THE LAW OF INSOLVENCY

2021 : SEMESTER 1
 Introduction to insolvency law

Outcomes: After completion of this theme you should have full knowledge and understanding
of the following:
➔ The term “insolvency” and all other basic concepts of insolvency law: terms and concepts
➔ The purpose of a sequestration order
➔ Courts capable of making a sequestration order : courts jurisdiction
➔ A short historical overview : sources and history

Compulsory reading:
• Hockly Chapter 1;
• Commissioner South African Revenue Service v Hawker Air Services (Pty) Limited,
Commissioner South African Revenue Services v Hawker Aviation Partnership and Others
2006 (4) SA 292 (SCA);
• Magnum Financial Holdings (Pty) Ltd (in Liquidation) v Summerly and Another 1984 (1)
SA 160 (W) ;
• Melville v Busane [2012] 1 ALL SA 675 (ECP) 18 August 2011;
• Goode, Durrant and Murray (SA) Ltd & another v Lawrence 1961 (4) SA 329 (W)

Introduction
In common parlance, a person is insolvent when he is unable to pay his debts. But the legal test
of insolvency is whether the debtor’s liabilities, fairly estimated, exceed his assets, fairly
valued. Inability to pay debts is, at most, merely evidence of insolvency. A person who has
insufficient assets to discharge his liabilities, although satisfying the test of insolvency, is not
treated as insolvent for legal purposes unless his estate has been sequestrated by an order of the
court. A sequestration order is a formal declaration that a debtor is insolvent. The order is
granted either at the instance of the debtor himself or at the instance of one or more of the
creditors. The terms ‘sequestration’ and ‘sequestration order’ should strictly be used only with
reference to a person’s estate. A debtor’s estate is sequestrated, not the debtor himself.
However, both a debtor’s estate and the debtor himself may properly be described as
‘insolvent’. When the word ‘insolvent’ is used to describe a debtor, it carries two possible
meanings: either that the debtor’s estate has been sequestrated, or that his liabilities exceed his
assets

➔ This module deals with insolvency with regards to individuals, business trusts, partnerships
and sole proprietorships
➔ Meaning of insolvency: a person is deemed insolvent if he or she is unable to pay their
debt. The question then arises, what if that person’s inability to pay their debt is only
temporary? Therefore, when referring to an insolvent person, it means that such a person
is permanently unable to pay his or her debts.
➔ The test for insolvency : the debtors’ liabilities fairly estimated, need to exceed his assets
fairly valued as seen in the case of Venter V Volskas Ltd 1973
➔ Allegation that a person is unable to pay debts entails that that the onus shifts to debtor to
prove that assets exceed liabilities. This would entail that a prima facie case is established.

Two types of insolvency?

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➔ Commercial insolvency is the inability to pay debts as they become due because of a cash
flow or other problem but assets still exceed liabilities. This cash flow problem is
temporary. Focus: can you pay your creditors monthly? (focus not on assets and liabilities)
➔ Actual/actual insolvency is when the debtors liabilities exceed his or her assets
➔ A person is only deemed legally insolvent if that person’s estate has been sequestrated by
an order of court which confirms that such a person is insolvent.
• What is an insolvent estate? An estate which is under sequestration
• What is a sequestration order? It is any order of court whereby an estate is sequestrated
and includes a provisional order, when it has not been set aside
➔ Voluntary surrender is when the debtor themselves avails their estate for sequestration.
➔ Compulsory sequestration is when the creditors of the debtor purse the sequestration of the
debtors estate.
➔ Sequestrate vs insolvent:
o Sequestration of the estate of debtor [sequestrate = estate of the debtor only]
o The debtor and his or her estate is declared insolvent [insolvent = debtor + his or her
estate]

The purpose of a sequestration order

1. Fair, equitable and orderly distribution of assets:
- To secure the orderly and equitable distribution of a debtor’s assets where they are
insufficient to meet the claims of all his creditors. Executing against the property of a debtor
who is in insolvent circumstances inevitably results in one or a few creditors being paid,
and the rest receiving little or nothing at all. The legal machinery that comes into operation
on sequestration is designed to ensure that whatever assets the debtor has are liquidated and
distributed among all his creditors in accordance with a predetermined (and fair) order of
preference.
- For example, A has a car worth R200 000 excluding wear and tear, his liabilities are
R400 000 and he has 5 creditors. The car’s value after wear and tear is R120 000 and this
one asset now needs to be distributed equally and in an orderly manner to the different
creditors.
- The law proceeds from the premise that, once an order (or provisional order) of
sequestration is granted, a concursus creditorum (‘coming together of creditors’) is
established, and the interests of creditors as a group enjoy preference over the interests of
individual creditors.
- The object of the Insolvency Act is to ensure a due distribution of assets among creditors
in the order of their preference. (Insolvency Act = creditor friendly). The sequestration
order crystallises the insolvent’s position; the hand of the law is laid upon the estate, and at
once the rights of the general body of creditors have to be taken into consideration. No
transaction can thereafter be entered into with regard to estate matters by a single creditor
to the prejudice of the general body. The claim of each creditor must be dealt with as it
existed at the issue of the order.’

2. Enable the debtor to free himself from pre-sequestration debts

Although sequestration was not designed to alleviate the position of the debtor, it inevitably
has this effect because it relieves him from legal proceedings by creditors and allows him,
through rehabilitation, to free himself from all unpaid pre-sequestration debts (section
129(1)(b))

3. Protect creditors against other creditors

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• A court will not sequestrate a debtor’s estate unless it is shown that the sequestration will
be to the advantage of creditors. (therefore creditor friendly) Thus, sequestration will
generally not be resorted to if the debtor, although insolvent, has only one creditor and the
latter been already in possession of a judgment against the debtor. In such a case, the normal
execution procedure offers a less expensive means of exacting from the debtor whatever
amount he is able to pay
• The court will make an order of sequestration only if the expected result will be an
appreciable dividend for creditors

What are the consequences of granting a sequestration order?

- For the debtor : he or she will be deprived of his or her estate as the estate will then be
invested by the master followed by a trustee. Therefore the debtor will no longer have
control of his or her estate as one normally would. For example, the debtor will be limited
to or placed in a position where he or she will no longer be allowed to add to or sell any
part of his or her estate. Sequestration also affects the debtor personally, restricting his
capacity and freedom to enter into contracts, to follow a chosen vocation, to litigate, and to
hold office.
- For the creditor : once the sequestration order has been granted, either through voluntary
or compulsory sequestration, concursus creditorum comes into effect thereby entailing that
the group must benefit instead of an individual creditor. The ranking of each creditor will
then determine how the assets of the debtor are distributed and in most instances the creditor
receives less than what is owed to him or her

A sequestration order is ‘not an ordinary judgment entitling a creditor to execute against a

debtor’. It affects ‘not only the rights of the two litigants, but also of third parties, and involves
the distribution of the insolvent’s property to various creditors, while restricting those creditors’
ordinary remedies and imposing disabilities on the insolvent. An order for the sequestration of
a debtor’s estate is not an order for the enforcement of the sequestrating creditor’s claim, and
sequestration is thus not a legal proceeding to enforce an agreement

Who or what is being sequestrated

 The “estate” of the “debtor” is being sequestrated

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 The estate consists of assets and liabilities. Generally when the estate is being sequestrated,
the assets of the estate is sequestrated to cover the costs of the liabilities. The liabilities
therefore exceeds the assets when sequestration takes place.

In the case of Miller v Janks 1944 TPD 127 , M had acquired an estate by means of his
occupation as a professional gambler. His assets had subsequently disappeared under highly
suspicious circumstances, leaving only liabilities. His wife possessed fixed property which she
had received while M was pursuing his occupation. The court granted an order sequestrating
M’s estate. It rejected M’s argument that, because he no longer had any assets, he had ceased
to have an estate and, therefore, sequestration was not possible. In this case it was stated that
an estate which only consists of liabilities is still able to be sequestrated but there is no
guarantee. Each case is dealt with on its own merit. If this is the case, then compulsory
sequestration is only possible and not voluntary surrender because the requirement of section
6(1) would not be established. According to section 6(1), voluntary sequestration entails that it
“will be to the advantage of creditors of debtor if his estate is sequestrated” but if there are
only liabilities and no assets, there is absolutely no advantage for the creditors. This is why
voluntary sequestration is not possible where a debtor’s estate only consists of liabilities and
no assets.

Furthermore in the case of Miller v Janks 1944 TPD 127, it was stated that a debtor who has
£1,000 assets and £2,000 liabilities has an estate, though one insolvent to the extent of £1,000:
he does not cease to have an estate when the next day he pays over his £1,000 to his creditors
and remains insolvent to the same extent... it is none the less an estate because at one time it
has only assets, at another time only liabilities, and at yet another time both assets and
liabilities.

The joint estate of spouses married in community of property is an estate for purposes of
insolvency. A debtor who is married in community of property does not have a separate estate
which can be sequestrated, even where he (or she) is carrying on a business independently of
his (or her) spouse. The spouses are both debtors and, on sequestration of their joint estate, they
both become insolvent debtors for purposes of the Act. On divorce, each spouse regains a
separate estate which must obviously be sequestrated separately [sequestration does not
extinguish the liability of the solvent spouse for debts of the joint estate: section 17(5) of the
Matrimonial Property Act 88 of 1984]. However, if the divorce takes place after a creditor has
already acquired the right to apply for sequestration of the joint estate, then the creditor is
required to sequestrate the separate estates of both spouses

A debtor who is married out of community of property has a separate estate that can be
sequestrated. However, the solvent spouse’s assets are also affected by the order, since they
vest in the trustee of the insolvent estate until the solvent spouse can establish her (or his) title
to them.

A debtor whose estate has been sequestrated may, during his insolvency, acquire a new estate
under a title valid against his trustee. This new estate may itself be voluntarily surrendered.
sequestrated at the instance of a creditor. Compulsory sequestration is possible, it seems, even
where the assets in the second estate have been dissipated by the time the application for
sequestration is made

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 When dealing with marriages within community of property, there is a joint/single estate.
Therefore both spouses will be affected by the sequestration order. If a one partner wants
to voluntarily surrender the estate, it should be done together with the other partner.
 When dealing with marriage out of community of property. There are two separate estates
but if the application of the one insolvent spouse is successful, there will need to be trustee
to manage the estate of the solvent spouse.

What is a debtor?
According to section 2 of the Insolvency Act : a “debtor” in connection with the sequestration
of the debtor's estate, means a person or a partnership or the estate of a person or partnership
which is a debtor in the usual sense of the word, [this part of the definition provides us with
what is a debtor] except a body corporate or a company or other association of persons which
may be placed in liquidation under the law relating to Companies [ this part of the definition
provides us with what is not a debtor]

Can a business trust be regarded as a debtor for the purposes of the Insolvency Act?
o In terms of the 2008 Companies Act , a trust is considered a “juristic person” but not
“company”
o What is the definition of a company and a juristic according to section 3 of the Companies
Act?
o The 2008 Companies Act only applies where the particular entity is solvent.
o The 1973 Companies Act applies where the particular entity is insolvent.

