law of insolvency

• primary sources of SA insolvency law [legislation]

  insolvency act 24 of 1936, companies act 71 of 2008, cross boarder insolvency act 42 of 2000.
• meaning of insolvency 


  the ordinary test for insolvency is the inability to pay debts. ex parte harmse 2005, provided that it is when a persons liabilities fairly estimated, exceeds his assets fairly valued. the court must be satisfied that it is improbable that the debtor's assets will realise sufficient funds to settle his debt in full
• meaning of a sequestration order

  it is a formal declaration that a debtor is insolvent. it is granted at the request of a debtor (voluntary surrender) or one or more creditors (compulsory sequestration)
• meaning of an estate

  it is a collection of of a person's assets and liabilities. an estate however can be a collection of just a person's liabilities. you get a joint estate for spouses married in community of property. for spouse married out of community of property will have a separate estate. a debtor can acquire a new asset of sequestration, but it is subject to rehabilitation.
• meaning of a debtor

  S2 of the insolvency acts defines a debtor as a person/partnership or the estate of a person/partnership, except a body corporate or company which may be placed under liquidation. a debtor includes a natural person, partnerships, deceased persons who are incapable of managing their own affairs and trusts.
• is a trust a debtor?


  in magnum financial holdings v summerly 1984 the legal question/issue was whether a trust was a susceptible to sequestration. the court had to determine whether a trust qualifies as a debtor under the insolvency act. the court held that a trust does not have legal persona. a trustee is at very least a debtor in the usual sense of the, it has assets, liabilities and can be sued. however a trust is not a body corporate, it is referred to a quasi legal personality meaning a trustee acts in his capacity as a trustee.
• jurisdiction


  a provisional and local division of a high court may adjudicate insolvency matters. there are certain aspects relating to insolvency matters that a magistrates court may entertain. the court has jurisdiction if the debtor has domicile, owns a property within the jurisdiction of the court, and the debtor has ordinarily residence or carried on business within 12 months immediately preceding the lodging of application.
• competing courts


  this is where more than one court can have jurisdiction to hear the application. the court must take in consideration particular facts and certain factors. court must consider provisional factors, such as the location of the people who are being interrogated ( not necessarily the creditors).
• the master 


  most important function is to exercise custody over all matters concerning insolvency matters. if applicant is not satisfied with the master's decision, they may apply for the decision to be reviewed. court cannot intervene unless the mast has misdirected himself.
• 2 forms of application for an insolvency order

  by way of the debtor, the debtor applies to surrender his estate (voluntary surrender). by way of the creditor, the creditor applies to have the debtor's estate sequestrated.
• persons who may apply for voluntary surrender

  the debtor or his agent. the executor for a deceased's debtor's estate. a curator bonis for a debtor who is incapable of managing his own affairs. both spouses for a joint estate. all members of a partnership including silent members for a partnership estate.
• Preliminary formalities S4 [affidavit must include]

  1. Notice of intention to Surender

  2. Debtor must publish the notice in the government gazette or the local newspaper in the area where he resides

  3. Publication must be between 14 - 30 days, not less than 14 and not more than 30
• Ex parte oosthuyesn 1995


  • Notice was published 39 days before the date of the hearing
• The legal question was whether the non-compliance would result in the notice being invalid
• Court held in Ex parte oosthuyesn 1995


  It wasn't the precise number that is important, it is if its effect is clear (intention). The intention of the legislation was clear, if the notice was published 30 days before the date of application, the notice would be invalid.
• Ex parte harmse 2005


  • Same issue occurred, but in this case the court consider S6 of the insolvency act which gave a debtor a 14 day grace period
• Court held in Ex parte harmse 2005


