INS311

2023
WEEK 3
Voluntary surrender
Professor Michel Koekemoer
 TOPICS FOR THIS WEEK
➢ Who may apply for voluntary surrender?
➢ The requirements before the court accepts the surrender of a debtor’s estate.
➢ Preliminary steps (before application for surrender).
➢ Effect of the notice of surrender.
➢ The nature of the application for surrender.
➢ The court’s discretion to accept or reject surrender.
➢ Cost of surrender.
➢ To set aside a sequestration order.
 OUTCOMES FOR THIS WEEK
➢ To distinguish between the two methods available to sequestrate a debtor’s estate.
➢ Identify the persons who may apply to surrender certain categories of estates.
➢ List and explain the requirements of which a court must be satisfied before the court will accept the
surrender of the debtor’s estate.
➢ Describe the preliminary formalities which the debtor must comply with before bringing the application
for voluntary surrender.
➢ Identify the consequences resulting from the publication of a notice of intention to surrender.
➢ Explain the procedure for the application for surrender, which explanation includes a basic
understanding of the content which must form part of documents which must be submitted.
➢ Explain the nature of a court’s discretion to accept or reject the voluntary surrender of the debtor’s
estate.
➢ To have an understanding of when it will be possible to set aside an order accepting the surrender of
the debtor’s estate.
 Methods of sequestration
of a debtor’s estate
➢Voluntary surrender (topic for week 3)
–The debtor (or his agent) applies to the court for the acceptance of
the surrender of his estate.

➢Compulsory sequestration (topic for week 4)

–A creditor or creditors (or his or their agents) apply for the
sequestration of the debtor’s estate.
 Persons who may apply to
surrender certain estates
Type of estate The person who can apply for the surrender of
the debtor’s estate
Estate of a natural person The debtor or his agent. The agent must be expressly authorised
to apply for the surrender of the estate. Section 3(1)

Deceased estate The executor of that estate. Section 3(1)

Estate of a debtor incapable of managing its own affairs The person who must administer this estate. We call them the
curator bonis who is appointed by the Master. Section 3(1)

Partnership estate All of the members of the partnership. Excluding partners en

Joint estate of spouses married in community of property
commandite (silent partners whose identity is hidden and who do
not take part in the management of the partnership). One partner
cannot be seen as ‘the agent’ of other partnership for the
purpose of bringing this type of application. It is sufficient for all
ordinary partners to apply for sequestration. Note: in Hockley the
9th ed, ignore the reference to ‘special partnerships’ as this is no
longer relevant. Section 3(2)
Both spouses must bring the application. Section 17(4) of the
Matrimonial Property Act 88 of 1984
 Preliminary formalities
➢The ‘steps’ the debtor must take before bringing an application for the
voluntary surrender of his estate. See section 4 of the Insolvency Act.
➢When the debtor completes his affidavit which is submitted with the
application, he must also include mention how he complied with these
formalities.

1. Notice of intention to surrender

2. Notice to creditors and other parties (within 7 days after publication of
notice)
– Trade union and employees
– Notice to South African Revenue Service
3. Preparation and lodging of statement of affairs
 Notice of intention to surrender.

➢Who must publish it?

–The debtor (and keep in the mind the parties also listed above for
specific estates)
➢Where must the notice be published?
–Government Gazette; and
–Newspaper circulating in a magisterial district where the debtor
resides, is a trader or has a principal place of business.
–See the discussion in Hockley on the purpose behind this
publication, i.e to alert creditors.
➢What content must be included in this notice?
–Form A in First schedule to the Insolvency Act (there is a copy at
the back of Hockley).
 Notice of intention to surrender.

➢What content must be included in this notice?

–Form A in First schedule to the Insolvency Act (there is a copy
at the back of Hockley).
 Notice of intention to surrender.

➢When must the notice be published?

–Publication not more than 30 days and not less than 14 days before
the date stated as the date when application is heard.
➢What if the debtor did not comply with the 30-day period?
Ex parte Oosthuysen 1995 (2) SA 694 (T)
➢ For example, the notice of surrender was published 39 days before the stipulated date of hearing the
application.
➢ Legal question asked: Would the non-compliance result in notice of surrender being invalid?
➢ It is not the precise number which is important, but rather that once the notice has been published, that its
effect is certain. Thus, there is no certainty where a party will be unsure whether a court will find that there
was a substantial injustice.
➢ The intention of the legislature was clear. If the notice of surrender was published more than 30 days, before
the date of application, the notice of surrender will be invalid.

➢ However, what did the court in Ex Parte Harmse 2005 (1) SA 323 (N) find? The discussion of the difference
between these cases forms part of your tutorial discussion.
 Notice of intention to surrender.

