BER 220:

INSOLVENCY
Chapter 34: Introduction and Sequestration
Paras 34.01-34.04, 34.06-34.09, 34.12-34.35
 Explain in Explain in your own words what “insolvency” means;

Discuss the possibilities when a debtor is not able to pay debts due, and whether the
Discuss law is structured to protect the interests of the majority of the population that is within
the poverty bracket;

Name and explain Name and explain the legal rules that govern insolvency;

Sketch Sketch the process of insolvency;

Learning Determine Determine which estates are susceptible to sequestration;

Outcomes Explain Explain jurisdiction;

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Explain Explain what is meant with “voluntary surrender”;

Explain what the applicant for voluntary surrender and compulsory has to
Explain prove –the applicant’s burden of proof;

Explain
Explain what is meant with “compulsory sequestration”;
 Law of Insolvency
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Definition of insolvency law

• Totality of rules regulating

• debtor cannot pay debt (commercial) (cash flow problems) or
• total liabilities exceed assets (factual)
• Act of insolvency →commercial insolvency –leads to compulsory sequestration

The law of insolvency can be described as the totality of rules regulating the situation where a debtor cannot
pay his/her debts, or where his/her total liabilities exceed his/her total assets … The creditors can then jointly
apply for the sequestration for the debtor’s estate …

The purpose of this procedure is to

• pay at least a dividend to all the concurrent creditors, instead of satisfying only the claims of a few of the creditors.
• The main objective is to provide for the orderly distribution of a debtor’s assets where these assets are insufficient to satisfy all his/her
creditors’ claims.
Introduction
4

• Debtor’s options –debt problems

• Administration order –debt must not exceed R50 000
• Release –if debtor say he cannot pay –Act of insolvency
• Credit agreement NCA: Debt counselling –debts get re-arranged
• Voluntary surrender –only if requirements are met
• Creditors options
• Individual collection –litigation →execution –attach property +
sell
• Collective collection –Sequestration→law of insolvency•Assets
will not satisfy a claim
• Creditors apply for sequestration
• Objective of collective collection process –to pay at least a
dividend
• Provide orderly distribution of assets
 Creditors-right to satisfy claims by executing assets

Concurrency of creditors –who stand where in line to get

money
Insolvency As soon as sequestration order is given
Act Based • –debtor loses control of estate
• Control vest in the master then in the trustee

on 2 • Master appoint trustee

• Trustee sell assets and pay creditors
• Secured, preferent & concurrent creditors
principles Concursus creditorum exist

• Creditors are dealt with in a group –not individually

• No claim, no execution, no attachment
• Debtor cannot alienate any property –Contractual capacity ltd until rehab.
• Certain transaction can be set aside.
 Insolvency Act –definition of “debtor”

• Natural person or partnership

• Deceased estate
• Estate of person incapable of handling own
affairs
Estates that • Trust
can be
Companies Act 61 of 1973
sequestrated • Regulates liquidation of insolvent companies
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Companies Act 71 of 2008

• Regulate solvent
 Only a High court can • – Debtor is domiciled
hear sequestration • – Debtor owns or is entitled to property
applications • – Debtor ordinarily resides or carries business at any
time during the 12 months before the seq.
application

Jurisdiction Can overlap • – Amy is a sales rep who has business in Johannesburg in. So she
rents an apartment in JHB but, every weekend, she goes home to
Witbank and sells her products at the farmer’s market. But she
also owns a vacation home in Cape Town

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What does • Limits the debtor's:
sequestration do to a - capacity to contract
persons status• - capacity to litigate
- capacity to hold office (earn an income)

•When?
Voluntary surrender
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Who can apply

• Debtor
• Agent, representative with special authority
• Curator bonis (person appointed to handle the estate of a person incapable of handling his own
estate)
• Executor of a deceased estate
If the debtor is married:
• In community of property –both spouses must apply jointly
• Out communit of propery- only the debtor will apply
• Ordinary Partners
• Apply jointly for surrender of partnership
• At the same time –apply for surrendering of own estate
 • PRELIMINARY FORMALITIES BEFORE THE COURT APPLICATION
• Step 1 – Debtor must publish a notice of intention to surrender his estate in the GG + newspaper
where debtor is staying/trading/principal business is located: 14-30 days before application
(court hearing date)

Voluntary • Effect of notice:

• Assets cannot be attached (suspends all sales in execution but in exceptional

surrender: circumstances, the Master can authorise sale in execution)

• Sheriff may not pay creditors after sales

Preliminary • Money and assets must be transferred to trustee

• Temporary curator bonisto control estate

formalities • Step 2 - Notice of surrender to must be sent to all known addresses of creditors SARS, Employees +
trade unions :
• Within 7 days of publication of the notice
• Step 3-Prepare statement of affairs to lie for inspection by creditors at the Master's office:
• List all assets and liabilities
• 2 Copies to the masters office where the debtor resides
• No local master –sent to provincial Master and one copy to Master of the
district
• Must be open for 14 days for inspection from date of surrender
• Purpose of preliminary formalities:
• (a)To inform creditors of the application and
• (b)Enable them to object to such an application
 • REQUIREMENTS TO BE MET IN COURT BY THE APPLICANT
DEBTOR:
The applicant debtor must prove:
• That Preliminary formalities were met
Voluntary • The applicant debtor must prove that:
surrender: - he/she is in fact insolvent
- Sufficient residue to cover costs of sequestration
Burden of - Sequestration 'will be' to advantage of creditors
• Court's discretion
proof - Court has a discretion to grant or refuse the sequestration
order
- Can postpone or refuse if brought with an improper motive
• Whats the process in court?
• Start proses with -Notice of motion + affidavit
• Decision of the court –based on documents
• Facts must be provided in the sworn affidavit
• Doc must be lodged two days before application
 • Who is the applicant?
• Creditor apply for sequestration of the debtor
• Preliminary formalities before the court application
• Applicant must give security for seq costs until
Compulsory trustee is appointed
• Must get a certificate to proof
sequestration • Not more than 10 days before application
• Give copies of the application must be sent to:
• Debtor
• SARS
• Employees + trade unions (if applicable)
• Application process
• start with notice of motion supported by affidavit
 REQUIREMENTS TO BE MET IN COURT BY THE APPLICANT CREDITOR

Compulsory 1. Complied with formal requirements;

sequestration: 2. Liquidated claim: R100 or R200 jointly
Provisional 3. Reason to beleive that seq will be to advantage of creditors
sequestration
4. Debtor is insolvent/ has committed an act of insolvency
• Claim is for an amount of money
• That is Certain & determined
• By an order of court or agreement or otherwise

When is a claim not liquidated

• Claim to delivery of goods
• Claim to do something
• Amount of money in dispute –summons –settlement then it will be liquidated
• Claim for damages
 Leaves RSA + intent to evade or delay payment

Failure to satisfy judgment: Sheriff gives Nulla bona return where

judgment is given against the debtor and (i) or (ii)
Acts of Debtor disposes his property & prejudices or prefers 1 creditor
Insolvency
Removes/attempt his property with intent to prejudice or prefer

Offer of arrangement with any creditor to release the debtor of his debts
(actual or attempt)
Failure to apply for surrender: Debtor fail to follow through with Voluntary
surrender
Notice of inability to pay –not unwilling

If debtor is a trader and gives notice of transfer his business in the GG- and
his is unable to pay debts
 Final sequestration order

Final
sequestration Return date
order
Proof of everything again
Conclusion