To have the requisite standing to apply for such a sequestration, a creditor must have a liquidated claim of not less than R100 (or, where the application is by two or more creditors, not less than R200 in aggregate). It comprises the following: The Master may, on receiving the statement of affairs, specially direct the applicant to have any property mentioned in it valued by a sworn appraiser or a person designated by the Master for this purpose (s 4(4)). This is called compulsory sequestration. The mandate of SAJEI is to provide judicial education to aspiring and serving Judicial Officers in order to enhance … Another reason is to reduce the ever-present risk of the debtor abusing the sequestration procedure and resorting to sequestration when it holds little or no real benefit for creditors and simply gives the debtor a means of escaping his liabilities. An example of this is the new South African Business Rescue regime introduced by Chapter 6 of the South African Companies Act, 2008. ), In terms of section 149, a court has jurisdiction “over a debtor and in regard to the estate of a debtor”. Other consequences include criminal liability on the part of the insolvent for certain acts committed both before and during sequestration. 100% (1) Pages: 143 year: 2018/2019. In Abell v Strauss, Abel applied to sequestrate the estate of Strauss, a taxi driver, on the ground that he had committed an act of insolvency in terms of section 8(a), in that he had departed from his dwelling with the intention of evading or delaying the payment of his debts. remuneration for work done or professional services rendered; damages for defamation or personal injury; to realise (or better say to sell) them; and. If there is a co-trustee, the estate remains vested in him. Currently, you only view notes uploaded by Tutors. The insolvent's property includes contingent interests in property, other than the contingent interests of a fideicommissary heir or legatee. Publication of a notice of surrender has no effect on other civil and criminal proceedings. The main purpose of a sequestration order is to score the orderly and equitable distribution of a debtor's assets where they are insufficient to meet the claims of all his creditors. The solvent spouse may reclaim such property as he proves to be his own property. No transaction can thereafter be entered into with regard to estate matters by a single creditor to the prejudice of the general body. South Africa . the importance of the purpose of the limitation; the relation between the limitation and its purpose; and. South African insolvency law regulates three main types of insolvency proceedings, namely the sequestration of personal estates, the winding-up of companies and the winding-up of close corporations. It is the trustee's duty to collect and liquidate the estate assets, and to distribute the proceeds among the estate creditors, giving preference to the secured creditors and certain preferred creditors, and dividing the balance, if any, termed the "free residue," proportionately among the unsecured or concurrent creditors. This subsection creates two separate acts of insolvency: The second act applies only if the first cannot be established: that is, only if the writ cannot be served personally on the debtor. The judgment does not have to be one obtained by the sequestrating creditor, however; a creditor may sequestrate a debtor on the basis of a nulla bona return on a writ issued at the instance of another creditor, provided the latter has not, in the interim, been paid. A second possibility is for the will to provide that, in case of insolvency of the beneficiary, the executors will have The debtor must post a copy of the notice to every registered trade union that represents his employees. The term “debts” here includes debts which become immediately payable by reason of this subsection. If any surplus remains after the costs of sequestration have been paid, and after all creditors have been satisfied, it is returned to the insolvent. When this happens, it is important to establish whether what has been done is invalid by reason of the defect or irregularity. Withdrawal takes effect upon publication of a notice of withdrawal, together with the Master's consent in the Government Gazette and in the newspaper in which the notice was published. When the word “insolvent” is used to describe a debtor, it carries two possible meanings—either, The notion of “becoming insolvent,” therefore, has a wider meaning than “being sequestrated.”. Furthermore, the law regulates proceedings which are aimed at rescuing businesses in dire financial straits. It is supreme law and contains a Bill of Rights, against which the validity of all laws may be tested. That contribution is what is claimable by the trustee in terms of section 23(5) from moneys earned by the insolvent in the course of his profession, occupation or employment. An insolvent may, thus, by repudiating a legacy, inheritance or insurance benefit, ensure that it passes to someone other than the trustee and the creditors of his insolvent estate. Until such property is released by the trustee pursuant to such claim, the solvent spouse does not have the usual powers of ownership. Property inherited by an insolvent during his insolvency falls into his insolvent estate, notwithstanding a contrary provision in the testator's will. The property of the spouse of the insolvent, where the marriage is out of community of property, also vests in the trustee of the insolvent estate, until it is released by the trustee.