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2023 Week 7-1 PDF
2023 Week 7-1 PDF
2023
WEEK 7 Professor Michel Koekemoer
Uncompleted contracts
Thi s Photo by Unknown Author i s licensed
under CC BY-SA
➢What if another contracting party continues to directly pay the insolvent, not
the trustee?
–Unlawful, accept if performed in good faith and without knowledge that the debtor’s
estate was sequestrated.
Contracts not completed by
insolvent
Starting point: general rule is that sequestration does not suspend or
put an end to the contract:
Read this case. How did the aspect of transformative constitutionalism affect the provisions of the
Alienation of Land Act 68 of 1981?
➢ What were the protected constitutional rights relied on?
➢ How was the protection different for instalment buyers under ss 21 and 22 of the Alienation of and Act
compared to a cash buyer?
➢ What was the position under common law in case of a buyer to paid cash for immovable property, but
the seller was subsequently sequestrated?
– Pay attention to the reluctance of the court of first instance to attempt the development of common law.
➢ Did the court find that the protection afforded must extend to any cash buyer? To whom specifically?
➢ How would the outcome be different if the category of ‘vulnerable purchasers’ was now included along
with the provisions concerning the cash payment of the purchase price?
➢ Who would be a vulnerable purchaser within this context? (para 75)
Specific contracts and effect of
Thi s Photo by Unknown Author i s licensed under CC BY-NC
sequestration
Instalment agreement regarding movable property: Buyer
➢Section 84(1) brings an interesting consequence for an instalment
agreement as defined under the National Credit Act.
➢The passing of ownership is reserved (it remains with the seller) until the full
purchase price is paid.
➢All or part of the purchase price is deferred, so paid back periodically to the
seller;
➢Possession and use are transferred to the buyer; and
➢Ownership pass to the buyer when all contractual obligations is fulfilled (until
then ownership remains with the seller).
What then if the buyer becomes insolvent? The seller looses ownership and
receives a statutory hyphothec. The seller now becomes a secured creditor.
Specific contracts and effect of
sequestration
Instalment agreement regarding movable property: seller
➢There is no provision if the seller becomes insolvent.
➢The trustee steps into the shoes of the seller and can abide or
repudiate the contract.
➢If the contract is repudiated, the trustee can take possession of
the goods.
➢The buyer then has a concurrent claim against the insolvent
estate to recover the amount already paid to the seller.
Specific contracts and effect of
sequestration
Sale of movable property where the contract is not an
instalment agreement
Cash sale
➢Ownership passes after full payment and delivery.
➢Sec 36(1) and (4) applicable to seller who delivered the property, but not
paid, cannot reclaim such property unless:
–The seller has 10 days after delivery to give notice to the debtor (or trustee or
Master) that he wants to reclaim the property; and
–When the trustee disputes the seller’s claim, the has 14 days to institute legal
proceedings.
➢If the seller fails to do the above, he has lost his right to reclaim the property.
–He will have a concurrent claim for the unpaid purchase price.
Specific contracts and effect of
sequestration
Sale of movable property where the contract is not an
instalment agreement
sequestration
Lease: sequestration of lessor’s estate
Immovable property
➢Huur gaat voor koop rule.
➢The trustee would not be able to cancel the lease. The property is sold
with the lease in place.
➢This rule also continues even if there was a subsequent mortgage bond
was registered. So the lease existed before the real right was created.
➢What if the real right was in place before the lease?
–Sale subject to lease, but if highest bid does not cover the amount due to the
holder of the real right-the property can be sold free of the lease.
–Crux: the property can only be sold free of the lease if it cannot be sold
for a higher price without first freeing it from the lease.
Specific contracts and effect of
sequestration
Lease: sequestration of lessee’s estate
➢Section 37 applies to movable and immovable property.
➢The trustee decides: continue or repudiate?
➢The trustee must provide written notice that the lease must continue.
➢Where the trustee fails to provide such notice within 3 months after
his appointment, the lease is deemed to have been repudiated.
Exception?
➢You can have it in your contract that the lessor can cancel the lease if
the lessee is sequestrated.
➢Can also be cancelled due to non-payment of rent.
Specific contracts and effect of
sequestration
Lease: sequestration of lessee’s estate
What is the nature of the lessor’s claim?
➢Preferential: for rent due from sequestration until termination.
➢Tacit hyphothec for rent owed at time of sequestration.
➢Concurrent claim for loss resulting from the non-performance of the
lease.
Specific contracts and effect of
sequestration
Employment contract Thi s Photo by Unknown
Author i s l icensed under
CC BY-SA
➢Sequestration of employee: The only effect would come into play if sequestration
disqualify a person from doing their job (for example if that person is a trustee).
➢Sequestration of employer: In case of sequestration of the employer, the contract is
immediately suspended according to section 38.
– The employee cannot render services and he is not entitled to his salary (but he can recover loss
resulting from the suspension).
– The employee receives no employment benefits, but he can receive unemployment benefits from
date of suspension (eg, UIF).
➢The trustee must consult with the employee or a collective representative (workplace
forum or trade union).
➢Process for submitting written proposals to the trustee on measures that can be taken.
➢Where no measures are taken, the employment contract automatically terminates 45 days
after appointment date of trustee.
➢The claim of an employee is a preferential claim (we discuss what this type of claim means
in the coming weeks)
Specific contracts and effect of
sequestration
Transactions on market infrastructure (not examinable)
Agreements providing for termination and netting (not
examinable)
Provisions designed to protect solvent party
➢This provision attempts to modify the legal consequences associated with
having a concursus creditorum.
➢Question to ask: Does a provision attempt to confer a power or preference
or allow for a distribution not allowed under insolvency?
➢If so, this provision will be void (unless specified otherwise). Can you
remember where we had such a provision?
Specific contracts and effect of
sequestration
Provisions designed to protect solvent party
Reservation of ownership
Effective to prevent assets from vesting in debtor’s insolvent estate.
Questions?