Magnum Financial Holdings (Pty) Ltd (In Liquidation) v Summerly

What type of application was actually pursued in the case?

In this case a debtor was referred to as an entity or association of persons is regarded as

‘a debtor in the usual sense of the word’ if it is able to possess an estate and incur debts

The question before the court, after taking into account that there was a valid claim that an
act of insolvency was committed ; there was the possibility that it was to the advantage of
the creditors that the trust estate be urgently separated and it was an unopposed application
for the provisional sequestration order - whether it was competent to sequestrate a trust as
only a debtor can be sequestrated

This case was decided based on a consideration of Ex Parte Milton

The court in Summerly therefore accepted the provisions that a trust can indeed incur
liabilities and possess an estate and it is therefore seen as a debtor in the usual sense of the
word and acceptable to sequestration provided that it is not a body corporate. Therefore the
court held that, because the trust could, through its trustees, acquire property and incur
liabilities, and because it was not a body corporate as contemplated by section 2, it fell within
the meaning of the term “debtor” in that section.

In conclusion, the order was granted.

Melville v Busane
The court had to answer the question of whether it was competent to liquidate the trust under
the 2008 Companies Act?

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 In this case the court explained that although a trust falls within the definition of a ‘juristic
person’ in the Companies Act 71 of 2008 , it does not meet the definition of a ‘company’ in
that Act (a juristic person incorporated in terms of the Act) and, hence, cannot be liquidated
under Chapter 14 of the 1973 Companies Act.

Was the trust solvent or insolvent? The court said that the trust was deemed solvent

The term ‘debtor’, therefore, embraces the following:

 A natural person.
 A partnership, even one whose members are all juristic persons (Commissioner, South
African Revenue Services v Hawker Air Services (Pty) Ltd; Commissioner, South African
Revenue Service v Hawker Aviation Partnership & others 2006 (4) SA 292 (SCA) 306
 A deceased person and a person incapable of managing his own affairs (section 3(1)).
 An external company that does not fall within the definition of ‘external company’ in the
Companies Act 61 of 1973, for example, a foreign company that has not established a place
of business in the Republic
 An entity or association of persons that is not a juristic person, such as a trust (Magnum
Financial Holdings (Pty) Ltd v Summerly & another NNO

A body corporate established in terms of the Sectional Titles Act 95 of 1986 is a ‘body
corporate’ as referred to in the definition of ‘debtor’ in the Insolvency Act and, therefore, is
not capable of being sequestrated. It also cannot be wound up for non-payment of its debts or
by reason of its insolvency. The legislature did not intend the law governing the winding up of
insolvent companies to apply to bodies corporate

What is a partnership under the definition of a debtor?

- Where a partnership is insolvent or where the estate of the partnership is insolvent, the
Insolvency Act will be applied and not the Companies Act
- Section 2 and section 13 is important in terms of partnerships
- A partnership is a vehicle through which you can conduct a business undertaking. A
partnership can be established between two or more individuals and this can be done by
way of contract where each partner can agree to contribute something to the business and
this is done for the joint benefit of the parties with the objective of making a profit
- Individuals, companies and closed cooperation’s can create a partnership. Where this is
done, it is not recognised as a separate legal entity. This means that the parties or partners
themselves will still be held liable for the activities of the partnerships
- Partnerships do not have perpetual succession but companies do. For example, if a partner
passes on then the partnership comes to an end.
- Universal partnership = this is where partners contribute all their profits and property to the
benefit of the partnership
- Particular partnerships = this is temporary and there is a focused arrangement. There is a
specific goal or reason for which the partnership was developed and once this is completed,
the partnership will end
- Ordinary partnership = the partners are jointly and severely liable for the debts of the
partnership
- Extra ordinary partnership = the liability of some of the parties or partners will be limited
in some manner. What is an anonymous partner and how does this or her role facilitate

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 liability? An anonymous partner agrees to share in the business that will be conducted in
the name of one and not in the name of the anonymous partner. As long as the anonymous
partner is not disclosed to the general public, he or she will not be held liable to third parties
and where this is the case, the anonymous partner will only be held liable to the extent that
he or she has agreed to the other partners
- Partnership en commendite partner means that the en commendite partner/parties are not
disclosed and that the partner makes a fixed sum contribution and this is done on condition
that he or she receives a certain share of the profits. If there is no profit and only a loss then
this partner is only liable in terms of his or her fixed contribution agreed upon
- Special partnerships = have now been repealed
- The essentialia of the partnership states that each partnership should bring something into
the partnership. For example, either money, skill or labour which should be to the joint
benefit of the partners in order to make a profit.
- A partnership should be conducted in a way which is compliant with the law. There are no
formal requirements for the conclusion of the agreement. For example, this can be done
verbally, orally or through implied conduct.
- A partnership is not a legal person but this is not absolute item as a partnership can be
treated as a legal person in terms of litigation [for example if the partnership is sued] and
in terms of the Insolvency Act.
- In South Africa, we follow the aggregate theory when looking at partnerships. This means
that the partnership is treated as an aggerate or collection of the individual parties which
are the partners, and they own the partnership property amongst others and as a result in
the change in the partnership, it then destroys the partnership
- In terms of the entity theory, it is stated that a partnership exists separately from its members

Section 13 of the Insolvency Act states that when the partnership estate is sequestrated, the
simultaneously sequestrate the separate partners estates other than special or en commendite
partner

Commissioner, SARS v Hawker Air Services (Pty) Ltd; Commissioner SARS v Hawker
Aviation Services Partnership

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 What happens when we are sequestrating a partnership estate and as a result of sections
13(1), we need to sequestrate the individual estate of the partners but one of the partners is
a company

In terms of the Insolvency Act, companies are not sequestrated, they fall under the guidelines
or prescriptions pertaining to the Companies Act. Companies are liquidated, not sequestrated
- Solvent company → 2008 Companies Act
- Insolvent company → 1973 Companies Act

If company is a partner, then you sequestrate the partners that can be sequestrated and those
that cannot be sequestrated by a legal bar are left

The sequestration application

[25] The partnership sought to be sequestrated consisted of HAS, ManCo and RMB. The
Commissioner has applied for the sequestration of the partnership, but not for the liquidation
of ManCo. The question is whether in these circumstances the sequestration of the
partnership is competent. Section 13(1) of the Insolvency Act 24 of 1936 provides: ‘If the
court sequestrates the estate of a partnership (whether provisionally or finally or on
acceptance of surrender), it shall simultaneously sequestrate the estate of every member of
that partnership other than a partner en commandite or a special partner as defined in the
Special Partnerships’ Limited Liability Act, 1861 (Act No 24 of 1861) of the Cape of Good
Hope or in Law No 1 of 1865 of Natal, who has not held himself out as an ordinary or general
partner of the partnership in question: Provided that if a partner has undertaken to pay the
debts of the partnership within a period determined by the court and has given security for
such payment to the satisfaction of the registrar, the separate estate of that partner shall not
be sequestrated by reason only of the sequestration of the estate of the partnership.’

[26] Does section 13, by requiring that the court ‘shall simultaneously sequestrate’ the estates
of all the partners, render impossible a partnership sequestration where not all the members
can be sequestrated? In Partridge v Harrison and Harrison, Greenberg JP held No. There,
the estate of one of the partners could not be sequestrated because of a military service
moratorium. Greenberg JP held that the partnership could nevertheless be sequestrated. He
found that section 13, though imperatively expressed, must be limited to cases where the
estates of the partners can be sequestrated, and that it does not apply where there is a lawful
bar to sequestration. He said: ‘Notwithstanding that this is couched in imperative language,
there are cases where it could not be carried out. For instance if a partner has been
sequestrated and has not acquired an estate as against his trustee so as to allow a second
sequestration, the Court could do no more than to sequestrate the partnership estate and the
estates of the remaining partners. The same would probably be the case if one of the partners
was a limited company. It would appear therefore that the section must at least be limited to
cases where the estates of the partners can be sequestrated and does not apply where there is
a lawful bar to such sequestration.’
Greenberg JP also stated that the proviso to section 13 ‘shows that it was contemplated that
sequestration of the private estates does not follow automatically in all cases upon a
sequestration of the partnership estate’.

[27] The reasoning of Greenberg JP was followed for nearly half a century. The sequestration
of partnerships was ordered where one of the partners was married in community of property,
where one was the beneficiary of an agricultural moratorium, and where one was a company
under judicial management, in each case rendering sequestration impossible. But in P de V

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 Reklame (Edms) Bpk v Gesamentlike Onderneming van SA Numismatiese Buro (Edms) Bpk
en Vitaware (Edms) Bpk, these decisions were criticised as conceptually flawed, since the
statutorily created concursus creditorum presupposes the simultaneous sequestration of all
the members of the partnership and cannot operate effectively without it. That the concursus
the statute envisages is incomplete, and that it would operate incompletely where a
partnership sequestration excludes the estate of one of the partners is correct. Yet the
criticism is not persuasive. It proceeds on the premise that a complete concursus is
imperative, when the exceptions section 13 itself creates show that this is not so. The
interpretation favoured by Greenberg JP and the decisions that followed him achieve a
pragmatic, if partial, result, which is compatible with the language of section 13 when
interpreted, as Greenberg JP did, as requiring the sequestration of only those partners whose
estates are capable of sequestration. Even though this means that in such situations the
statutory concursus will be incomplete, it seems to me to offer a more practicable and
coherent approach to the difficulties that would result if section 13 were interpreted to render
sequestration of a partnership impossible where one of the partners cannot be sequestrated.

[28] I therefore conclude that the interpretation adopted in the Partridge case is preferable
and that since ManCo is a company, which is not capable of being sequestrated, section 13
did not require its sequestration. It follows that the application for the partnership’s
sequestration is not defective.