[27]. that there is reason to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated. A court may grant a rehabilitation order on application by the insolvent within a comparatively short time of the sequestration, where the claims have been paid in full or where an offer of composition has been accepted by the creditors and payment has been made of at least 50 cents in the rand on all claims. The result of the application is, initially, only a provisional order which must be served on the debtor and may be postponed and subsequently discharged at the instance of the sequestrating creditor. Third level . The issue of constitutional invalidity involves a two-fold enquiry: To decide the latter issue, account must be taken of all the relevant factors, including. To some extent it seems that the question depends on whether it sufficiently emerges that there are sufficient assets to pay the costs of administering the [applicant’s] estate [....] In some cases it may be necessary to show considerable detail so that due possession of the assets surrendered may be taken by the sheriff and the trustee.” Failure to mention realizable movable property where such property exists may lead to dismissal of the application (Ex parte Bouwer and similar applications 2009 (6) SA 382 (GNP) 385-6). In Ex parte Silverstone 1968 (2) SA 196 (O) 198, Hofmeyer J said, “The object of the Legislature in requiring the applicant to furnish not only the name but also the residential as well as the postal address of his debtors, must doubtless have been to enable creditors to trace these debtors and so to form their own independent opinion of the applicant’s estimated values of his good and bad debts.” In casu, the applicant, instead of giving the names and addresses of certain debtors, had merely stated “sundry debtors.” The court held that the irregularity could not be condoned. Merchandise (ie, stock-in-trade) listed in this annexure must be valued either at its cost price or at its market value at the time of the making of the affidavit verifying the statement of affairs (as to which, see below), depending on which amount is the lower, and the annexure must be supported by detailed stock sheets relating to the merchandise. where the debtor, upon demand by the sheriff, fails to satisfy the judgment or to indicate disposable property sufficient to satisfy it; and. The onus of establishing advantage to creditors remains on the sequestrating creditor throughout, even where it is clear that the debtor has committed an act of insolvency. Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly, https://en.wikipedia.org/w/index.php?title=South_African_insolvency_law&oldid=962017901, Creative Commons Attribution-ShareAlike License, that the debtor's estate has been sequestrated; or. MRL3701 exam_notes_-MRL3701 Extract Law of insolvency. If the insolvent enters a contract which purports to dispose of estate property, the contract is voidable at the option of the trustee; it is not void. found in Africa, it is important to understand the limitations, scope and efficacy of the insolvency regimes applicable in each jurisdiction and the ability to foreclose and extract value in a distressed debt situation. Failure to adhere strictly to the third-day time period has mostly been taken to be fatal to the application. Here are the best resources to pass MRL3701 Insolvency Law (MRL3701) at University of South Africa (Unisa). If a formal defect has resulted in a substantial injustice, and the prejudice to creditors cannot be cured by any order of the court, then the procedural step is invalid. A sequestration order is a formal declaration that a debtor is insolvent. It follows that, prior to the Master's assessment of a contribution, the insolvent need not obtain the trustee's consent to enter into the contract. to distribute the proceeds among the creditors in the order of preference laid down by the Act. A court may, either at the time of granting the sequestration order or at a later stage, exclude the solvent spouse's property from the operation of the sequestration on certain grounds. The purpose of the notice is to alert all creditors of the intended application, in case they should wish to oppose it. [17], A debtor commits the act of insolvency where, for example, he refuses to meet one debt while paying another in full, or sells an asset manifestly below its market value while failing to meet debts that have fallen due. In the absence of any direction by the Master or the court, the debtor is not legally obliged to obtain an independent valuation in support of the values given in his statement (if he does so unnecessarily, the cost of the appraisement will not be allowed as part of the costs of the sequestration: Ex parte Kruger 1947 (2) SA 130 (SWA)), but he may effectively be compelled to do this if he relies on the anticipated proceeds of a single asset to show that sequestration will be to the advantage of creditors. If a provisional trustee is appointed, the estate vests in him before vesting in the trustee. This list should mention contingent creditors, e.g., persons to whom the debtor has agreed to be liable as surety and co-principal debtor (Cumes & Co v Sacher & another 1932 WLD 213) and also, it would seem, any party who asserts that he is a creditor, even if the debtor disputes the claim (cf Van Zyl v Lloyd 1929 WLD 96 100-101). The term “debtor” therefore embraces the following: Only a Provincial Division, or a Local Division of the High Court, may adjudicate on an insolvency matter. (It is not only the sneakiness of debtors that