LU 8

I N S O LV E N C Y A S A
FAC TO R W H I C H
I N F L U E N C E S S TAT U S
INTRODUCTION
• Normal mental abilities

• Court can limit the capacities of an insolvent

• Declaration of insolvency by the High Court – is a status determining factor

• It is the court order which influences the status of the insolvent person

• Limitations placed on a person declared insolvent = is not punishment of

the insolvent but its measures to protect the public
DEFINITION

INSOLVENT

A person who is unable to settle his or her debts

Because of the fact that his liabilities exceed his assets

EFFECT OF INSOLVENCY ON CAPACITY
TO ACT
• Sequestration order
– Results in insolvent losing control of his estate
– But does not affect his capacity to act

• Insolvent can – with certain exceptions – perform any legal act

• HOWEVER – he or she may not dispose of any assets in the insolvent estate
UMZINYATHI DISTRICT MUNICIPALITY V
TRANSGLOBE INDUSTRIAL HOLDINGS

• If an application is brought to declare a person insolvent –

– A successful counter- application would have the effect of the respondent being declared solvent
• Insolvency Act 24 of 1936

– Provides for certain contracts that can only be concluded with the consent of
the insolvents curator:

• Contracts which are likely to have an adverse or seemingly adverse effect on the
insolvent’s estate
• Contracts that have any relation to the business of a general dealer or
manufacturer
• Davel and Jordaan
– Come to the conclusion that the insolvent only has – in the above circumstances – limited capacity
to act

• Should insolvent conclude a contract in contravention to the provisions of the Insolvency Act
– Contract will be voidable at the choice of the insolvent
EFFECT OF INSOLVENCY ON THE
CAPACITY TO LITIGATE
• Section 23(6) of the Insolvency Act
– All civil proceedings against an insolvent are stayed
– Both proceedings instituted by and against the insolvent

• EXCEPTIONS = where insolvent will retain his capacity to litigate

(Section 23(6)):
– Cases in which the dispute has an effect on the insolvent’s status – OR – any
right which does not affect the insolvent’s estate
– Actions concerning defamation or personal injury

– Cases in which the dispute arises from a juristic act into which the insolvent was competent to
enter

– Actions to recover pension to which the insolvent is entitled

EFFECT OF INSOLVENCY ON LEGAL
CAPACITY
• Person’s legal capacity is influenced by a declaration of insolvency
• Insolvent can follow any profession or occupation

• EXCEPT:
• Carrying on a business of a general dealer or a manufacture – OR
• Be employed or have an interest in such a business
• May not hold certain offices:
– Curator of an insolvent estate
– Holding a liquor license
– Employee of a general dealer or manufacturer
– Owner of a general dealer or manufacturer

Can only act as the director of a Company with permission from the High Court