MRL3701 / Transformative Constitutionalism

Insolvency Law
MRL3701

Transformative Constitutionalism

Semesters 1 and 2

Department of Mercantile Law

This letter contains important information about your module.

 MRL3701 / Transformative Constitutionalism

TRANSFORMATIVE CONSTITUTIONALISM IN INSOLVENCY LAW

Welcome to the Law of Insolvency. We trust that you will enjoy this module.

Unisa has implemented a transformation charter, in terms of which the university has
placed curriculum transformation high on the teaching and learning agenda.
Curriculum transformation includes student-centred scholarship, the pedagogical
renewal of teaching and assessment practices, the scholarship of teaching and
learning, and the infusion of African epistemologies and philosophies. All of these will
be phased in at both programme and module levels, and as a result of this you will
notice a marked change in the teaching and learning strategy implemented by Unisa,
together with the way in which the content is conceptualised in your modules. We
encourage you to embrace these changes during your studies at Unisa in a responsive
way within the framework of transformation.

NB: What follows below must be considered as part of every learning unit in this
module. Transformative Constitutionalism will be posed in many of the learning units
we will discuss. You will therefore have to revert to this discussion letter regarding each
learning unit.

If you are interested in learning more about this aspect of the interface between the
Constitution and Insolvency Legislation, we suggest that you consult Boraine A and
Evans R The Law of Insolvency and the Bill of Rights (last updated in October 2014 –
SI 34) in the Bill of Rights Compendium (editors Mokgoro Y and Tlakula P). In the text
of the guide which follows we will refer to this work as Boraine and Evans “The Law of
Insolvency and the Bill of Rights”.

1 INTRODUCTION

The Interim Constitution of 1993 and the present Constitution of the Republic of South
Africa, 1996, with the Bill of Rights contained therein, have an impact on the law of
insolvency. A body of case law in this respect already exists. The sequestration,
administration and distribution of insolvent estates is experiencing constitutional
transformation. This will continue in the future in view of the contentious nature of
insolvency law and the diverse parties and their respective interests. The individual
rights of the parties concerned are of importance in constitutional transformation.

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It must be noted that section 8(1) makes the Bill of Rights applicable to all law. So the
Constitution generally extends to state organs such as the judiciary, legislature and
executive, while section 8(2) brings all natural and juristic persons into its ambit.
Therefore the role played by the courts, executive and legislature in the process of
insolvency, functions of the Master of the High Court, sheriff, registrar of titles to
immovable property, and Registrar of the High Court all make the Bill of Rights relevant
to the whole issue of insolvency. The insolvent debtor is also affected in his relationship
with the trustee or liquidator as well as the creditors.

Aspects of the law of insolvency have been amended (or might have to be) to achieve
transformational constitutionalism and so comply with the Bill of Rights. These aspects
will be considered briefly in the course of this module on insolvency law.

Although the Insolvency Act, 1936 is the main source of our insolvency law, it is not
the only source. The Companies Act 61, 1973 (the “old” Act), the Companies Act 71,
2008 (the “new” Act) and the Close Corporations Act, 1984 as well as other legislation
also contain provisions for the winding-up or liquidation of companies and other
entities unable to pay their debts. Judgments of the High Courts and the Constitutional
Court set precedents which are an important source of insolvency law. Also the
principles of the common law, such as the general rule pertaining to unexecuted
contracts and the actio Pauliana must sometimes be considered.

Constitutional scrutiny will result in new perspectives on insolvency law through

transformational constitutionalism. Several aspects of the constitutional transformation
of insolvency law will be considered here even through the Bill of Rights and the rest
of the Constitution does not consider the matter directly or indirectly.

Section 8 makes the Bill of Rights binding on the legislature, the executive, the
judiciary and all organs of state, and it binds natural and juristic persons.

Section 9 provides for equality among all persons before the law. Unfair discrimination
by the state or any other person, on any ground including race; gender; sex;
pregnancy; marital status; ethnicity or social origin; colour; sexual orientation; age;
disability; religion; conscience; belief; culture; language and birth, is unlawful. Section
9 also provides for necessary measures to be taken to promote and achieve equality
for persons or categories of persons who have been victims of unfair past
discrimination.

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The provisions of sections 10, 11, 12 and 13 of the Constitution also may affect
insolvency law. These sections deal essentially with the right to dignity, life and
freedom and security of person. Some of these aspects will also be referred to below
with specific reference to aspects of insolvency law and transformational
constitutionalism.