matters, therefore. that the debtor's estate is, in fact, insolvent; that the debtor owns realisable 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; and. A copy of the application must be given to the “consulting party” where the debtor is a business owner. Should a creditor wish to oppose the application, he must deliver opposing affidavits prior to the hearing of the application (although they may be accepted on the day, depending on the circumstances); the debtor may then deliver replying affidavits. Where a debtor whose debts do not exceed an amount determined by the Minister from time to time, by notice in the Gazette, cannot pay a judgment debt immediately, or is unable to satisfy his debts and has insufficient assets capable of attachment in execution, a magistrate may, on application of the debtor or under section 651 of the Magistrates' Courts Act, make an order, subject to such conditions as the court deems fit, providing for the administration of the debtor's estate and for the payment of his debts in instalments or otherwise. What falls within the estate? If the trustee elects to set aside a contract, he may recover any performance rendered by the insolvent, but he must restore to the third party any benefits that the insolvent has received under the transaction. South africa University Of South Africa (Unisa) MRL3701 - Insolvency Law (MRL3701) With a current membership of approximately 370 professionals (predominantly lawyers, chartered accountants and insolvency practitioners), SARIPA is a leading role-player. “Creditors” means all creditors, or at least the general body of creditors. In addition, the court must be satisfied that certain preliminary formalities have been observed. If the insolvent is in prison for debt when declared insolvent, he may apply to court for release. “Disposable property” includes any property which may be attached and sold in execution, either movable or immovable. In the court's view, it could not be inferred that Strauss had committed the act of insolvency alleged. Sequestration of a joint estate makes both spouses “insolvent debtors” for the purposes of the Act, with the consequence that the property of both of them (comprising their shares in the joint estate, as well as separately-owned property) vests in the trustee and is available to meet the claims of creditors. The purpose of the publication is to gain a better understanding of what makes up the various insolvency and rescue regimes If a person avers that a particular contract with an insolvent is invalid for any reason, he must set out the facts on which he bases his allegation. an entity or association of persons that is not a juristic person, such as a trust. The debtor failed to give a full and frank account of his financial position. The aim of the creditor in such an application is, as a rule, to obtain payment of a debt, or at least part payment. MRL3701 makhuva_v_lukoto_bus_service. The Act provides that a debtor commits an act of insolvency “if he makes, or attempts to make, any disposition of any of his property which has, or would have, the effect of prejudicing his creditors or of preferring one creditor above another.”. that the applicant has established a claim which entitles him, in terms of section 9(1), to apply for sequestration of the debtor's estate; that the debtor is in fact insolvent (which would require the applicant to have access to debtor's state of affairs), or has committed an "act of insolvency;" and. On the other hand, the insolvent may enforce payment for work done after sequestration because section 23(9) expressly gives him the right to recover this remuneration for his own benefit. The insolvent's diminished legal capacity entails deprivation of certain of his important legal capacities and rights, in the interests of protecting other persons, primarily the general body of existing creditors, but also prospective creditors. Specifically, even if all the requirements are met, the court still has a discretion to refuse the application, as in the case, for example, of abuse of process, or when it will not be to the advantage of creditors, because there are not enough assets to cover the liabilities. “The object of the Act,” held the court in Walker v Syfret NO, “is to ensure a due distribution of assets among creditors in the order of their preference [...]. a list of immovable assets, with the estimated value of each asset and details of any mortgages on the assets—Annexure I; a list of any movable property not included in Annexures III or V (see below), setting out the value of each asset mentioned—Annexure II; a list of debtors with their residential and postal addresses, details of each debt, and an estimate of the extent to which the debts are “good,” or “bad or doubtful”—Annexure III; a list of creditors, their addresses, and particulars of each claim and any security held for it—Annexure IV; a list of any movable assets pledged, hypothecated, subject to a lien, or under attachment in execution of a judgment—Annexure V; a list and description of every accounting book used by the debtor at the time of the notice of surrender or sequestration or at the time when he ceased to carry on business—Annexure VI; a detailed statement of the causes of the debtor's insolvency—Annexure VI; certain personal information about the debtor, including details of any prior insolvency and rehabilitation—Annexure VIII; and. The court may, when considering the application for surrender, call for an independent valuation (Ex parte Prins & another 1921 CPD 616). The insufficiency cannot be