Effect of the notice of surrender

Stay of sales in execution
➢Section 5 (1): Property attached under writ of execution-unlawful to sell such
property after publication in Government Gazette unless the person could not have
known about the publication.
➢There is an exception:
– Below R5000, Master’s consent
– Above R5000, per a court order.

➢In place until the date the application should have been adjudicated by the court (the
date written on the notice).
➢The notice does not influence other civil actions or criminal proceedings.
 Notice of intention to surrender.

Effect of the notice of surrender

Curator bonis may be appointed
➢The debtor can still freely deal with his property after publishing the
notice. He is not sequestrated yet.
➢The Master may decide to appoint a curator bonis.
–This person manages the property, finances or estate of another.
–The curator bonis is only the caretaker, and the estate remains vested in the
debtor.
–However, the curator bonis would take control of the business or any
undertaking of the debtor.
➢Self-assessment question: what if the debtor dispose of his property
during the period between publishing the notice and the application
being heard?
 Thi s Photo by Unknown
Author i s l icensed under

Notice of intention to surrender.

CC BY-NC

Effect of the notice of surrender

Potential of compulsory sequestration
➢After publishing the notice, the debtor can potentially commit an act of
insolvency. When?
– Fails to lodge a statement of affairs or if the statement is incorrect or incomplete in a
material respect;
– Fails to make an application to court on the appointed date and the notice is not
properly withdrawn.

Cannot withdraw the notice without Master’s consent

➢Written consent from the Master, where notice was published in good faith
and there is a good cause for withdrawal.
➢Effective after publication of withdrawal in the Government Gazette and the
applicable local newspaper.
 Notice to creditors and other
parties
Who?
Each creditor
➢Post or personally deliver.
➢To each creditor he knows about or can ascertain.
➢Why if we already have the notice of surrender?
Trade unions and employees
➢Registered trade unions.
South African Revenue Service (SARS)
➢Notice by post, but personal service of documents seen as
substantial compliance (See Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor)
2013 (1) SA 49 (KZP) para 1)
Self-assessment: what then about sending an e-mail notification? Do you think such
notification can be regarded as ‘substantial compliance’?
 Preparation and lodging of
statement of affairs
Preparation of statement
➢See Form B in the First Schedule to the Insolvency Act.
➢Hockley contains a detailed list of the information which must be included in the
document. 9th edition, pages 22-24; 10th edition 29-30.
➢See the comment in Hockley about the requirement for an independent valuation. There
is no legal obligation, but the Master or court may request it.
– Keep in mind that a lack of a proper valuation may influence whether there is sufficient
proof that it is to the advantage of creditors.

Lodging
➢ Who is the Master of the High Court?
https://www.gov.za/about-government/contact-directory/judicial-institution/judicial-institution/master-
high-court-south

➢ Statement of affairs lodged with supporting documents, in duplicate at the Master’s Office.
➢ The statement lies for inspection for 14 days stated in notice at the Master’s office.
➢ The Master then issues a certificate, which is filed with Registrar before the application is heard.
 Requirements

The court can accept the surrender of the debtor’s estate if it is

satisfied that:
1. The preliminary formalities were complied with (section 4).
2. The debtor’s estate is insolvent.
3. The debtor owns realizable property, which if sold will be
sufficient to pay the costs of sequestration.
– The cost is paid from the free residue of the estate.
4. The sequestration will be to the advantage of the creditors.
FAIR
See section 6(1) of the Insolvency Act.
 Requirements

➢The applicant must make a full and frank disclosure. It is a

strict test.
➢There is a ‘high level of disclosure’ as there is a greater
risk of abuse and risk of the creditor’s interest in case of
voluntary surrender. See Ex Parte Arntzen (Nedbank Ltd as
Intervening Creditor) 2013 (1) SA 49 (KZP) at paragraph 12).
 Requirements

The debtor’s estate is insolvent

➢The debtor submits a statement of affairs, but the court is
not bound by the valuations contained in this document.
➢Can you remember the test we used for insolvency?
–Liabilities fairly estimated, exceeds the assets fairly valued (Ex
parte Harmse).
–It must be improbable that the debtor’s assets if realised (sold)
would be enough to pay of the debtor’s debts (Ex parte
Harmse).
➢Remember it is up to the debtor to provide sufficient
evidence to the court that he is indeed insolvent.
 Requirements
Realizable property, sufficient to pay sequestration costs
➢The cost for administration and the cost of surrender is paid from the
free residue of the estate.
➢What is the free residue?
–That part of the estate not subject to any right of preference (special
mortgage bond, legal hyphothec, pledge or right of retention). We will
discuss these preferences in another lecture.
–Practically, you take the amount for which the encumbered assets were
sold, subtract the value of the encumbrance (to the maximum of what the
creditor is owed at that time).
➢There cannot be voluntary surrender where there is not sufficient
realisable property.
➢Self-assessment: Can there perhaps be compulsory sequestration?
 Requirements