Section 22 recognises the freedoms of trade, occupation and profession while sections
25 and 26 respectively recognise people's rights to property and housing. The
Insolvency Act's provisions allowing an insolvent debtor to be employed or to practice
a profession generally comply with the constitutional rules. The limitation of an
insolvent person's right to alienate assets belonging to the insolvent estate (section
23(2) of the Insolvency Act) and to serve in certain fiduciary positions such as a
member of Parliament, (Constitution of 1996, ss 47 and 106) and on boards of
corporate entities (Companies Act, 1973, s 218(1)(d)(i))) should be considered as
permissible under the limitation clause under section 36 of the Bill of Rights. Another
aspect of transformational constitutionalism is an insolvent person's right to housing.
He cannot claim the right to accommodation while his trustee or creditor has not
received payment for such housing accommodation. The Insolvency Act provides
protection for the insolvent debtor by providing in section 82(6) for his or her trustee
and creditors to apply to the Master to allow the debtor to keep some of his or her
wearing apparel, bedding, household furniture and tools, as being necessary for the
support of, or professional conduct of an insolvent and his or her dependents. This
cannot be said to be an unreasonable restriction within the meaning of section 36 of
the Constitution.

Section 20 of the Insolvency Act divests the insolvent debtor of his or her property and
vests the ownership thereof in the trustee of the insolvent estate. This is not
unconstitutional as this deprivation of property falls within the ambit of section 25(1) of
the Constitution which allows for that, as long as it is in accordance with the provisions
of a law of general application and does not amount to an arbitrary deprivation of
property. The Insolvency Act is clearly such a law.

Sections 36, 38 and 39 of the Constitution deal with issues of limitations enforcement
and interpretation of the rights enshrined in the Bill of Rights. Section 39 in particular
relates to transformational constitutionalism in the sense that the interpretation of

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legislation and the development of the common law and customary law by courts or
tribunals must promote the spirit, purport and objects of the Bill of Rights. This must
also be applied to future development of Insolvency Law.

But it must be remembered that when considering whether a provision infringes the
Constitution, the court must also apply the limitation clause, being section 36 of the
Constitution of 1996. Section 36 may prevent such a provision from being
unconstitutional if found that the limitation is “reasonable and justifiable in an open and
democratic society based on human dignity, equality and freedom”.

2 WHAT IS TRANSFORMATIVE CONSTITUTIONALISM?

Transformative constitutionalism is an approach to consider the law through the

Constitution.

An important approach to considering the law through the lens of the Constitution is
"transformative constitutionalism". The concept does not appear in the wording of the
final Constitution of 1996 but was given expression in two particularly important articles
(Klare K "Legal culture and transformative constitutionalism" (1998) 14 SAJHR 146;
and Langa P "Transformative constitutionalism" (2006) 17(3) Stell LR 351). Klare's
working definition of transformative constitutionalism (at page 150) is that it is:

“a long-term project of constitutional enactment, interpretation and enforcement

committed (not in isolation, of course, but in a historical context of conducive
political developments) to transforming a country's political and social
institutions and power relationships in a democratic, participatory, and
egalitarian direction”.

Chief Justice Langa ((2006) 17(3) Stell LR at page 351) observed that there is "no
single accepted definition" of transformative constitutionalism. Nevertheless, he
sought (at page 352) to provide an understanding of transformative constitutionalism
by quoting the Epilogue (Postamble) to the Interim Constitution of the Republic of
South Africa, 1993, that the Constitution provides:

"a historic bridge between the past of a deeply divided society characterised by
strife, conflict, untold suffering and injustice, and a future founded on the
recognition of human rights, democracy and peaceful co-existence and

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development opportunities for all South Africans, irrespective of colour, race,

class, belief or sex".

The main aspects of Chief Justice Langa's essay have more recently been described
as follows (Brickhill J and Van Leeve Y "Transformative constitutionalism – Guiding
light or empty slogan?" 2015 Acta Juridica 141 at 142):

"Accepting that there is no single definition, Justice Langa proposed that, at the
very least, transformative constitutionalism includes the pursuit of some form of
economic transformation and a change in legal culture. He also argued that
transformation is necessarily an ongoing process, and that there is value in the
process of change itself. Justice Langa went on to recognise five factors that
could promote or retard the achievement of transformative constitutionalism.
These five factors are access to justice, legal education, legal culture, the
separation of powers and reconciliation. Viewed pessimistically, these factors
are challenges or obstacles; more optimistically, they are key enabling
conditions which, intersecting with political and other factors, may have a
progressive effect on society".

Gathering these ideas together for present purposes, then, it is submitted that
transformative constitutionalism enables the continuing, critical analysis of some
aspects of the law of insolvency, when tested against the Constitution, in furthering the
interests of economic transformation and a change in legal culture.

A further guiding principle: Ubuntu

In your study of Insolvency Law, a further guiding principle that will be mentioned in
some respects is ubuntu. Again, for the sake of brevity, we introduce ubuntu by quoting
from Klare's essay on transformative constitutionalism. Klare explains the word ubuntu
((1998) 14 SAJHR at page 155 footnote 20):

"'Ubuntu' is a word in the Nguni languages that appears in the Postamble to the
interim Text [of the Constitution, 1993]. It evokes an ethos or culture of
community, interdependence, sharing, mutual respect and the dignity and worth
of each person. [S v Makwanyane 1995 (3) SA 391 (CC)] paras. 224 and 263.
It connotes humaneness, caring, social justice, and fairness. [S v Makwanyane]
at paras. 237, 293 and 308."