The jurisdiction of the Court

 As a rule, only a Provincial or Local Division of the High Court may adjudicate upon an
insolvency matter. A magistrate’s court may preside over prosecutions for criminal
offences under the Insolvency Act , proceedings to set aside voidable dispositions and a
few other matters, provided, in each case, the ordinary jurisdictional limits as to offence,
person, and amount, imposed by the Magistrates’ Courts Act 32 of 1944, are not exceeded.
 A sequestration order will be granted where it will be most conveniently administered. For
example, if most of the assets of the debtor are located in Johannesburg in the Gauteng
province, but the application for sequestration is brought before the Western Cape High
Court, how will this work?
 In terms of section 2 of the Insolvency Act, what is the definition of the “court”

 The magistrates court can preside over criminal references although with limitations when
dealing with aspects relating to insolvency law but generally the High Court will have
jurisdiction pertaining to matters relating to insolvency law. Therefore a sequestration order
generally needs to be granted by a High Court
 The question that now needs to be answered is which division of the High Court can grant
a sequestration order? Section 149 is applicable in this regard dealing with competing
courts and removal to another court

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In terms of competing courts , a court having jurisdiction over a debtor may refuse (or
postpone) the surrender or sequestration of his estate if it appears to the court equitable or
convenient that his estate should be sequestrated by another court within the Republic (section
149(1)). The court may order that the matter be transferred to the other court (section 9 of the
Supreme Court Act 59 of 1959); the transferee court need not have original jurisdiction. In
deciding whether another court should make a sequestration order, a court must consider
whether, on the particular facts, and in the light of factors such as the convenience of the parties
and the court and the general disposal of litigation, the transferee court should dispose of the
matter. The essential inquiry is not where the sequestration order may more conveniently be
granted, but where the estate may more conveniently be administered (in other words, what the
court must consider is what will happen after the order has been granted)

Goode, Durrant and Murray (SA) Ltd & another v Lawrence 1961 (4) SA 329 (W),
The essential inquiry is not where the sequestration order may more conveniently be granted,
but where the estate may more conveniently be administered (in other words, what the court
must consider is what will happen after the order has been granted). Thus, in Goode, Durrant
and Murray (SA) Ltd & another v Lawrence, the court transferred a sequestration application
from the Witwatersrand to the Durban court because most of the matters which the trustee
would have to investigate arose in the Durban area, and the parties whom the trustee would
have to examine—the debtor, his wife and their witnesses—all resided in that area. The fact
that the sequestrating creditors were in the Witwatersrand was not enough, in the court’s
view, to alter the balance of convenience.

According to section 149 of the Insolvency Act : the court shall have jurisdiction under this
Act over every debtor and in regard to the estate of every debtor who..
(a) on the date when the application for voluntary surrender or compulsory sequestration of
the debtor’s estate is lodged with the Registrar of the court, is domiciled or owns or is
entitled to property situated within the jurisdiction of the court; or
(b) at any time within twelve months immediately preceding the lodging of the petition
ordinarily resided or carried on business within the jurisdiction of the court...
provided that when it appears to the court equitable or convenient… that the estate of a person
over whom it has jurisdiction be sequestrated by another court within the Republic, the court
may refuse or postpone the acceptance of the surrender or the sequestration.

In terms of being domicile or property within jurisdiction, a personal right, for example, a right
to a performance of some kind, is taken to be situated where the debtor liable to render the
performance is domiciled. In terms of residence or business within jurisdiction in preceding 12
months, the debtor need not have ordinarily resided or carried on business for the entire 12
months preceding the application: ordinary residence or conduct of business at any time during
that period suffices. However, ‘ordinary residence’ means something more prolonged than a
temporary stay

In terms of jurisdiction in litigation against third parties, section 149 deals with the question
when a court has jurisdiction over a debtor and his estate: it is not relevant where the trustee of
an estate litigates against third parties. So, in proceedings to set aside a voidable disposition
made to a third party prior to sequestration, the ordinary rules of jurisdiction apply, and the
trustee cannot rely on section 149

Divisions of the High court that can hear an insolvency matter. Is this list complete or
incomplete? Which division is missing?

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 Eastern Cape High Court (Bhisho)
 Free State High Court (Bloemfontein)
 Western Cape High Court (Cape Town)
 KwaZulu-Natal High Court (Durban)
 Eastern Cape High Court (Grahamstown)
 South Gauteng High Court (Johannesburg)
 Northern Cape High Court (Kimberley)
 KwaZulu-Natal High Court (Pietermaritzburg)
 Eastern Cape High Court (Port Elizabeth)
 North Gauteng High Court (Pretoria)
 Limpopo High Court (Thohoyandou)
 Eastern Cape High Court (Mthatha)
 North West High Court, Mafikeng (Mmabatho) and
 Polokwane Circuit Court of the North Gauteng High Court, Pretoria

Example
Mr Bernard Browsic has been domiciled in Pietermaritzburg since 1 February 2016 and the
majority of his assets are situated in Natal. Up until November 2015 Mr Browsic resided and
carried on business in Cape Town. Mr Browsic, before taking up residence in Pietermaritzburg,
temporarily leased a flat in Johannesburg while being temporarily employed as a pharmacist
for two months. Which court or courts would have jurisdiction to sequestrate the estate of Mr
Browsic should he wish to bring an application for the voluntary sequestration sometime in
June 2016? Section 149 of the Insolvency Act and the case of Goode, Durrant are applicable
in answering this problem example. We need to take into account where is the most convenient
place for the estate to be administrated. Therefore we need to look at where are the assets and
where the creditors are. Therefore there is concurrent jurisdiction in :
➔ KwaZulu-Natal High Court (Durban)
➔ South Gauteng High Court (Johannesburg)
➔ Western Cape High Court (Cape Town)

What is the history and sources of insolvency law

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Roman law:
Under the Twelve Tables, if a debtor was unable to pay his debts, his creditors could seize him
and sell him into slavery (manusiniectio) or, it seems, cut his body into pieces. In the latter
regard, it was specifically provided that creditors were not to be prejudiced ‘if they have cut
more or less than their shares’. Between 326 and 313 BC the lex Poetelia was passed, which
prohibited the sale of a debtor into slavery in execution of a judgment debt. After that,
imprisonment in a public prison replaced sale into slavery as the punishment for inability to
pay debts.

Roman Dutch Law:

Cessiobonorum, in its main features, was introduced into Dutch law probably towards the latter
part of the fifteenth century. The granting of a cession was regarded as a privilege which the
court could in its discretion confer upon a debtor, and then only if his insolvency was due to
misfortune.

The Insolvency Act under South African law:

In South Africa, Roman-Dutch law was followed. In 1803, a Desolate Boedelkamer was
established in the Cape for the administration of abandoned estates and the execution of civil
sentences, including the estates of all persons obtaining cessiobonorum. The Desolate
Boedelkamer was abolished in 1818 and a sequestrator appointed to exercise the functions of
the chamber. This was not a success, and the office of sequestrator was abolished in 1829 when
Ordinance 64 of 1829 was passed to regulate the administration of insolvent estates. This was
followed by several amending ordinances until it was repealed by Ordinance 6 of 1843. The
latter ordinance is regarded as a landmark in the South African law of insolvency. It both
consolidated and changed the law. One of the main changes it introduced was the abolition of
cessiobonorum. Ordinance 6 of 1843 was taken over or followed in the other colonies and
republics. After Union, the Insolvency Act 32 of 1916 replaced existing statutory law. This Act
was amended twice before being replaced by the Insolvency Act 24 of 1936, which is still in
force. This statutory code neither states the insolvency law definitively nor prejudices common-
law rights that are consistent with it (Visser’s Trustee v Spangenberg 1920 CPD 73 75

The South African Law Reform Commission has, for more than two decades, been
engaged in a project for the revision of insolvency law. It has been considering, inter alia,
the amalgamation into one enactment of the law governing the sequestration of individuals
and the winding up of companies, close corporations, and other juristic persons. So far, no
fundamental changes have been made to the existing legislative framework, and none
appears to be imminent.

Caitlin Freddy 12
The Constitution
- The Constitution of the Republic of South Africa, 1996 provides a basis for the reform of
all South African law. Insolvency laws pose a potential threat to a number of fundamental
rights, for example, the right to equality (section 9)
- To date, the Constitutional Court has been called upon to consider the constitutional
validity of several insolvency provisions, for example section 21 of the Insolvency Act
(upheld in Harksen v Lane NO & others1998 (1) SA 300 (CC))
- It is important to bear in mind that the mere fact that an insolvency provision conflicts with
a fundamental right in the Bill of Rights does not mean that the provision is constitutionally
invalid.

What legislation has been amended since the Insolvency Act?

o The Financial Markets Act 19 of 2012: Section 35A – transactions on an exchange
o The National Credit Amendment Act 19 of 2014: Section 8A inserted – debt review = just
because someone is undergoing debt review, it does not mean it is an act of insolvency

Voluntary Surrender
Outcomes: After completion of this theme you should have full knowledge and understanding
of the following:
• The debtor’s application for voluntary surrender;
• The requirements that need to be complied with before the acceptance of the voluntary
surrender by the court;
• Formalities that need to be complied with before the application is made;
• The effect of the application for voluntary surrender.

Compulsory reading:
• Hockly Chapter 2;
• Ex Parte Brown 1951 (4) SA 246 ;
• Ex Parte Bester and another 1937 CPD 45;
• Ex Parte Ford, Venter & Botha 2009 (3) SA 376 (C);
• Ex Parte Harmse 2005 (1) SA 323 (N);
• Ex Parte Williams 1937 TPD 126;
• Ex Parte van Dyk (1869/2015) [2015] ZAGPPHC 154 (26 March 2015]
• Ex Parte Viviers and Another [2001] 3 All SA 410 (T);
• FirstRand Bank Ltd v Consumer Guardian Services (Pty) Ltd No 10978/2012 WCC 4
March 2014.

Introduction
There are two ways in which a debtor’s estate may be sequestrated:
- The debtor himself (or his agent) may apply to court for acceptance of the surrender of his
estate (section 3(1)). This is known as voluntary surrender.
- A creditor or creditors (or his or their agent) may apply to court for the sequestration of the
debtor’s estate (section 9(1)). This is called compulsory sequestration.

The main determining factor between the two ways is who may bring the application and who
bears the necessary onus of proving the requirements. The procedure and requirements for each

Caitlin Freddy 13
method differ in material respects although the consequences of the sequestration order are the
same in both instances. Different processes but the consequences are the same, namely
concercus creditorium as you are relieved of your estate.

Application of debtor:
Why can the debtor bring an application himself? A debtor can bring an application himself as
he is in the best possible position to know about his own state of affairs. For example, they
know where and what their difficulties are

Who may apply to bring an application?

The following persons may apply to surrender the estates mentioned:
• Estate of a natural person: the debtor himself or his agent (section 3(1)). If an agent applies,
he must be expressly authorized to do so

Ex parte Brown 1951 (4) SA 246 (N)

An application for a petition was brought for the voluntary surrender of Mr Brown by
his spouse who acted under a general power of attorney. In this case the court had to
answer the question of whether the grantee of the general power of attorney has the
authority to partition for the voluntary surrender of his principles estate. The court stated
that a general power of attorney does not authorize the grantee thereof to bring a partition
for the surrender of an estate unless expressly authorised thereto. The court was therefore,
not committed to accepting the surrender thereof.

