value whilst debts due
o mortgage bond over immovable property to secure the indebtedness of one
creditor, while business struggle and not pay creditors.
- Payment to one creditor = preferential to creditor, prejudicial to other creditors.
- Applicant not merely state disposition prejudicial to creditors, but EXPLAIN
o Unless on the face of it prejudicial to creditors – not need explanation
- OBJECTIVE TEST
- Can be intangible objects

Also includes ABANDONMENT

- Technical meaning:
o To leave behind
o Unilateral act
 - How abandon intangible?
o If have R1 000 claim against debtor  in 3 years prescription of personal right
to claim money back  not do anything to claim money  if 3 years pass
without any attempt  abandonment of personal right to claim  act of
insolvency – disposed of property because failed to follow up on claim against
her
- Vehicle
o Father buys you a car
o In his name for insurance purposes
o Father insolvent
o How prove that vehicle not property of father, ownership is mine. Transfer of
the vehicle?
- Shares
o Shares in company – strict rules for transferability – board must consent to
whoever want to buy the shares
o Right to pre-emption
o SMUTS case
 Meaning of transfer of shares?
 Judge Cameron :
o Contract of sale / donation / bequeath shares [underlying
causa is transfer]
o Cession  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 Owner’s 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, Whoever’s name is in the register is the person with
whom the company deals. 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

4. Removal of property with intent to prejudice or prefer

S8(d) – REMOVAL
 - DT i. removes property or ii. Attempts to remove property WITH intention to
prejudice CT / prefer one above the rest
- must show INTENTION [more difficult to prove]
- SUBJECTIVE
- Intention inferred from circumstances surrounding removal.
- Simply want to hide assets, not abandon
- E.g. tell Ct to hold Picasso painting
o Not their property, cannot sell or dispose of
o All other Ct’s prejudiced, but receiving creditor also not benefit because
cannot sell
- Easy to prove removal  moved from point A to point B
o Not easy to prove intention

PROPERTY
- Tangible
o There was removal
o Intention?
o Easier to determine removal – thing moved
o House = asset that cannot remove – immovable
- Intangible
o Share/ liquor license
o Smuts v Booyens
 BEFORE SMUTS
 If change nominee/ change 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

5. Offer of arrangement
6. Failure to apply for surrender
7. Notice of inability to pay
8. Inability to pay debts after notice of transfer of business

ABSA v Chopdat

- Without prejudice, offer can be seen as an act of insolvency

 - Even include without prejudice offer

(ii) Debtor in fact insolvent

- Rely on fact that estate is insolvent.

o Liabilities > Assets
- Established directly = evidence of debtor’s liabilities & market value of assets
o “ indirectly = evidence of facts & circumstances  inference of
insolvency is fairly & properly deducible.

3.1.3 Reason to believe sequestration will be to advantage of creditors

3.1.4 ‘Friendly’ sequestration

3.2 Application for sequestration

3.2.1 Form and content of application

3.2.2 Steps prior to adjudication on application

3.2.3 Provisional sequestration

3.2.4 Service of rule nisi

3.2.5 Opposition to application

3.2.6 Anticipation of return day

3.2.7 Intervention by another creditor

3.2.8 Final sequestration

2. 3.3 Court’s discretion

3. 3.4 Costs of proceedings

4. 3.5 Unwarranted or vexatious proceedings

5. 3.6 Setting aside sequestration order