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The word ubuntu does not appear in the text of the final Constitution, 1996. However,
it is a concept that provides a theme of the final Constitution, as the Constitutional
Court has described:

"The spirit of ubuntu, part of the deep cultural heritage of the majority of the
population, suffuses the whole constitutional order. It combines individual rights
with a communitarian philosophy. It is a unifying motif of the Bill of Rights, which
is nothing if not a structured, institutionalised and operational declaration in our
evolving new society of the need for human interdependence, respect and
concern" (Port Elizabeth Municipality v Various Occupiers 2005 (1) SA 217 (CC)
par 37).

Ubuntu was also described as follows by Lamont J in the Equality Court (Afriforum
and Another v Malema and Another 2011 (6) SA 240 (EqC) par 18):

"There are a number of ubuntu-based judgments. An ubuntu-based

jurisprudence has been developed particularly by the Constitutional Court.
Ubuntu is recognised as being an important source of law within the context of
strained or broken relationships amongst individuals or communities, and as an
aid for providing remedies which contribute towards more mutually acceptable
solutions for the parties in such cases. Ubuntu is a concept which:

1. is to be contrasted with vengeance;

2. dictates that a high value be placed on the life of a human being;
3. is inextricably linked to the values of, and which places a high premium
on, dignity, compassion, humaneness and respect for the humanity of
another;
4. dictates a shift from confrontation to mediation and conciliation;
5. dictates good attitudes and shared concern;
6. favours the re-establishment of harmony in the relationship between
parties and that such harmony should restore the dignity of the plaintiff
without ruining the defendant;
7. favours restorative rather than retributive justice;
8. operates in a direction favouring reconciliation rather than estrangement
of disputants;

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9. works towards sensitising a disputant or a defendant in litigation to the

hurtful impact of his actions to the other party, and towards changing
such conduct rather than merely punishing the disputant;
10. promotes mutual understanding rather than punishment;
11. favours face-to-face encounters of disputants with a view to facilitating
differences being resolved rather than conflict and victory for the most
powerful;
12. favours civility and civilised dialogue premised on mutual tolerance."

Insolvency Law in South Africa has developed in various ways since its inception in
this country. However, by its very nature it is a subject that is and always will be ripe
for further development through principles of transformational constitutionalism and
Ubuntu. In the following paragraphs various examples of transformational
constitutionalism in Insolvency Law, as developed through the courts, will be briefly
discussed. It must be noted that this is not an in-depth study of constitutional law,
which is a separate and independent module (subject) presented by a different
department, and not by the Department of Mercantile Law.

3 EXAMPLES

3.1 Married women deprived of certain insurance benefits in the past

Section 44 of the previous Insurance Act 27 of 1943 restricted married women only
(and not men) to a portion of the benefits of life insurance policies where the estate of
the husband (who had either ceded or executed such a policy in favour of his wife)
was sequestrated. But already under the Interim Constitution this provision in section
44 of the Insurance Act was scrutinised. The Act contained no similar effect on a life
policy which was ceded to or executed in favour of a man by his wife.

Since the advent of the new constitutional dispensation, this situation has been
addressed at various levels.

In Brink v Kitshoff 1996 4 SA 197 (CC) it was contended that the spirit and content of
section 44(1) and (2) of the Insurance Act was incompatible with Chapter 3 of the
Interim Constitution of 1993 as it was discriminatory against married women.
Specifically, it was argued that it violated section 8 of the Interim Constitution which
provided for equality of all persons before the law and for the equal protection of all by

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the law. In addition that section proscribed any form of unfair discrimination, whether
direct or indirect, which was based on, among other things, gender and sex.

In her judgment, O’Regan J found that section 44(1) and (2) treated married women
and men differently, thereby disadvantaging married women and not married men. She
held that it infringed section 8 of the Interim Constitution and was therefore invalid.
Section 8 of the Interim Constitution is section 9 under the present Constitution.

After Brink v Kitshoff, the entire Insurance Act was repealed by Parliament and
replaced by the Long-Term Insurance Act 52 of 1998. The position of women policy
holders is now the same as that of men. In this respect equality between male and
female policy holders is regulated by section 63 of the new Long-Term Insurance Act
which has been amended by the Financial Services Laws General Amendment Act 45
of 2013, which came into effect on 28 February 2014, but requires no further
discussion here. Therefore, through transformational constitutionalism, changes
resulted in an area where insurance law and insolvency law converge, thereby
creating legislation within the spirit of the Constitution.

3.2 Equality of a solvent spouse's property rights under section 21 of the

Insolvency Act

Section 21(1) of the Insolvency Act provides as follows:

“The additional effect of sequestration of the separate estate of one of two

spouses who are not living apart under a judicial order of separation shall be to
vest in the Master, until a trustee has been appointed, and, upon the
appointment of a trustee, to vest in him all the property (including property or
proceeds thereof which are in the hands of a sheriff or messenger under a writ
of attachment) of the spouse whose estate has not been sequestrated
(hereinafter referred to as the solvent spouse) as if it were property of the
sequestrated estate, and to empower the Master or trustee to deal with such
property accordingly, but subject to the provisions of the section.”