• Estate of a debtor who is incapable of managing his own affairs: the party entrusted with
administering the estate, namely the curator bonis (section 3(1))
• Partnership estate: all the members of the partnership (other than partners en commandite
or certain special partners) who reside in the Republic, or their agent (section 3 (2)).
o En commandite partner: silent partner in the background. Their estate is not voluntary
surrendered
o If the en commandite partner comes out and takes decisions, they lose the protection and
must avail their estate for sequestration
o According to section 13, the partner that undertakes to pay the debts and provides the
requisite security does not have to have their estate sequestrated

In Ex parte Bester & another 1937 CPD 45

An application for surrender of a partnership estate was refused because only one
member of the partnership had brought the application. The court held that one member
of a partnership is not an agent of all the other members for the purposes of section 3(2).
This section states that its either all the members or their agent. Therefore all individual
partners must avail their estates for sequestration at the same time

• Joint estate of spouses married in community of property: both spouses need to bring an
application in terms of section 17(4) of the Matrimonial Property Act 88 of 1984
• Estate of a deceased debtor: the executor (section 3(1)).

Section 3 : Petition for acceptance of surrender of estate

(1) An insolvent debtor or his agent or a person entrusted with the administration of the estate
of a deceased insolvent debtor or of an insolvent debtor who is incapable of managing his own
affairs, may petition the court for the acceptance of the surrender of the debtor's estate for the
benefit of his creditors = who can apply for the voluntary surrender of an estate

Caitlin Freddy 14
(2) All the members of a partnership (other than partners en commandite or special partners as
defined in the Special Partnerships Limited Liability Act, 1861 (Act 24 of 1861) of the Cape
of Good Hope or in Law 1 of 1865 of Natal) who reside in the Republic, or their agent, may
petition the court for the acceptance of the surrender of the estate of the partnership and of the
estate of each such member. The prescribed case of Ex Parte Bester is applicable in this regard.

Requirements for an application

- Preliminary formalities as set out in section 4 of the Insolvency Act.
- Substantive requirements as set out in section 6(1) of the Insolvency Act.

It is important to note that the court is not obliged to accept the surrender just because there has
been compliance with both the substantive requirements and the preliminary formalities. This
is emphasised by the indication of “may” in section 6(1). Therefore the court has discretion.

Substantive requirements for a voluntary surrender application

The court may accept the surrender of a debtor’s estate only if it is satisfied that:
1. the debtor’s estate is, in fact, insolvent;
2. the debtor owns realizable property of sufficient value to defray all costs of the
sequestration which will, in terms of the Act, be payable out of the free residue of his estate;
3. sequestration will be to the advantage of creditors
In addition, the court must be satisfied that certain preliminary formalities have been observed

Requirement 1 : is the debtors estate in fact insolvent?

A debtor is insolvent if the amount of his total liabilities exceeds the value of all of his assets.
The extent of the debtor’s assets and liabilities is generally determined by reference to the
statement of affairs which he is required to prepare and file, but the court is not bound by the
valuations in the statement and may make a finding of insolvency even where the statement
(or other evidence adduced by the debtor) indicates that his assets exceed his liabilities. The
test is whether it is established that the debtor is without funds to pay his debts in full and it is
improbable that the assets will realize enough for this purpose.

Ex Parte Harmse 2005 (1) SA 323 (N)

This case dealt with the question of whether the debtor was insolvent. The applicant’s
statement indicated an excess of assets over liabilities, but the only evidence that he adduced
to prove otherwise were certain letters written by estate agents or valuers. The court held that
the applicant had failed to adduce sufficient evidence to establish on a balance of
probabilities that he was insolvent. Magid J remarked that ‘it is only acceptable and
admissible evidence which can displace the prima facie inference of solvency when the
applicant’s own estimate of values exceeds the amount of the liabilities.’ According to
paragraph 9 of the judgement, “but the mere fact that the evidence adduced by the debtor
discloses that the value of his property exceeds the amount of his liabilities is not decisive

Caitlin Freddy 15
 against him where it is established that nevertheless he is without funds to pay his debts in
full and it is improbable that such property will realise sufficient for such purpose.” In
conclusion the court was not satisfied that there was sufficient admissible evidence placed
before it which proved that the debtor is in fact insolvent.

Requirement 2: free residue sufficient to pay costs of sequestration

- The ‘costs of the sequestration’ include not only the costs of surrender but also all the
general costs of administration according to section 97 of the Insolvency Act.
- According to section 6(1) of the Insolvency Act, Acceptance by court of surrender of
estate : If the court is satisfied … that he owns realizable property of a sufficient value to
defray all costs of the sequestration which will in terms of this Act be payable out of the
free residue of his estate … it may accept the surrender of the debtor’s estate and make an
order sequestrating that estate.
- Free residue refers to realizable property of a sufficient value needs to be owned. The costs
associated with the sequestration are therefore paid from the free residue of the estate
- What is the definition of “free residue” according to section 2 of the Insolvency Act. “in
relation to an insolvent estate, means that portion of the estate which is not subject to any
right of preference by reason of any special mortgage, legal hypothec, pledge or right of
retention”
- When considering free residue, one needs to consider the question of whether there
anything that will be left over that will cover the costs of the sequestration?
- A logical result of the requirement that the debtor must own sufficient property to meet the
costs of sequestration is that a debtor who has no assets and only liabilities cannot surrender
his estate
- It should be noted, however, that an estate comprising only liabilities may be compulsorily
sequestrated (Miller v Janks 1944 TPD 127).
- If it is clear that the free residue is insufficient, the court must refuse the application. But if
it is uncertain whether the free residue is sufficient, the court may grant the application,
provided a guarantee for costs, to the satisfaction of the Master, has been furnished. The
guarantee in such a case is regarded as removing the uncertainty

Ex Parte Williams
In this case, there was a voluntary surrender application of the estate and the primary question
before the court was whether the applicant owned realizable property of a sufficient value to
defer all the costs of the sequestration which would be paid out of the free residue of the
estate according to the Act and additionally whether this would be to the advantage of the
creditors of the applicant if the estate was sequestrated

The court considered the applicants debt which was secured by mortgages in favor of two
creditors over a house. The municipal value of the property was 875 Pounds. Besides this,
the applicant has no other assets. He was a building contractor with no other income. The
only advantage for the creditors was that the sale of the property would result in the dividend
for the concurrent creditors

The judge referred this matter to the master to establish whether in view of the bond , would
there any free residue over and above the costs of sequestration and whether this would be
to the advantage of the concurrent creditors. The master indicated that there should be
sufficient free residue to cover the costs of the sequestration and to have a dividend result
for the concurrent creditors.

Caitlin Freddy 16
 However, the judge was not satisfied with the viewpoint of the master and the judge
stipulated that he was also not satisfied that any bidder would not pay more than the
stipulated amount for the bonds. The court only has the municipal evaluation at its disposal
and as a result the court was not prepared to accept the surrender of the estate. The court
was therefore not convinced that there was sufficient free residue available in order to cover
the costs of the sequestration

Requirement 3 : to the advantage of the creditors

▪ Test: will it be to the advantage of creditors
▪ This is not the same as compulsory sequestration requirement. Why?
• It must be noted that the debtor has to prove that sequestration will be to the advantage
of creditors whereas, in an application for compulsory sequestration, the creditor has
to show merely that there is reason to believe that it will be. The onus, in other words,
is more strenuous in voluntary surrender than in compulsory sequestration.
• One reason for this is, no doubt, that a debtor can normally be expected to provide a
detailed account of his own financial position, whereas a sequestrating creditor would
generally not have access to this information
• Another reason is to reduce the ever-present risk of the debtor abusing the sequestration
procedure and resorting to sequestration when it holds little or no real benefit for
creditors and simply gives the debtor a means of escaping his liabilities

Ex Parte van Dyk

- This case deals with an application for the voluntary surrender by the debtor of his estate.
The primary question before the court was whether the forfeiture of the applicants salary
would establish an advantage for the creditors as set out in section 6(1) of the Insolvency
Act
- This has a significant impact because if you are going to surrender your salary, how are
you going to sustain yourself?
- According to the applicants state of affairs, the had R37 000 which consisted of movable
assets and that the dividends that would accrued for the creditors from the free residue
was zero which was referred to as negligible
- The applicant in his own omission that that there was no benefit for the creditors. This is
because they would receive no dividend but the applicant was willing to sacrifice his
salary in terms of section 23(5) of the Insolvency Act
- The judge indicated that in sacrificing the salary of the debtor, an advantage for the
creditors can be established but this was seldom granted due to amongst other things, the
winding up of the estate
- In doing his down research the judge has his own concerns regarding the security of the
debtors job and the prevailing needs of the debtors spouse. The judge was also concerned
about the delay in this process which would in essence not be to the advantage of the
creditors
- The judge however further indicated that the debtor does not have assets of a sufficient
value to defer of the sequestration out of the free residue. Therefore the undertaking of
the debtor to pay a portion of his salary to the insolvent estate has too many risks but
there were also constitutional considerations at play and as a result the application for
voluntary surrender was dismissed

Caitlin Freddy 17
Preliminary formalities for a voluntary surrender application

Notice of intension to surrender according to section 4(1) of the Insolvency Act

The first step to be taken by a debtor who wishes to surrender his estate is the publishing of a
notice of surrender in the Government Gazette and in a newspaper circulating in the magisterial
district where he resides or, if he is a trader, in the district where he has his principal place of
business. The notice must correspond substantially with Form A in the First Schedule. It must
state:
- the full names, address and occupation of the debtor;
- the date upon which, and the particular Division of the High Court before which, the
application for acceptance of the surrender will be made; and
- when and where the debtor’s statement of affairs will lie for inspection as required by the
Act

The purpose of the notice of surrender is to alert creditors as to the intended application, in case
they should wish to oppose it. It follows that the notice must be published in a ‘newspaper’ in
the usual sense, for example , a daily or weekly publication, containing reports on local or
foreign happenings of recent occurrence and of a varied character, intended for the information
of the general reader

It follows, too, if the objective of alerting creditors is to be attained, that the newspaper chosen
for publication must circulate in the area in which the debtor’s creditors are located, even if the
debtor no longer resides or carries on business there.

The 14-day time limit is evidently to ensure that creditors have sufficient opportunity to peruse
the statement of affairs and decide whether or not to oppose the application. The legislature’s
objective in imposing the 30-day limit was ‘that debtors should not be able to give long notice,
months beforehand, and in that way keep creditors from levying execution and in the meantime
dissipate all the assets’ [not more than 30 days and not less than 14 days]

Failure to adhere strictly to the 30- day time period has mostly been taken to be fatal to the
application as seen in the application of ex parte Oosthuysen 1995 but in the prescribed case
of ex parte Harmse 2005, the court held that the failure is a formal defect or irregularity as
envisaged by section 157(1) and, therefore, does not invalidate the application unless it has
caused a substantial injustice which cannot be remedied by a court order

There are two views of interpretation of the calculation of days

- Meskin’s view to this interpretation in terms of section 4 of interpretation act 33 of 1957
“When any particular number of days is prescribed for the doing of any act, or for any other
purpose, the same shall be reckoned exclusively of the first and inclusively of the last day,
unless the last day happens to fall on a Sunday or on any public holiday, in which case the
time shall be reckoned exclusively of the first day and exclusively also of every such
Sunday or public holiday”
- According to MARS Law of insolvency, namely in the case of Ex parte Trollip, the
appropriate way to calculate the time period was to exclude the date of application and
include date of publication. This is the preferred approach

Ex parte Harmse
This case delt with both preliminary and substantive issues

Caitlin Freddy 18
 Specifically in this part we are going to look at the preliminary issue in terms of section 4(1).
In this case, the notice was made 42 days before date set for hearing

The court had to consider whether this conduct was fatal to the application or whether this
conduct could be delt with in terms of section 157(1)?