Realizable property, sufficient to pay sequestration

costs
Ex Parte Deemter 1962 (2) SA 228 (E).
➢There was an inability to realise assets economically and the applicant had
no other source of income.
➢The applicant owned 2 farms, stock and farm implements.
➢The court was satisfied that the estate was insolvent and it would be to the
advantage of creditors if the surrender was accepted.
➢Semble? What did this relate to? Following a citation to introduce a tentative
thought. The court added a comment that having a proper valuation would
have been useful.
 Requirements

Sequestration to be to the advantage of creditors

➢Difference between the requirement for:
–Compulsory sequestration: creditor to prove there is a prima facie reason to
believe that sequestration will be the creditors’ advantage
–Voluntary surrender: debtor to provide there will be advantage to the
creditors.
• This is a stricter requirement, but why?
➢ Advantage of the general body of creditors determined by the value,
not the number of creditors. See Fesi v ABSA Bank Ltd 2000 1 SA
499 (C)
➢ Also, a creditor (opposing the application) would also know what
would be to its benefit. See Fesi v ABSA Bank Ltd 2000 1 SA 499 (C).
 Procedure for the application for
surrender
Form and content of application
➢Notice of motion and accompanied by supporting affidavit.
➢What is the purpose of this affidavit? To convince the court the 4
requirements for voluntary surrender was satisfied.
–Also remember to include a discussion on why a court has jurisdiction.
–Include details of a salary or other income the debtor is receiving.
See Fesi v ABSA Bank Ltd 2000 1 SA 499 (C) concerning whether a salary is
regarded as an asset or not and whether it must be disclosed.
➢Also include averments that the debtor complied with the preliminary
formalities mentioned above.
➢The affidavit is commissioned before an independent
commissioner of oaths. This excludes the debtor’s attorney.
 Procedure for the application for
surrender
Filing at court
➢Filed with the Registrar of the court, before the date advertised in the
notice of surrender.

Copy of application to a ‘consulting party’

➢This relates to where the debtor employs others. Self-study.

Master’s report
➢Take note of the specific requirement for the Western Cape that
the Master’s report is required before the set-down of the
application.
 Procedure for the application for
surrender

Opposition to application
➢The creditor’s affidavits sets out the grounds of opposition.
–See the 4 grounds raised by the major creditor in See Fesi v ABSA Bank
Ltd 2000 1 SA 499 (C).
• Debtor having an ulterior motive to bring the application.
• Failure of the debtor to disclose their financial position.
• The applicants were not insolvent according to the court.
• The sequestration will not be to the advantage of the creditors (see the discussion
on why this was).

➢The debtor can deliver a replying affidavit.

 Procedure for the application for
surrender

Adjudication on application
➢Ex parte. But see the comment in Ex Parte Arntzen (Nedbank Ltd as
Intervening Creditor) 2013 (1) SA 49 (KZP) at para 6 on the true nature of
this application. There is notice to creditors, but it is not required that the
application be served on creditors.
➢Opposing creditors can be represented by counsel.
➢The court can ask that the applicant or any other person appear and be
examined.
➢A court need not accept or decline the application for surrender within 14 days
after the advertised date of the hearing.
➢The court accepts the surrender, then the debtor is declared insolvent from
date of court order.
 Discretion of the court to accept
or reject the voluntary surrender
➢Even if the court is satisfied that requirements discussed above were
met, it still has discretion to reject or accept the surrender.
➢Factors influencing the court’s refusal could be:
–A debtor displaying gross extravagance and running up debts;
–The debtor had an ulterior motive to apply for the surrender of his estate.
See Fesi v ABSA Bank Ltd 2000 1 SA 499 (C) where the ulterior motive
related to preventing a sale in execution.
–Debtor failing to give full and frank account of his financial position (Fesi).
–The debtor’s papers were deficient in many respects (Ex parte Harmse).
–That the debtor’s financial problems could be dealt more appropriately
under the National Credit Act 34 of 2005. This is an interesting reason for
refusing the surrender and shows the impact of the NCA.
 Setting aside an order accepting
the surrender
➢You (the debtor) cannot appeal against an order refusing to
accept the surrender.
➢Any party aggrieved by an order to accept a surrender, may
appeal against this order.
➢An appeal does not suspend the force of the operation or
execution of the order to accept the surrender.
➢However, during this time, the insolvent must give written
consent before the property of the sequestrated estate can be
realized.
➢The court has the option to rescind or vary any order, but this
can only be done under exceptional circumstances.
 Preparation for next week

Week 4:Compulsory sequestration

Please read:
➢Hockley Chapter 3
➢Epstein v Epstein 1987 (4) SA 606 (C)
➢Stratford v Investec Bank Ltd 2015 (3) SA 1 (CC)

There are no tutorials for week 4.

Thank You.

Questions?