This section therefore dispossesses the solvent spouse of his or her property in favour
of the other spouse's insolvent estate and creditors thereof. The provision applies only
to marriages out of community of property. Section 21 was introduced to the Insolvency

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Act to avoid collusion between spouses when the estate of one of them was
sequestrated.

In Harksen v Lane 1998 (1) SA 300 (CC) section 21 was challenged in the
Constitutional Court. In that case the estate of the applicant's husband, to whom she
was married out of community of property, was sequestrated. The Master caused her
property to be attached in accordance with the provisions of section 21(1) of the
Insolvency Act. Mrs. Harksen argued that section 21 infringed her rights in the equality
guarantee and the property guarantee contained in sections 8 and 28 of the Interim
Constitution (respectively sections 9 and 25 of the final 1996 Constitution).

One argument in favour of the solvent spouse is that section 21 is discriminatory

against solvent spouses of persons married out of community of property on grounds
of marital status. This is because it imposes severe burdens, obligations and
disadvantages on such spouses when their husbands or wives become insolvent, but
the same does not apply to other persons with whom the insolvent has had close
relationships, or whose property may be in his or her possession, like family or
business partners.

Many other examples of the perceived inequities of section 21 have been given by
various authors and the courts.

Section 21 attempts to limit prejudice to the solvent spouse by providing him or her
with the ability to apply for the release of her property, and certain other provisions.

In the Harksen judgment the majority of the judges ruled that section 21 did not infringe
the constitutional provisions. The court ruled that the section did not amount to
expropriation as contended by the applicant because there was a distinction between
a deprivation of rights in property as contemplated by section 28(2) and an
expropriation. The temporary divestment of the solvent spouse was merely to ensure
that the insolvent estate was not deprived of property to which it was entitled. In the
eyes of the majority of the court in Harksen, adequate mechanisms were provided in
section 21 to ensure that innocent solvent spouses can get their property back.

As to the standing of section 21 against the equality and non-discriminatory injunctions

of section 8(1) and (2) in the Interim Constitution, the court outlined a scheme of
queries which had to be answered objectively in order to establish a violation. These

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related to whether the provision differentiated between people or categories of people.

If so, did the differentiation bear a rational connection to a legitimate governmental
purpose? Where the differentiation served no governmental purpose it was a violation.
On the question whether a differentiation between the solvent spouse and other
persons could be upheld as being valid under the Constitution, the court directed that
actual discrimination should be established before the section can be said to be
unconstitutional. Such discrimination may be on a specified ground or not. If a
differentiation is not on a specified ground such as race, gender or religion then
whether or not it constitutes discrimination would depend on the question whether its
practice could, objectively, be said to impair fundamental human dignity or to affect
persons adversely in a comparably serious manner. Moreover, according to the
majority even if a differentiation was discriminatory, a further requirement, whether it
was unfair, had to be established. The test of such unfairness was the impact of the
discrimination on the complainant and others in his or her situation. If the
discrimination was found to be unfair, a determination would have to be made as to
whether the provision could be justified under the limitation clause, section 33 (section
36 in the final Constitution).

On examining section 21 according to this process, the majority of the court held it not
to be unconstitutional. They also found that the differentiation between the solvent
spouse of an insolvent and other persons with whom the insolvent had dealings or of
whose property he or she might be in possession had a rational connection to the
governmental purpose of trying to stem illegal transfers of property to solvent spouses
at the expense of creditors. The provision, the majority said, also sought to overcome
the usual difficulties attendant to the process of determining the ownership of assets
belonging to spouses who are married out of community of property. The majority
could not for this reason regard section 21 as being based on arbitrary or irrational
considerations. Of significant importance in the eyes of the court was the belief that
solvent spouses, more than anyone else, possessed special knowledge about the
facts pertaining to the determination of the ownership of property in his or her joint
household with the insolvent. The shifting of the burden of proof was under these
circumstances said not to be irrational. Moreover, measures which section 21 provides
to safeguard the interests of the solvent spouse were considered to be adequate.

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While the court conceded that the differentiation between solvent spouses and other
associates of the insolvent could demean the solvent in her inherent humanity and
dignity, it found that the cumulative effect of the discrimination did not justify the
conclusion that section 21 constituted unfair discrimination.

In separate minority decisions O'Regan and Sachs JJ arrived at a different finding in

respect of the applicant's contentions on section 8(3). Specifically, O'Regan found that
the impugned provision could not be justified under the limitations clause. Nor could
she and the other dissenters find section 21 to be vital to the goals of the Insolvency
Act in view of the existence of the impeachment and interrogative provisions which
exist in that Act. It is clear from these divisions within the court that the last word on
section 21 has not yet been spoken, and it may be subjected to transformational
constitutionalism in the future.