Section 157(1) states that nothing done under this Act shall be invalid by reason of a formal
defect or irregularity, unless a substantial injustice has been thereby done, which in the
opinion of the court cannot be remedied by any order of the court. Therefore it is important
to consider if it is a formal defect or an irregularity. A formal defect = form and process and
not substance

There were two views looked at in this case

- Firstly, in the case of ex parte Oosthuysen, an application brought out of time was said
to be fatal because the creditors were deprived of execution rights. In terms of section
4(1), read with section 157 this means that the date was curable. This then creates
uncertainty because enable debtor to effectively secure a suspension of execution for a
period of his choosing. This is not what legislature intended
- Secondly, the court in this case looked at a different view namely that in terms of section
6(2) which states that one has a 14 day grace period and therefore the legislature did not
intend to set time periods in stone.

It is important to understand that section 157(1) states that formal defect arises from
procedure not substance. Therefore premature publication is formal defect in terms of this
section

Furthermore, section 6(1) confers discretion on court to accept surrender or not and the extent
which the applicant complied with or deviated from the procedure is to be a factor taken into
account when exercising discretion

In conclusion , the court was not satisfied that the debtor was insolvent. It was further stated
that there were too many formal defects and therefore the court refused to exercise discretion

Notice to the creditors and other parties

Within seven days after publication of the notice of surrender, the debtor must furnish copies
of the notice to creditors and other parties, as set out below. Compliance with this requirement
may be proved by means of an affidavit (made either by the debtor or his attorney) giving
details of the steps taken (Ex parte Harmse 2005 (1) SA 323 (N) 331).

a) Notice to each creditor : the debtor must deliver or post a copy of the notice to every one
of his creditors whose address he knows or can ascertain according to section 4(2)(a))
▪ It seems clear that the object of this requirement is to provide further protection to
creditors who may wish to contest the application or take steps to safeguard their
interests.

Caitlin Freddy 19
 ▪ In requiring that creditors be given personal notice of the intended application, the
legislature was allowing for the fact that it cannot be expected of creditors
continually to peruse the Government Gazette or the legal notices in newspapers.
▪ A failure to give notice to creditors in the prescribed manner will generally be
regarded as fatal to the application but see Ex parte Harmse

b) Notice to trade unions and employees : the debtor must post a copy of the notice to every
registered trade union that, to his knowledge, represents his employees (s 4(2)(b)(i)).

In addition, the debtor must give notice to the employees themselves, either: by affixing a copy
of the notice to any notice board to which the employees have access inside the debtor’s
premises; or, if the employees do not have access to these premises, by affixing a copy of the
notice to the front gate of the premises; or, failing the latter, by affixing a copy of the notice to
the front door of the premises from which the debtor conducted any business immediately prior
to the surrender according to sections 4(2)(b) (ii)(aa)–(bb)).

It would appear from these provisions that, if the employees have access to the debtor’s
premises, the debtor is obliged to give notice by means of a notice board on the premises, even
if this means erecting a notice board specifically for this purpose.

c) Notice to the South African Revenue Service : the debtor is further required to send a copy
of the notice by post to the South African Revenue Service according to section 4(2)(b)(iii)

Preparation and lodging of statement of affairs

Section 4(3) provides for the preparation and lodging of statement of affairs which indicates
assets and liabilities to the master. This includes:
 A balance sheet
 A list of immovable assets valued with mortgage details
 A list of movable assts valued, merchandise (valued at cost or market price based on
whichever is lower) with detailed stock sheets
 A list of debtors with addresses, details of debts and the extent of debt
 A list of creditors, addresses, particulars of claim and security held for it
 A list of movable assets pledged, hypothecated, subject to lien or under attachment in
execution of judgement (valued and described)
 A list and description of every accounting book
 A detailed statement of causes of insolvency
 Personal information, past insolvency and rehabilitation
 An affidavit made by debtor verifying statement of affairs is true and complete and that
every estimated amount is fair and correct

According to section 4(4), the master may, on receiving the statement of affairs, specially direct
the applicant to have any property mentioned in it valued by a sworn appraiser or a person
designated by the master for this purpose and the court may, when considering the application
for surrender, call for an independent valuation

In the absence of any direction by the Master or the court, the debtor is not legally obliged to
obtain an independent valuation in support of the values given in his statement. If he does so
unnecessarily, the cost of the appraisement will not be allowed as part of the costs of the
sequestration, but he may effectively be compelled to do this if he relies on the anticipated
proceeds of a single asset to show that sequestration will be to the advantage of creditors.

Caitlin Freddy 20
In the case of the simultaneous surrender of a partnership estate and the private estate of a
partner, a separate statement of affairs for each estate must be prepared. The costs of preparing
the statement of affairs are part of the costs of sequestration and are therefore payable out of
the estate

The statement of affairs with supporting documents must be lodged in duplicate at the Master’s
Office according to section 4(3)). If the debtor resides or carries on business in a magisterial
district in which there is no Master’s Office, he must lodge an additional copy of the statement
at the office of the magistrate of that district according to section 4(5)). This latter requirement
does not apply to a debtor residing in the district of Wynberg, Simonstown or Bellville in the
Western Cape. The statement of affairs must lie for inspection by creditors at all times during
office hours for a period of 14 days stated in the notice of surrender according to section 4(6)).
On expiry of the inspection period, the Master and the magistrate (where the statement has lain
with him) each issues a certificate to the effect that the statement has duly lain for inspection
as advertised in the notice of surrender and whether any objections have been lodged with him
by creditors. This certificate must be filed with the Registrar before the application is heard.

Consequences of publishing notice/effect of notice of surrender

Suspends sales in execution as per section 5(1) of the Insolvency Act
- After publication of the notice in the Gazette, it is unlawful to sell any property in the estate
which has been attached under a writ of execution or other similar process, unless the
person charged with the sale (the sheriff) could not have known of the publication (section
5(1)). However, the court, or the Master, if in his opinion the value of the property does not
exceed R5 000, may order the sale of attached property to proceed and direct how the
proceeds of the sale must be applied. The creditor must show that it would be more to the
advantage of the general body of creditors to go ahead with the sale than to hold it over or
that the general body of creditors would derive no benefit from holding over the sale
- Where the court authorizes the sale to proceed, it may direct that the proceeds be handed to
the Master pending the outcome of the application for surrender or that the proceeds be
retained by the officer charged with the sale until the date of the application and paid to the
Master if the surrender is accepted, or otherwise applied in terms of the Rules of Court
- No period is fixed for the duration of the prohibition in section 5(1), but it would seem that
it continues until the day that the application for surrender is, or should have been,
adjudicated upon by the court. If the officer charged with the execution of a writ holds a
sale in execution in contravention of section 5(1), the sale is illegal, and the debtor can
successfully resist proceedings brought by the buyer to enforce it. This applies even if the
application for surrender is subsequently refused. However, if ownership of the property is
transferred to the buyer pursuant to the illegal sale, the trustee of the estate cannot claim
the property unless he proves that the buyer acted in bad faith and with knowledge that the
sale was unlawful
- Publication of a notice of surrender has no effect on other civil and criminal proceedings.
Civil actions and criminal prosecutions may proceed and attachments in execution of
judgments may be made, even though the actual sale in execution is stayed

Curator bonis may be appointed. The master obtains certain powers in terms of section 5(2) of
the Insolvency Act
o Notwithstanding the publication of a notice of surrender, the debtor is still at liberty to deal
with his property as he chooses. He may, for instance, sell it or pass a mortgage bond over
it. As a safeguard against the debtor dissipating his assets after publishing a notice of

Caitlin Freddy 21
 surrender, the Master may appoint a curator bonis to the debtor’s estate according to section
5(2)
o The appointment must be made in accordance with policy determined by the Minister. The
curator bonis is obliged forthwith to take the estate into his custody and assume control of
any business or undertaking of the debtor, as the Master may direct
o The estate remains vested in the debtor, since the curator bonis is only in the position of a
caretaker. The curator bonis is required to open a bank account and is subject to the same
provisions in this regard as a trustee. The curator bonis is entitled to reasonable
remuneration for his services, taxed by the Master (section 63(1)). The remuneration forms
part of the costs of sequestration (section 97(2)(c))

Potential compulsory sequestration : an act of insolvency in terms of section 8(f)

If, after having published a notice of surrender, the debtor fails to lodge a statement of his
affairs , or lodges a statement which is incorrect or incomplete in a material respect, or fails to
make application to court on the appointed day, and the notice of surrender is not properly
withdrawn, the debtor commits an act of insolvency which entitles a creditor to apply for the
compulsory sequestration of his (the debtor’s) estate according to section 8(f).

No withdrawal of notice without consent

▪ A notice of surrender published in the Gazette cannot be withdrawn without the written
consent of the Master according to section 7(1).
▪ The debtor may apply to the Master for his consent and the Master is obliged to give it if it
appears to him that the notice was published in good faith and that there is good cause for
its withdrawal according to section 7(2)).
▪ Withdrawal takes effect upon publication of a notice of withdrawal together with the
Masters consent in the Gazette and in the newspaper in which the notice of surrender was
published. The cost of publication must be paid by the debtor

Lapse of notice of surrender

The notice of surrender (and consequently the debtor’s application for surrender) lapses if the
court does not accept the surrender, or if the notice of surrender is properly withdrawn in terms
of the Act, or if the debtor fails to make the application for surrender within 14 days after the
date advertised as the date of the hearing of the application according to section 6(2).

Caitlin Freddy 22
 FirstRand Bank Ltd v Consumer Guardian Services (Pty) Ltd
In this case , there was a scheme to bring into effect the consequences of the notices of
voluntary surrender because the applicant had an execution order and the notice suspends
sales in execution. This was prejudicial because of wasted costs and delays. Additionally
after the notices lapse, no application for acceptance of surrender follows.