cured by the furnishing of a guarantee, since the guarantee does not have the effect of creating an asset in the debtor's estate. Publication of the notice of surrender may be proved by means of an affidavit enclosing copies of the relevant Government Gazette and newspaper. MRL3701 hendriks_v_swanepoel. The Insolvency Act 24 of 1936 has been amended more than twenty times, but without any drastic changes. The court accepted the debtor's version. [16], Only the effect of the disposition need be considered. This estate vests in one or two trustees who are elected by the creditors, and whose appointment is confirmed by the Master of the High Court. This rule has not been applied in other divisions (e.g., Exparte Dogo 1938 WLD 187; Ex parte Arnold 1939 CPD 392; Ex parte Lee 1956 (4) SA 587 (0)). Sequestration of a debtor's estate imposes on him a form of reduction in status, which curtails his capacity to contract, to earn a living, to litigate and to hold office. In addition, the debtor must give notice to the employees themselves. The debtor does not commit this act of insolvency by informing the creditor orally that he cannot pay his debts, although he does provide the creditor with evidence of actual insolvency. An act of insolvency committed by a spouse in a marriage in community of property operates as an act of insolvency by both spouses, and is therefore a good basis for sequestration of the joint estate. The friend will then apply for compulsory sequestration on the strength of this act of insolvency. Within seven days of publication of the notice of surrender, the debtor must furnish copies of the notice all to creditors whose addresses are known, and to other parties, including employees. An agent who applies on behalf of the creditor must be authorised to do so. Thereafter, he ignored letters relating to business matters addressed to him. In estimating the free residue in an estate, the surplus in value of immovable property over the amount of mortgage bonds thereon may be included in such estimate. The South African Restructuring and Insolvency Practitioners Association(SARIPA) is a non-profit organization established in 1986, which aims to achieve professionalism in the insolvency industry. Law of Insolvency - Self Study copy 2.docx. The Cross Border Insolvency Act 42 of 2000 seeks to regulate the position insofar as foreign trustees seeking to deal with assets in South Africa is concerned, as well as where a local trustee seeks to deal with assets situated in a foreign jurisdiction. The debtor may, for instance, arrange with a friend to whom he owes a debt, and whom he is unable to pay, that he (the debtor) will commit an act of insolvency. an order for the insolvent's rehabilitation is granted in terms of section 124(3). that there is good cause for its withdrawal. MRL 3701 - Fall 2016. MRL3701 -M Notes. 1 July 1936 The courts have accepted that they must, as a matter of policy, scrutinise every friendly sequestration with particular care to ensure that the requirements of the Act are not subverted, and that the interests of creditors are not prejudiced. The following types of proceedings may be brought personally by the insolvent: As for costs, there is a distinction to be made between costs in the Magistrate's Court and costs in the High Court: If the insolvent is awarded costs, they are his to dispose of as he so chooses. Study unit 1: Introduction to Insolvency Law Case Law: NB: Magnum Financial Holdings (Pty) Ltd (in Liquidation) v Summerly and another NNO 1984 (1) SA 160 (W) Meaning of “insolvency” Common meaning – a person is insolvent when he is unable to pay his debts, however, The legal test for insolvency is whether the debtor's liabilities, fairly estimated, exceed his assets, fairly valued. The court dismissed the application, holding that the omission to supply stock sheets is not a formal defect which the court can condone. The notice must comply substantially with Form A, and must state. In the case of the estate of a debtor who is incapable of managing his own affairs, the party entrusted with administering the estate may apply. Study notes LLB (LME3701) at University of South Africa (Unisa) Here are the best resources to pass LLB (LME3701) at University of South Africa (Unisa). NOTESInsolvency LawMRL301-M1.1.1. It is not necessary to prove that the debtor has any assets, provided it is shown either that the debtor is in receipt of an income of which substantial portions are likely to become available to creditors in terms of section 23(5), or that there is a reasonable prospect that the trustee, by invoking the machinery of the Act, will unearth or recover assets which will yield a pecuniary benefit for creditors. Insolvency Law Updates – The National Bar Council of South Africa. accept the surrender (in which case debtor is declared insolvent); refuse the surrender (in which case the debtor is restored to his position prior to the publication of the notice of surrender, which means that the stay of execution no longer applies, and that creditors may execute against the debtor); or, that the notice was published in good faith; and. the full names, address and occupation of the debtor; 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. section 21 of the Insolvency Act (upheld in Harksen v Lane NO); and. In Ex parte Lee, Milne J said (at 587), “I [...] think [...] that it is really a question of the degree of detail which should be furnished in any particular case. ), to divest the insolvent of all his assets; and. 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