3.3 Giving of evidence and interrogations in insolvency proceedings

Introduction

It can be generally assumed that the insolvent is the person who is most up to date
with his or her financial situation and possessions. So the trustee or liquidator may
need to apply his or her powers to interrogate the insolvent regarding these finances
and possessions that may be available for the benefit of the creditors in sequestration
or liquidation proceedings. Information extracted from the relevant parties can assist
in finding estate property or ascertaining whether any civil claims against any other
party may bring in property owing to the insolvent estate. Regarding companies,
interrogations may uncover the personal liability of directors and officials in terms of
section 424 of the Companies Act, 1973. This legislation regarding interrogative
procedures and powers of trustees and liquidators has been subjected to constitutional
scrutiny in several judgments.

Interrogations

Sections 64 and 65 the Insolvency Act provide for a creditor's interrogation, and
section 152(2) to (7) allows for a Master's enquiry. Under section 39(2) the Master or
an officer in the public service so designated, or a magistrate in those areas where
there is no Master's office, may preside over meetings convened for such purposes.

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The Companies Act of 1973 provides for similar creditors' interrogations in terms of
sections 415 and 416, and private enquiries by the Master or a commissioner in terms
of sections 417 and 418.

Insolvent compelled to testify; protection against self-incrimination

The insolvent may be compelled under section 32(3) of the Insolvency Act to testify in
proceedings regarding pre-sequestration dispositions. The insolvent is not entitled to
refuse to answer these questions on the grounds that he or she does not wish to
incriminate him or herself. Besides infringing the common-law rule against self-
incrimination and the right to remain silent, section 32(3) also infringes various
provisions of the Constitution, 1996. In particular, accused persons cannot be
compelled to incriminate themselves or be compelled to speak (s 35(3) of the
Constitution). Section 32(3) of the Insolvency Act also infringes various other
provisions of the Constitution: section 9 (equality), section 12(1) (freedom and security
of the person), section 14 (privacy), section 33 (just administrative action), and section
34 (access to courts). The only way of rebutting arguments based on these provisions
of the Constitution seems to be an argument based on the limitations clause in section
36 of the Constitution.

Sections 64 to 66 of the Insolvency Act and sections 415 to 418 of the Companies Act
1973

Sections 64(1), (2) and (3) of the Insolvency Act were examined in terms of the
Constitution, but generally were held by the courts to pass constitutional muster. These
decisions by the courts may themselves be debated.

Before 1989, the unamended section 65 of the Insolvency Act did not protect a witness
regarding self-incriminating evidence in interrogations under sections 65(2) or 152(2)
or (3). However, by contrast, under amendment section 65(2A)(a) of the Insolvency
Act now provides that if a person testifies under this section and is obliged to answer
questions which may incriminate him or her, or, if he or she is to be criminally charged,
questions which may prejudice her at that trial, the presiding officer must order that
such part of the proceedings must be held in camera and that no information about
those questions and answers may be published at all. Furthermore, under section
65(2A)(b), the evidence regarding questions and answers contemplated in section
65(2A)(a) is generally not admissible in any criminal proceedings. The exception is

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those criminal proceedings regarding the taking of an oath or giving false statements,
and in relation to criminal proceedings under section 139(1) of the Insolvency Act with
respect to failing to answer lawful questions properly.

In addition, part of the previous section 417(2)(b) of the Companies Act, 1973, which
resembled the above provisions of the Insolvency Act, was held to be unconstitutional
(Ferreira v Levin 1996 (1) SA 984 (CC)). The majority of the Constitutional Court held
that section 417(2)(b) of the Companies Act, 1973 infringed the provisions of the
Interim Constitution 1993 which dealt with the right to personal freedom and a fair trial
(s 11(1) and 25(3)). Most of section 417(2)(b) of the Companies Act, 1973 was held to
be constitutional, and so also was section 418 (Bernstein v Bester 1996 (2) SA 751
(CC)).

Sections 415(3) and 415(5), as well as section 417(2) of the Companies Act, were
amended. Today a person may not refuse to answer a question on the grounds that
the answer may be self-incriminating. If the refusal is based on the ground of self-
incrimination, the person is obliged to answer at the instance of the Master or the
presiding officer, as long as the Master consults with the Director of Public
Prosecutions (s 415(3)). Incriminating answers or information directly obtained, or
incriminating evidence directly derived from an interrogation under section 415(1), is
not admissible as evidence in criminal proceedings in a law court against the relevant
person or body corporate of which she is an officer. However, such evidence may be
used in criminal proceedings against the person charged with an offence regarding
the taking of an oath, the making of a false statement or the failure to answer lawful
questions properly. The amended sections 417(2)(b) and 417(2)(b) resemble sections
415(3) and 415(5) of the Companies Act, 1973.