- Section 8(f) states that an act of insolvency occurs if after the notice laps, the applicant
fails to make an application or lodges an incorrect or incomplete statement. The only
manner of commitment that can be validly recalled is by withdrawing the notice in
accordance with section7 [leave of master with good cause shown]
- The debtor can’t be compelled to present an application for acceptance, but if not then
notice lapses.
- A lapse as an advantage for the creditors allows the creditors to execute judgements and
to use this lapse as an act of insolvency to bring compulsory sequestration order.
- Section 6(1) shows that a notice is not for a legitimate intention if the estate is not actually
insolvent or comprises of realisable property of sufficient value to defray costs.
- Nothing in the act supports the notion that a surrender may legitimately be given with
primary purpose of frustration or placing a moratorium on sales in execution to consider
his state of affairs → It signals to the world that they intend to surrender estate
- Therefore, this would constitute fraud because of misrepresentation and mala fides
because deliberate misuse of statutory provisions occur
- Section 5(1) is not for the debtor’s benefit, it is for the creditor’s benefit because it is
directed at avoiding certain creditor’s being advantaged over others through execution
for exclusive benefit when the estate is expected to be sequestrated
- The respondent’s letter unambiguously states that the notice’s intention is prevent the
execution and to use time to undertake audits of client’s accounts with the execution
creditor
- Therefore, the court concluded by stating that such a person was interdicted from making
notices with this intention

Caitlin Freddy 23
 In conclusion, when you bring a notice, needs to be done with the intention to make
application. You are not forced to continue with the application by using section 7 or section
6. This is for the benefit of the creditor, as section 5(1) is no longer applicable and therefore
the creditors can then proceed with sales in executions. They can also then rely on that
situation as an act of insolvency.

Ex Parte Viviers
In this case, the notice was not properly withdrawn and an issue with regards to the lodging
of the statement arose.

The spouses in this case were married in community of property, and they filed an ex parte
application for the voluntary surrender of their estate. The matter could not be heard because
one of the common creditors apposed the application The court addressed two important
which were raised by the intervening creditor. It is important to note that they did not deal
with the merits of the application

The court first looked at this case in terms of compliance with section 7(1) and 6(2). The
court stated thar the debtors had, prior to publishing their present notice of surrender,
published a notice of surrender which had lapsed due to expiry of the 14-day period. The
court rejected a contention that they were precluded from surrendering their joint estate
because the earlier notice had not been
withdrawn in terms of the Act. The court held that, as the first notice had become void on
expiry of the 14-day period, there was nothing for the applicants to withdraw prior to
launching their present application.

The court then looked at this case in terms of section 4(3). The court had to answer the
question of whether an applicant can use the same state of affairs for a different application.
The court accepted that a debtor who has already made an unsuccessful attempt to surrender
his estate may lodge the same statement of affairs that he used in the earlier abortive
application, provided the relevant facts and reasons for the surrender remained unchanged.
In the court’s view, in the absence of any provision in the Act or other authority providing a
legal impediment to the same material facts being used more than once, there was no reason
why the debtor could not reuse his previous statement of affairs.

The intervening creditor stated that when the applications published their previous notice of
voluntary surrender in terms of section 4(1), they were supposed to withdraw their
application in terms of section 7(1) of the Act before they could bring the present application.
The court held that when they failed to make the application in terms of section 6(2), the
right/ privilege to surrender the estate was terminated by disuse. In conclusion the court held
that it is impossible to withdraw something that has lapsed.

The general discretion of the court

The question which arises is whether the application must be upheld if the requirements are
met. The answer to this was confirmed in the negative, no, the court has discretion because the
wording is “may” and not must

Therefore even if the court is satisfied that the requirements discussed above have been met
and that the preliminary formalities have been observed, it still has a discretion to reject the
surrender according to section 6(1). The following are examples of factors that may influence
the court towards refusing the application:

Caitlin Freddy 24
• The debtor displayed gross extravagance and ran up debts on a pretentious scale, even after
judgment had been granted against him
• The debtor’s creditors are not pressing him for payment and are willing to give him time
or to accept payment in monthly instalments
• The debtor had an ulterior motive in applying for surrender, for example, to avoid paying
or to defeat the rights of a particular creditor or to prevent the sale in execution and transfer
of his immovable property
• The debtor failed to give a full and frank account of his financial position
• The debtor’s papers were deficient in a number of respects as seen in the case of Ex parte
Harmse
• The debtor’s financial problems could be dealt with more appropriately under the National
Credit Act 34 of 2005.

Ex Parte Ford
This case looks at the Interaction between Insolvency Act and National Credit Act

In this case, the court refused three applications for voluntary surrender on this ground. It
appeared that the indebtedness of the applicants related almost exclusively to ‘credit
agreements’ as defined in the National Credit Act 34 of 2005 and there were good grounds
for suspecting that the applicants had been granted ‘reckless credit’ as envisaged by section
86(7) of the Act. The applicants had failed to explain adequately how they had come to be
granted the credit and why they had not availed themselves of appropriate relief under the
Act.

‘Insolvents whose misfortune arises out of credit-agreement transactions would be well

advised, for the reasons that follow, to take into account the policy and objects of the National
Credit Act, and also the special remedies under that Act, before opting to apply for the
surrender of their estates under the Insolvency Act, rather than availing of the provisions
under the National Credit Act . . . . The National Credit Act provides a wide range of remedial
relief which can be tailored to the justice of the particular case. The possibilities extend from
disallowance of the recovery of the debt if it arises from reckless credit, to staying the accrual
of interest thereon and ranking liability. . . . In view of the resistance by the applicants to
assistance in terms of . . . the National Credit Act in the context of these proceedings, I have
determined not to refer their credit-agreement debts for investigation and report by a debt
counsellor. It is nevertheless open to them to take the necessary steps that appear to be
indicated under the National Credit Act on their own initiative. I am, however, not disposed
to exercise the court’s discretion in favour of granting their applications for voluntary
surrender, in the context of their failure to properly explain why their credit agreement
related debt is not amenable to administration under the National Credit Act to their own
benefit as well as that of their credit-granting creditors who acted responsibly, as distinct
from recklessly, in extending credit.’

In the case of Ex Parte Fuls 2016 (6) SA 128 (GP) , the judge stated that “In my opinion it is
therefore incumbent on an applicant in an application for voluntary surrender, where it is
required to illustrate advantage to creditors, to make a full disclosure of at least the following:
o Whether or not the applicant availed himself/herself of the procedures afforded in the
National Credit Act for debt review prior to the application being proceeded with, and if
not, full reasons for such failure.

Caitlin Freddy 25
o A comprehensive report of the debt counsellor involved, explaining what procedures were
followed, and whether or not the applicant complied with any debt restructuring
arrangements.”

Costs of surrender
- The taxed costs incurred in surrendering the estate are included in the costs of sequestration
and are payable out of the estate (section 97(3)).
- As a general rule, costs occasioned by unsuccessful opposition to the application must be
borne by the creditors concerned (Ex parte Bellairs 1932 EDL 189), but the court may order
these costs (or part of them) to be paid out of the estate (Ex parte Berman 1972 (3) SA 128
(R)).
- Attorneys’ fees and expenses must be limited to the amounts stated in the application

Application for surrender example

Look at appendix 1 on pages 307- 310 : application for voluntary surrender
o Notice of motion
o Affidavit
o Form A –example of notice of surrender on page 428

Compulsory sequestration
Outcomes: After completion of this theme you should have full knowledge and understanding
of the following:
• The requirements that need to be complied with before acceptance of the application by the
court;
• The application itself;
• Friendly sequestrations.

Compulsory reading:
➔ Hockly Chapter 3;
➔ Bishop v Baker 1962 (2) SA 679 (D);
➔ Cohen v Jacobs (stand 675 Dowerglen) Pty Ltd intervening [1998] 2 All SA 433 (W);
➔ De Wet v Le Riche 2000 (3) SA 1118 (T);
➔ Marumoagae C & Mokgoetsi K: The need to clarify the sheriffs duties when executing writs
of execution that could indicate the debtors insolvency (2019) 31 SA MERC LJ;
➔ Patel v Sonday 1936 CPD 466;
➔ Epstein v Epstein 1987 (4) SA 606 (C);

Caitlin Freddy 26
➔ Van Rooyen v Van Rooyen (Automated Investments (EC) (Pty) Ltd, Intervening Creditor
[2000] 2 All SA 485 (SE);
➔ Stratford v Investec Bank Ltd 2015 (3) SA 1 (CC);
➔ VBS Mutual Bank (in liquidation) v Ramavhunga and others [2018] ZAGPJHC 516 (3
August 2018);
➔ VBS Mutual Bank (in liquidation) v Madzonga [2019] ZAGPJHC 273 (23 August 2019);
➔ VBS Mutual Bank (in liquidation) v Ramavhunga and another [2019] ZAGPJHC 295 (23
August 2019).

Introduction
The second way in which a debtor’s estate may be sequestrated is called compulsory
sequestration. Whereas an application for voluntary surrender is made by the debtor himself,
an application for compulsory sequestration is made by one or more creditors.

What is the purpose of application and order:

• The creditor seeks payment of his or her debt. This is the motive or reason for compulsory
sequestration
• The order is the same as an order granted in terms of voluntary sequestration. The process
of voluntary and compulsory sequestration are different but the consequences in essence
are the same
• In the case of Investec Bank v Mutemeri 2010 it was said that the “ purpose and effect are
merely to bring about a convergence of the claims in an insolvent estate to ensure that it is
wound up in an orderly fashion and that creditors are treated equally. An applicant for
sequestration must have a liquidated claim against the respondent, not because the
application is one for the enforcement of the claim, but merely to ensure that applications
for sequestration are only brought by creditors with a sufficient interest in the sequestration.
Once the sequestration order is granted, the enforcement of the sequestrating creditor’s
claim is governed by the same rules that apply to the claims of all the other creditors in the
estate. The order for the sequestration of the debtor’s estate is thus not an order for the
enforcement of the sequestrating creditor’s claim.”
• In this way, you as the creditor are not trying to enforce your claim but instead you are
trying to participate in an orderly mechanism that is designed in term of the insolvency act.
This is designed to ensure that only individuals who have an interest in the sequestration
can participate thereto. If you for example want to lay a claim for a specific amount of
money that is outstanding to you, you can utilise other mechanisms but the insolvency law
processes ensures that there is an equitable distribution of the estate and what is available
in the estate in an orderly fashion and that there is a conversion of claims. Therefore the
interest of the creditors as a group will be taken into consideration [not based on individual
interests]
• According to the case of Naidoo v ABSA 2010 , the Supreme Court of Appeal stated that
“it is not an ordinary judgement entitling a creditor to execute against a debtor”
• There is a different functionality for insolvency law, it is not for the enforcement of debt.
In terms of the concersus creditorium, it is a formal application of the law so the estate of
an insolvent may be surrendered for the benefit of multiple creditors. Only certain creditors
may bring a claim in terms of compulsory sequestration

It is important to note that there is a provisional sequestration order [ this can be set aside when
it goes back to court for confirmation] and a final sequestration order. The creditor therefore
approaches the court twice:

Caitlin Freddy 27
- Provisional sequestration order [based on prima facie] and then rule nisi according to
section 10 and 11
- Making final of provisional order [based on a balance of probabilities]. The onus on the
debtor according to section 12
The final order cannot be granted without provisional one, so if there is provisional nullity,
then the final can’t be granted. Fairbairn = effective date of sequestration for compulsory
sequestration = date on which the provisional order of sequestration is granted in terms of
section 10

Substantive requirements for application

The court may grant an application for the sequestration of a debtor’s estate if it is satisfied
that:
1. the applicant has established a claim which entitles him, in terms of section 9(1), to apply
for sequestration of the debtor’s estate;
2. the debtor has committed an act of insolvency or is insolvent;
3. there is reason to believe that it will be to the advantage of creditors of the debtor if his
estate is sequestrated (section 12(1)) [this is a lower standard compared to voluntary
sequestration]

The onus of satisfying the court on these three matters rests throughout on the sequestrating
creditor. There is no onus on the debtor to disprove any element

According to section 2 of the Insolvency Act, a “sequestration order” means any order of court
whereby an estate is sequestrated and includes a provisional order, when it has not been set
aside. This means that a provisional sequestration order can bring about sequestration
consequences even though it can be later set aside.