  The intention wasn't as important as in Oosthuyesn case. Therefore a notice published more than 30 days before the hearing date would not be invalid. The court admitted that there had been an irregularity but it did not result in it being invalid.
• notice to creditors and other parties

  within 7 days of the publication of the notice, the debtor must deliver a copy of the notice to every one of his creditor's. notice to registered trade unions and employees. notice to SARS (South African revenue services).
• lodging of statement of affairs

  the statement of affairs lodged with supporting documents in the master's office. the statement lies for inspection for 14 days. the master issues the certificate, which is filed with the registrar before the application is heard.
• requirements for compulsory sequestration


  the creditor must prove that he has a liquidated claim(monetary claim) against the debtor. the debtor commits an act of insolvency, an reason to believe that the sequestration will be to the advantage of the creditors.
• 8 acts of insolvency (DRAFTS VIA)


  absence from the republic, failure to justify judgement, disposition prejudicing creditors or preferring one creditor, removal of property with intention to prejudice a creditor, making or offer of arrangement, failure to apply for voluntary surrender, notice of inability to pay, inability to pay debts after notice of transfer of business.
• form and content of sequestration application

  provisional order, where the court grants a rule nisi which means that the debtor should appear on the dat specified and show cause (explanation) as to why the estate should not be sequestrated. rule nisi provide rules for if the debtor is absent. then the final order or dismissal.
• courts discretion


  even if the all the requirements are met, the court is not bound to grant a final order. the court has discretion to grant a final order.
• friendly sequestration 


  the debtor and creditor usually arrange that the debtor will commit an act of insolvency and then the creditor will apply for the debtor's sequestration. the creditor is usually sympathetic towards the debtor. the creditor must have a genuine claim which is legally justiciable. it is conclusive in nature, it could be a way of a debtor to gain time and free himself from his financial abilities. Epstein v Epstein 1987
• prohibited contracts 


  contracts which dispose of estate property. it is voidable at the instance of a trustee, the trustee can decided whether or not to keep the contract in place
• non-prohibited contracts


  trustees consent is not necessary.
• general dealer S v Van der Merve


  is a person that sells a variety of products in a fixed and recognised place. also known as a jack of all trades
• manufacturer AJ Ferreira Beleggings v Swart


  manufacturer is not defined I the act but in the above case, a manufacturer is an owner or entrepreneur of a factory responsible for the manufacturing of goods/objects.
• trader


  a person who carries on business in which property is sold or bought for the purpose of sale or building operations. excludes a farmer.
• livelihood


  S23 of the insolvency act does not extinguish the insolvent's capacity to earn a living while his estate is under sequestration.
• function of a trustee

  to collect the assets in a estate, to realise/sell them, to distribute the proceeds amongst the creditors.
• property that falls into the estate


  property includes movable and immovable property. all the property of the debtor at the date of sequestration. all properties that the debtor acquires or which may accrue to him during sequestration. includes a will Vorster v Steyn, when Vorster applied for rehabilitation, he also applied that these excluded assets now vest In him. the court held that this was nudum praeceptum (nude prohibition) and the inheritance vested in the insolvents estate, the inheritance remained part of the estate.
• Badenhorst v Bekker 1981


  couple married in community of property, their joint estate was sequestrated. the wife's father died and left some assets to her and excluded it from her husband. the issue was whether it was legally possible to give effect to this provision of the will. the court held that the provision had no legal effect. the insolvency act is clear on those assets which are excluded from the insolvent estate, and the bequest does not fall under that category. it is unfair but it is a natural consequence of being married in community of property.
• property which does not fall under insolvent estate


  pension, remuneration for work done, wearing apparel, insurance policies. share in accrual, friendly society money and assets.
• vesting of solvent spouse's assets

  the financially distressed spouse transfers assets to the solvent spouse. before S21 the trustee had to prove that this transfer was a stimulated transaction. S21 now places the burden on the solvent spouse to show that the property is her.
• collusive donations


  an important consideration on whether the debtors involvement in the solvents spouse's affairs was due to the anticipation of his sequestration.
• estates intertwined 


  it is difficult to distinguish between the property of each spouse.
• spouse 


  is a wife or a husband married according to any custom or law.
• grounds upon which a solvent spouse's estate may be released

  property owned before the marriage, property acquired under a marriage settlement, property acquired by the valid title during the marriage.
• uncompleted contracts


  contract carried out by the insolvent but not by the other party. in other words the insolvent carried out his contractual obligation. the general rule is that sequestration does not suspend or put an end to a contract automatically. unless an exception under the common law or legislation is applicable. exceptions include mandate and partnership.