Interrogation of the insolvent's spouse and other witnesses

The insolvent's spouse, the trustee, and other witnesses may be compelled to attend
creditors' meetings and answer questions there. Non-attendance may lead to the
presiding officer's committing the witness to prison. To exercise this power of
committal, the presiding officer must be a magistrate (De Lange v Smuts 1998 (3) SA
785 (CC)). The constitutionality of these provisions will still be debated in time to come.

Sections 64 and 65 of the Insolvency Act were held to be constitutional and not to
infringe the rights to equality, property, privacy, freedom and security (Harksen v Lane

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1998 (1) SA 300 (CC)). The court's reasoning was based on the same grounds as
those on which section 21 of the Insolvency Act was held not to be unconstitutional.

Interrogations under sections 152(2) to 152(7) of the Insolvency Act

Section 152 enables the Master, magistrate or an officer in the public service to compel
the insolvent to appear before him. So section 152 should be read together with
sections 32, 64, 65 and 66 of the Insolvency Act. During the period of sequestration,
the insolvent, the trustee or any other person may be compelled to appear to give
information that the Master considers desirable about the insolvent or about the
insolvent's estate, the administration of the estate or about any claim or demand
against the estate (s 152(2)). The Master and the magistrate or the presiding officer
may interrogate the relevant person about the insolvent or his estate or the
administration of the estate. The trustee may also interrogate persons at this meeting.
The insolvent may be compelled to answer questions under oath. Because section
152 must be read together with sections 65 and 66, the insolvent is not allowed to
refuse to answer questions because of possible self-incrimination or another right laid
down in the Constitution. Therefore, section 152 does not infringe the summoned
person's right to privacy, freedom of speech (and the right not to speak) and equality
(Podlas v Cohen and Bryden 1994 (4) SA 662 (T)). The insolvent and other witnesses
are not entitled to the information that caused the Master to convene an inquiry under
section 152 (Strauss v The Master 2001 (1) SA 649 (T)).

Recalcitrant witnesses

For recalcitrant witnesses to be lawfully imprisoned (s 66 of the Insolvency Act; s 416

of the Companies Act, 1973), there must first be a fair trial presided over by a judicial
officer (De Lange v Smuts 1998 (3) SA 785 (CC)).

3.4 Winding up of companies

The winding up of companies is regulated by three statutes: the Companies Act of

2008, the Companies Act of 1973, and the Insolvency Act of 1936. Here we will
mention some further features of the Companies Act, 2008.

The promotion of compliance with the Bill of Rights in applying company law (s 7(a) of
the Companies Act, 2008).

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We refer you to section 7 of the Companies Act, 2008. This section sets out the
purposes of the Companies Act. Section 7(a) of the Companies Act provides that one
of the purposes is to "promote compliance with the Bill of Rights as provided for in the
Constitution, in the application of company law". Among other things, this means that
the interpretation of the Companies Act must take place "through the prism of the
Constitution [1996]" (see Booysen v Jonkheer Boerewynmakery (Pty) Ltd (in Business
Rescue) and Another [2017] 1 All SA 862 (WCC) par 41, citing Investigating
Directorate: Serious Economic Offences and others v Hyundai Motor Distributors (Pty)
Ltd and others: In re: Hyundai Motor Distributors (Pty) Ltd and others v Smit NO and
others 2001 (1) SA 545 (CC) para 21; Delport P et al Hochberg on the Companies Act
71 of 2008 (loose-leaf) section 7 Commentary on Purposes). In the Booysen case, the
court was interpreting section 133 of the Companies Act, which concerns the general
moratorium on legal proceedings against the company in business rescue. The case
therefore involved the constitutional right of access to courts, under section 34 of the
Constitution, which the litigant would usually have. The court held that in interpreting
section 133 of the Companies Act, it was obliged to promote the spirit, purport and
objects of the Bill of Rights (s 39(2) of the Constitution; Makate v Vodacom (Pty) Ltd
2016 (4) SA 121 (CC) par 88).

3.5 Business rescue

We draw your attention to section 7(k) of the Companies Act, 2008. Section 7(k) is one
of the purposes of the Companies Act. Section 7(k) provides for "the efficient rescue
and recovery of financially distressed companies, in a manner that balances the rights
and interests of all relevant stakeholders". This purpose indicates that, because a
"legislative preference [is] for rescuing ailing companies if such a course is reasonably
possible", "business rescue is preferred to liquidation" (Southern Palace Investments
265 (Pty) Ltd v Midnight Storm Investments (Pty) Ltd 2012 (2) SA 423 (WCC) pars 21-
22). However, the possibility and importance of liquidation proceedings within the
provisions regarding business rescue must still be borne in mind. As the court held
with respect to the purpose in section 7(k):

“This does not mean that the Act shuns liquidation proceedings within the
business rescue provisions. On the contrary, liquidation proceedings are still
regarded as a possibility in several sections: 129(6), 131(8)(a), 132(2)(a)(ii),

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135(4), 140(4), 141(2)(a)(ii), 145(4)(b), 150(2)(a)(iii), 150(2)(b)(vi), 155(3)(a)(iii)

and 155(3)(a)(iv)" (Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein
(Kyalami) (Pty) Ltd 2012 (3) SA 273 (GSJ) par 12; see also Delport P et al
Henochsberg on the Companies Act 71 of 2008 (loose-leaf) section 7
Commentary on Purposes).”