Applicant entitled to apply in terms of section 9(1)

Section 9(1) allows proceedings for the compulsory sequestration of a debtor’s estate to be
instituted by:
• a creditor (or his agent) who has a liquidated claim against the debtor for not less than
R100, or
• two or more creditors (or their agents) who have liquidated claims against the debtor
amounting, in aggregate, to not less than R200.

The fact that a creditor holds security for his claim does not debar him from applying, even if
the value of the security exceeds the amount of the claim If an agent applies on behalf of the
creditor, he must be authorized to do so prior to bringing the application. An applicant’s lack

Caitlin Freddy 28
of authority cannot be cured by ratification once the application has been launched [South
African Milling Co (Pty) Ltd v Reddy]

The claim must be pecuniary [sounding in money]. A ‘liquidated claim’ is a monetary claim =
a claim for transfer of property, for instance, does not give locus standi to apply. The amount
of which is fixed by agreement, judgment, or otherwise.

Examples of liquidated claims are:

 a claim for the price of goods sold and delivered
 a claim based upon a provisional sentence judgment
 a claim for return of the price paid under a sale which has been cancelled due to the seller’s
repudiation
 a delictual claim for the theft of a fixed and determinable sum of money

Examples of claims that are unliquidated are:

▪ a claim for damages for failure to carry out obligations in terms of a consent paper
▪ a claim for payment of an untaxed attorney and client bill of costs

If a debt is disputed, it cannot be regarded as liquidated unless it is capable of speedy and easy
proof. A claim arising in contract or delict which is yet to be quantified by a judgement or
agreement, ordinarily is an unliquidated claim

Debtor committed an act of insolvency or is insolvent

There are only two grounds for a creditors application. Sometimes it is difficult for creditor to
prove insolvency so the legislature has created acts of insolvency that may be used. The
legislature has created in section 8, acts of insolvency to assist creditors, namely acts and
failure to act. This creates a rebuttable presumption that debtor is insolvent. The estate of a
debtor that has committed an act of insolvency may be sequestrated even if his estate is
technically solvent

Although a creditor may have good reason for believing that the debtor is insolvent, he will
usually not be in a position to prove that the debtor’s liabilities exceed his assets. Consequently,
the legislature has designated certain acts or omissions by a debtor as ‘acts of insolvency’ and
if the creditor can establish that the debtor has committed one or more of these ‘acts’, he may
seek an order sequestrating the debtor’s estate without having to prove that the debtor is
actually insolvent It follows that a debtor’s estate may be sequestrated even though he is
technically solvent. The creditor may rely on an act of insolvency committed after
commencement of sequestration proceedings, provided the necessary allegations are properly
before the court

An act of insolvency need not be committed vis-à-vis the sequestrating creditor. Section 9 (1)
gives any creditor of the debtor the right to apply for sequestration once the debtor commits an
act of insolvency, whether or not the debtor directed the act at the creditor concerned or
intended it to have any bearing on that creditor’s affairs. An act of insolvency may be proved
and relied upon even though it is contained in a communication that would ordinarily be
privileged from disclosure, such as an offer marked ‘without prejudice’ sent in a genuine
attempt to reach a compromise in relation to a disputed debt [An act of insolvency, even if
committed by a debtor on a privileged occasion, may be admissible in evidence against the
debtor. As a general public, it is argued that we should be protected from contracting or trading
with a debtor who is technically insolvent]

Caitlin Freddy 29
According to the case of ABSA Bank Ltd v Hammerle Group (Pty) Ltd, paragraph “It is true
that as a general rule, negotiations between parties which are undertaken with a view to a
settlement of their disputes are privileged from disclosure. This is regardless of whether or not
the negotiations have been stipulated to be without prejudice. However, there are exceptions to
this rule. One of these exceptions is that an offer made, even on a 'without prejudice' basis, is
admissible in evidence as an act of insolvency. Where a party therefore concedes insolvency,
as the respondent did in this case, public policy dictates that such admissions of insolvency
should not be precluded from sequestration or winding-up proceedings, even if made on a
privileged occasion. The reason for the exception is that liquidation or insolvency proceedings
is a matter which by its very nature involves the public interest. A concursus creditorum is
created and the trading public is protected from the risk of further dealing with a person or
company trading in insolvent circumstances. It follows that any admission of such insolvency,
whether made in confidence or otherwise, cannot be considered privileged.”

This is explained by the words of Van Schalkwyk J in Absa Bank Ltd v Chopdat, when he said:
'As a matter of public policy, an act of insolvency should not always be afforded the same
protection which the common law privilege accords to settlement negotiations. A creditor who
undertakes the sequestration of a debtor's estate is not merely engaging in private litigation; he
initiates a juridical process which can have extensive and indeed profound consequences for
many other creditors, some of whom might be gravely prejudiced if the debtor is permitted to
continue to trade whilst insolvent. I would therefore be inclined to draw an analogy between
the individual who seeks to protect from disclosure a criminal threat upon the basis of privilege
and the debtor who objects to the disclosure of an act of insolvency on the same basis.' In the
final analysis, the learned judge said: 'In this case the respondent has admitted his insolvency.
Public policy would require that such admission should not be precluded from these
proceedings, even if made on a privileged occasion.”

Acts of insolvency

Section 8(a) absence from Republic or dwelling

If he leaves the Republic or, being out of the Republic, remains absent from it, or
departs from his dwelling or otherwise absents himself, with intent by doing so to
evade or delay payment of his debts

With intent to evade or delay paying debts:

+ Debtor leaves country; or
+ Debtor is abroad and stays away; or
+ Debtor leaves dwelling; or
+ Debtors absent from dwelling

This is a subjective test as it must be done with the requisite intention. The creditor must
establish the debtor’s intention to evade or delay payment of his debts, in particular, that the
only probable inference to be drawn is that the debtor had this intention. Proof of departure or
absence, by itself, is not sufficient, because a person may leave or absent himself for reasons
completely unconnected with the payment or non-payment of debts, for example, to avoid a
deterioration in his health or to join a close relative [Bishop v Baker ] or simply on account of
his occupation [Abell v Strauss where the debtor, a taxi driver, was called away frequently and
at irregular times]. A factor from which the intention to evade or delay payment may be inferred

Caitlin Freddy 30
is that the debtor made an appointment to make a payment and then departed without keeping
it

Bishop v Baker 1962 (2) SA 679 (D)

In this case a provisional sequestration order was obtained. The creditor placed a reliance on
section 8(a) of the Insolvency Act. The creditor alleged that the respondent had left South
Africa in order to avoid payment. Both the respondent and her husband had left to New
Zeeland where they intended to reside permanently. The court in this case highlighted that
the onus is on the creditor to prove an act of insolvency.

The respondent in an affidavit sworn in New Zealand has denied that she left South Africa
with intent to evade or delay payment of her debts, and she avers that it has always been, and
still is her intention to pay her debts as expeditiously as possible. She says that the reason
for leaving South Africa was the state of her health which had deteriorated rapidly since an
attack on her by a dog belonging to Mr. and Mrs. Spielman (it was arising out of that attack
that she obtained against them the judgment referred to earlier). She says she has been
constantly undergoing medical and surgical treatment and has been advised by her doctor
that her condition would deteriorate even further if she did not go away because of the
embarrassment she felt as the consequence of the disfigurement. She and her husband had
therefore decided to leave South Africa and join their daughter in New Zealand. Her husband
also denies any intent to evade or delay payment of his wife's debts, says she has no creditors
in South Africa other than medical, hospital, legal and court costs arising from the injuries
she sustained from the attack by the dog of the Spielmans.

In the light of these facts, the arrangements and proposals made by the respondent for the
settlement of her debts, the petitioner has not persuaded me that the respondent left South
Africa with intent to evade or delay payment of her debts. The state of health of the
respondent, together with the fact of her daughter being in New Zealand, would constitute
a reason for her emigrating to that country; so far from having an intent to evade or delay
payment of her debts, she came to an arrangement with the petitioner, who appears to have
been her only judgment creditor, for settlement of his claim and did so before she left South
Africa. On arrival in New Zealand she without delay took steps to arrange to meet the claims
of all her creditors out of the proceeds of the judgment debt she had obtained against the
Spielmans. That debt was her principal asset; indeed it has not been shown that she, as
distinct from her husband, had any other assets, and that asset she left in South Africa to be
available for her creditors.

The court was not satisfied that an act of insolvency has been committed. The order is that
the provisional order of sequestration is discharged, with costs. The final sequestration order
was not granted

Section 8(b) : failure to satisfy judgment

If a court has given judgment against him and he fails, upon the demand of the officer whose
duty it is to execute the judgment, to satisfy it or to indicate to the officer disposable property
sufficient to satisfy it, or if it appears from the return made by the officer that he has not found
sufficient disposable property to satisfy the judgment

Caitlin Freddy 31
This subsection creates two separate acts of insolvency: one, where the debtor, upon demand
by the sheriff, fails to satisfy the judgment or to indicate disposable property sufficient to satisfy
it; and the other, where the sheriff, without presenting the writ to the debtor, fails to find
sufficient disposable property to satisfy the judgment and states this fact in his return. The two
acts, although separate, are not independent of each other: the second act applies only if the
first cannot be established, for example, only if the writ of execution cannot be served
personally on the debtor. If the sheriff, on serving the writ, neglects to demand satisfaction of
the writ by the debtor and thereafter simply states in his return that he was unable to find
sufficient disposable property, no act of insolvency is committed. And if the debtor fails on
demand to satisfy the judgment or indicate sufficient disposable property, it is irrelevant
whether or not the sheriff subsequently finds disposable property sufficient to satisfy the
judgment

‘Judgment’ includes a provisional sentence judgment, even if the defendant has entered an
appearance to defend the principal case. The judgment must be against the debtor in his own
name and not, for example, in the name of a firm of which he is the sole proprietor. However,
the judgment does not have to be one obtained by the sequestrating creditor. A creditor may
sequestrate a debtor on the basis of a nulla bona return on a writ issued at the instance of another
creditor provided the other creditor has not, in the interim, been paid or agreed to accept
payment of the judgment debt in instalments