Furthermore, section 5(1) of the Companies Act, 2008 provides that the Companies
Act "must be interpreted and applied in a manner that gives effect to the purposes set
out in section 7". It has been held that a purpose of business rescue proceedings is to
provide the company with "breathing space so that its affairs may be assessed and
restructured in a manner that allows its return to financial viability" (Chetty t/a
Nationwide Electrical v Hart NNO 2015 (6) SA 424 (SCA) par 28). Accordingly, the
possibility of creating this breathing space for the business rescue practitioner is to be
borne in mind when a provision of the Companies Act is being interpreted (Chetty pars
28-29; Delport P et al Henochsberg on the Companies Act 71 of 2008 (loose-leaf)
section 7 Commentary on Purposes). Moreover, an inclusive interpretation of the
relevant statutory provisions is to be preferred rather than a restrictive interpretation.
Nevertheless, section 7(k) should not be interpreted so as to justify the adoption of
business rescue plans "at all costs" (DH Brothers Industries (Pty) Ltd v Gribnitz NO
and Others 2014 (1) SA 103 (KZP) par 54). In the DH Brothers case, the court pointed
out that business rescue plans were required to be accepted by the relevant
percentage of creditors. The concept of "stakeholders", though not defined by the
Companies Act, had to include creditors. Creditors' interests were important for the
achievement of some of the other purposes that were stated in section 7 of the
Companies Act.

The importance of employees in the context of business rescue proceedings (see, for
example, employees as "affected persons" under section 128(a) of the Companies
Act; the effect of business rescue on employment contracts; the rights of employees
as affected persons and meetings of employees' representatives.

Boraine and Evans ("The Law of Insolvency and the Bill of Rights" par 4A8(d) Fair
labour practices, in the Bill of Rights Compendium last updated October 2014 – SI 34)
have noted the fact that, following moves towards a culture of business rescue in
foreign jurisdictions, the Companies Act, 2008 provides for business rescue "with the

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rights of employees being paramount". The authors explain that "job preservation and
the protection of employees are extremely important to the extent that rights of
employees to receive their wages when the business is subject to such a rescue
procedure, even trumps the rights of secured creditors in certain instances". The
authors add that these "developments are indicative of the importance of what could
be deemed to be fair labour practices as well as socio-economic rights".

Implementation of the business rescue plan, and discharge of the company from debt

It has been observed that though "non-human entities like companies do not qualify
for rehabilitation and discharge in terms of the Insolvency Act, business rescue
provides an alternative to winding up" (Boraine A and Evans R "The Law of Insolvency
and the Bill of Rights" (par 4A8(i) Discharge of debt), in the Bill of Rights Compendium
last updated October 2014 – SI 34). The right to fair labour practices (s 23(1) of the
Constitution) may be advanced if a business can be rescued rather than being finally
wound up. Business rescue under the Companies Act "does not provide for a
compulsory statutory discharge" (Boraine and Evans par 4A8(i)). Nevertheless, in
terms of a business rescue plan a creditor may accede to the discharge of the whole
or part of the debt owing to that creditor. Such a creditor will then lose the right to
enforce that debt or part of it (s 154(1) of the Companies Act).

4 AREAS OF POTENTIAL CONFLICT AND THE RELEVANCE OF

TRANSFORMATIONAL CONSTITUTIONALISM

4.1 Section 27 of the Insolvency Act

Section 27 governs the position when women receive benefits under an antenuptial
contract, and insolvency law. It provides that:

(1) No immediate benefit under a duly registered antenuptial contract given

in good faith by a man to his wife or any child to be born of the marriage
shall be set aside as a disposition without value, unless the man's estate
was sequestrated within two years of the registration of that antenuptial
contract.

Section 27 therefore stipulates that a settlement of property in an ANC by the husband

on his wife or any child to be born of the marriage is not liable to be set aside as a

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disposition without value on the husband's insolvency if the following requirements are
met:

• the disposition must be an “immediate benefit”;

• the disposition must have been given in good faith; and
• the ANC must have been duly registered at least two years before
sequestration.

The benefits protected by this section are therefore restricted to married female
beneficiaries. This is discriminatory and may fail constitutional scrutiny. This protection
is also available only to children born in wedlock, so the rights of children adopted by
the couple, or illegitimate children of the respective parties will be affected.

The introduction of the Civil Union Act 17 of 2006 emphasises the discriminatory
nature of section 27. That Act provides for the equal treatment of same-sex parties
who enter into a civil union. The consequences of a marriage in terms of the Marriage
Act 25 of 1961 now also apply to partners in a civil union. However, the reference in
section 27 of the Insolvency Act to “wife” may render section 27 constitutionally invalid
because of the equality clause in the Bill of Rights. Furthermore, only children born in
wedlock enjoy the benefit of section 27, so the same problems of inequality exist where
a same-sex couple adopts a child, or with regard to a child born of a civil union, where
one partner is impregnated by way of artificial insemination.

4.2 Rehabilitation or discharge of debt

Initially, Insolvency Law did not recognise a discharge of unpaid debt of paramount
importance. However, the discharge that provides the debtor with some kind of a fresh
start has grown in importance in many modern insolvency regimes internationally.

In South Africa rehabilitation, which can provide for a fresh start, may take anything
from six months to ten years, and achieving it can be onerous for an insolvent debtor.
So the question arises whether the South African rehabilitation provisions in the
Insolvency Act may infringe, for example, section 22 of the Constitution that
guarantees freedom of trade. Insolvency restricts the activities of a debtor in many
ways economically and in status between sequestration and rehabilitation. The
rehabilitation provisions may be too burdensome in our modern era and in view of
international developments.

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A further consideration is that it is only sequestration followed by rehabilitation that

grants an overburdened debtor a discharge of pre-sequestration debt. No other debt
relief measures provide for a discharge and consequently a fresh start. So central to
the rehabilitation of the debtor is the concept of a fresh start for the insolvent, who is
generally freed from his pre-sequestration debts and the restrictions on him that result
from sequestration.

The time taken for rehabilitation to occur

A constitutional question that may arise in connection with the rehabilitation of the
insolvent concerns the time taken for rehabilitation of individuals (natural persons) to
occur. On the one hand, in South African law automatic rehabilitation is generally
provided after 10 years from the date of sequestration. On the other hand,
rehabilitation may take place in periods of less than 10 years, depending on whether
the particular requirements of the Insolvency Act are met. Therefore, rehabilitation may
be applied for after a period of six months has elapsed since the sequestration date
and no claims have been proved against the insolvent estate.

These South African periods in what is a creditor-friendly system may be contrasted

with the shorter periods which are to be found in some more debtor-friendly foreign
jurisdictions (see Boraine and Evans “The Law of Insolvency and the Bill of Rights”
(par 4A8(i) Discharge of debt). In England and Wales, bankruptcy discharge of the
debtor occurs after one year from the commencement of bankruptcy, and sometimes
sooner (see Fletcher IF “The Law of Insolvency” 4 ed (2009) par 11-003).

Boraine and Evans par 4A8(i) therefore contrast the lengthy South African provisions
on rehabilitation with the shorter periods applicable in some foreign jurisdictions. The
authors submit that the relevant South African provisions may therefore infringe
section 22 of the Constitution 1996, which entrenches the citizen's right to choose their
trade, occupation or profession freely. The constitutional challenge would be based on
the argument that it is "unreasonably burdensome", as contrasted with foreign
developments, for the South African insolvent individual to be required to continue to
account to the trustee for economic activities during the sequestration period.
However, this again will have to be weighed up against the limitation clause in the
Constitution if the possible infringement of an insolvent debtor's rights is challenged in
the courts.

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5 CONCLUSION TO TRANSFORMATIVE CONSTITUTIONALISM

The aim of South African Insolvency Law is to achieve the equitable realisation and
distribution of insolvent for the advantage of creditors and simultaneously preventing
inhumane treatment of debtors. The Insolvency Act, 1936 essentially governs the law
of insolvency in South Africa. Insolvency Law also provides debtors with a procedure
by which to shed unpaid debt through the Act's rehabilitation provisions. It does this
by laying down appropriate procedures to be observed in obtaining sequestration,
realising assets of the insolvent, distributing the proceeds thereof and in applying for
rehabilitation. The Insolvency Act generally complies with the provisions of the Bill of
Rights as it shares the object of ensuring fairness, equity and humane treatment of
debtors.

Insolvency Law also strives to prevent only one of several creditors from obtaining
relief because he is wealthier or more active than others who are less fortunate or slow
and consequently receive little or no payment from the debtor.

As shown above, the Bill of Rights also functions within the private relations of the
debtor and his or her creditors. Important to remember is the central concept of human
rights (and the Bill of Rights) being the requirement of procedural appropriateness of
the actions of persons in authority. The Bill of Rights shares this value with the law of
insolvency, which in most jurisdictions is essentially a procedural law. A number of
sections of the Bill of Rights are particularly apposite to insolvency and affect or will
affect its development through transformational constitutionalism, which may also
capture the spirit of the ideology of ubuntu.

It would appear that many insolvency law provisions are in harmony with the provisions
of the Bill of Rights or through transformational constitutionalism have been so
harmonised. But as described above, there are several areas of Insolvency Law in
which legislative or judicial action is required to prevent future infringement of
constitutional imperatives and to adhere to the idea of transformational
constitutionalism.

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