The demand to satisfy the judgment debt must be made of the debtor or his duly authorized
agent (in other words, personal service is required): a demand made to some other party, such
as the debtor’s wife, does not suffice. The writ need not be served on the debtor at his residence
or place of business: section 8(b) requires only personal service and does not say where the
service must take place

To ‘indicate’ property, the debtor should tell the sheriff what the property is and where it is
with enough particularity to demonstrate its sufficiency and enable the sheriff to attach and sell
it

The term ‘disposable property’ means any property which may be attached and sold in
execution, even if it is situated in some other locality. It includes both movable and immovable
property, and also incorporeal assets, such as book debts. It does not include immovable

Caitlin Freddy 32
property which has been mortgaged, even, it seems, where the value of the property
considerably exceeds the amount owing under the mortgage bond. But if the applicant himself
is the first mortgagee of the immovable property, it is regarded as disposable

If the sheriff’s return of service merely refers to movable property, it does not establish an act
of insolvency. To avail as an act of insolvency, the return should refer to all disposable property
of whatever description. It has been held that the expression ‘money, property or assets’ in the
printed form commonly in use covers all disposable property

If the debtor points out insufficient disposable property to satisfy the writ, the sheriff may
refuse to attach it and make a return of nulla bona, in which event the creditor may apply for
sequestration. The onus is then on the sequestrating creditor to establish that the property
pointed out was insufficient to satisfy the judgment. If the sheriff attaches the property pointed
out by the debtor and, at the sale in execution, the property does not realize enough to satisfy
the judgment, the creditor may proceed to sequestration on the ground that the debtor has not
indicated property sufficient to satisfy the judgment

To prove that the requirements of the subsection have been satisfied, the sequestrating creditor
may rely solely on the sheriff’s return of service, which is regarded as prima facie proof of the
truth of its contents. The debtor may, of course, dispute the correctness of the statements in the
return, but if the return, on the face of it, establishes an act of insolvency, the onus is on the
debtor to show by the clearest and most satisfactory evidence that the facts set out in the return
are incorrect

The return relied upon by the sequestrating creditor must obviously be made by the officer who
actually executed the judgment, and not by someone else.

Marumoagae C & Mokgoetsi K: The need to clarify the sheriffs duties when executing writs
of execution that could indicate the debtors insolvency (2019) 31 SA MERC LJ
• Provides a overview of insolvency law being geared towards the advantage of creditors &
the Acts of insolvency. Considers Section 8(b) of the Insolvency Act and how drastic a
measure it is.
• Authors question the sheriffs precise functions and duties in regards to the potential
insolvency of the debtor where they are unable to either indicate disposable property when
a sheriff asks them to do so.
• Authors state that there seems no clear guidelines from the court either. Call for a legislative
guideline on what is expected of the sheriffs with regards to writs of execution where an
act of insolvency under section 8(b) is concerned.
• In analysing the duties of the sheriff the authors highlight that historically there was no
uniform processes that were followed. When section 8(b) was introduced , the authors
highlight that when the sheriff arrives the debtor should satisfy the judgement and if he
cannot , he must indicate sufficient property. If the debtor fails to do, the sheriff must submit
a nulla bona return.
• Also a duty on sheriff to try and find disposable property, but the authors argue that the
extent to which the sheriff must go to satisfy the judgement debt is unclear.
• Hence they provide an argument for statutory guidelines regarding the sheriffs duties in
executing writs of execution so that the nulla bona returns are not impeachable.

Caitlin Freddy 33
 De Wet v Le Riche
The nulla bona return before the court had been certified and signed by a sheriff who had not
executed the judgment. The court ruled that the applicant could not rely on the return as
proof of an act of insolvency. The court stated that a legal practitioner who draws up or
settles an application for compulsory sequestration based on a nulla bona return should
carefully scrutinize them return and, if it is defective or inadequate, should remit it to the
officer concerned for rectification before initiating the application to court. The one that
executed is the one that must sign.

Section 8(c) : disposition prejudicing creditors or preferring one creditor

If he makes, or attempts to make, any disposition of any of his property which has, or would
have, the effect of prejudicing his creditors or of preferring one creditor above another

Intention is not relevant. This is an objective test as the creditor must explain how it has had
the effect. It is not necessary if a reasonable person would prima facie identify prejudice. Proof
of disposition rendered estate insolvent indicates prejudice. There are also two acts of
insolvency that take place here :
 Actual disposition (removing out of your estate) by the debtor of any of his property which
has effect of prejudicing creditor or preferring one of the above the other
 Attempted disposition of any of his property by the debtor which, had it been accomplished,
would have had such effect

This subsection envisages two sets of circumstances: an actual disposition of property and an
attempted disposition of property. If there is an actual disposition, it must have the effect of
prejudicing the debtor’s creditors or preferring one creditor above another. If there is an
attempted disposition, it must be such that it would, if completed, have the same effect.
‘Disposition’ is wide enough to include both a contract in which the debtor undertakes to
dispose of property and the actual subsequent delivery of the property

Only the effect of the disposition need be considered. It does not matter whether the debtor
made the disposition deliberately to favour one of his creditors, or recklessly without regard
for its consequences: the debtor’s state of mind in making the disposition is irrelevant

Section 8(d) : removal of property with intent to prejudice or prefer

If he removes, or attempts to remove, any of his property with intent to prejudice his creditors
or to prefer one creditor above another

There are 4 acts of insolvency dealt with here. This includes where a
- Debtor removes any of his property with intent to prejudice his creditors
- Debtor removes any of his property with intent to prefer one creditor above another
- Debtor attempts to remove any of his property with intent to prejudice his creditors
- Debtor attempts to remove any of his property with intent to prefer one creditor above
another
This act of insolvency differs from the preceding one in two respects: a disposition of property
is not required, mere removal being sufficient and the intention of the debtor, not the effect of
what he does, is important. The test for determining whether the debtor had the requisite
intention is a subjective one. The intention may be inferred from the circumstances surrounding
the removal.

Caitlin Freddy 34
Disposition means any transfer or abandonment of rights to property and includes a sale, lease,
mortgage, pledge, delivery, payment, release, comprise, donation or any conduct therefor, but
does not include a disposition in compliance with an order of the court

Property means movable and immovable property wherever situate within the Republic and
includes contingent interests in property other than the contingent interests of a fidei
commissary heir or legatee

Section 8(c) Section 8(d)

Disposition irrespective of intension with Removal with certain intension
certain effect

Section 8(e) : offer of arrangement

If he makes, or offers to make, any arrangement with any of his creditors for releasing him
wholly or in part from his debts

An arrangement or an offer qualifies as an act of insolvency in terms of this subsection only if

it is indicative of the debtor’s inability to pay his debts. There are two acts of insolvency at
play here
- Actual making of the envisaged arrangement
- Debtors mere offering to make such

The debtor does not have to make the arrangement or offer personally: one made by a third
person with his knowledge and permission suffices. The object of the arrangement or offer
must be to release the debtor from liability, wholly or in part. An offer of a certain amount in
the rand, subject to the debtor being allowed an extension of time to pay the balance, does not
amount to an act of insolvency

Section 8(f) : failure to apply for surrender

If, after having published a notice of surrender of his estate which has not lapsed or been
withdrawn in terms of sections 6 or 7, he fails to comply with the requirements of section 4(3),
or lodges, in terms of section 4(3), a statement which is incorrect or incomplete in any material
respect, or fails to apply for the acceptance of the surrender of his estate on the date mentioned
in the notice of surrender as the date on which the application is to be made (section 8(f)).

Three acts of insolvency are embodied in this subsection. In each case, the debtor must have
published a notice of surrender which has not lapsed or been withdrawn, and then he must
have done one of the following:
➔ failed to lodge a statement of affairs with the Master;
➔ filed a statement of affairs which is incorrect or incomplete in a material respect;
➔ failed to apply for acceptance of the surrender on the specified date mentioned in the
aforesaid notice as the date on which the application is made. [remember that the 14-day
grace period is included]

Section 8(g) : notice of inability to pay

If he gives notice in writing to any one of his creditors that he is unable to pay any
of his debts

Caitlin Freddy 35
The notice must be in writing: the debtor does not commit this act of insolvency by informing
the creditor orally that he cannot pay his debts, although he does provide the creditor with
evidence of actual insolvency [Patel v Sonday]

The words ‘any of his debts’ are capable of being interpreted as meaning either ‘any one of his
debts’ or ‘all of his debts’, but the courts, have adopted the former construction. Consequently,
the debtor commits an act of insolvency if he gives notice of inability to pay any single debt

This is an objective test as a reasonable person in the receiver’s position and having knowledge
of the circumstances would have interpreted doc to mean debtor cannot pay his debts

A debtor who applies for an administration order in terms of section 74 of the Magistrates’
Courts Act 32 of 1944 is required to state that he cannot pay any of his debts and, hence, may
commit an act of insolvency in the process. However, the application has to be construed
according to its tenor as a whole and not according to the meaning in isolation of certain words
used in it. If it appears from other information provided in the application that the debtor did
not intend the word ‘unable’ to be taken literally. For instance, if it is clear that he has sufficient
means to pay his debts and is simply unwilling to do so immediately, then he does not commit
an act of insolvency

Patel v Sonday
The respondents estate was provisionally sequestrated. On the return day, the proviosnal
sequestration order had to be made final

The Applicant sought to rely upon section 8(g) of the Act. That section provides that an act
of insolvency is committed by a debtor if the debtor gives written notice to any of his or her
creditors that he or she is unable to pay any of his or her debts. Such notice must be in writing.
Mr Brooks, who appeared for the Applicant, conceded that no such notice, in writing, had
been given. It was nevertheless contended that by reason of the Respondent’s deposition to
the answering affidavit, in which, so the argument went, the Respondent had admitted her
indebtedness to the Applicant and her inability to pay the amount due, an act of insolvency
had been committed.

The judge stated the following: I am not aware of any instance where the content of an
answering affidavit, filed in opposition to an application for a provisional order of
sequestration, has been found to constitute notice in terms of section 8(g) of the Act, nor
have I been referred to any such authority. I have considerable doubt that an answering
affidavit can be relied upon as constituting the written notice contemplated by section 8(g)
of the Act.

Notionally an affidavit filed by a debtor may, upon a proper construction thereof, contain
admissions to the effect that the debtor is unable to pay any or all of his or her debts. In such
circumstances such an admission may be sufficient to warrant a finding that the debtor is in
fact insolvent, in which event a court considering a provisional (or indeed, a final) order of
sequestration would (accepting that all of the other elements are established) be entitled to
make an order based on the factual insolvency of the debtor rather than upon an act of
insolvency having been committed.

The Act creates statutory acts of insolvency. The very purpose of section 8 is to obviate the
necessity for proof of de facto insolvency. It is, amongst other things, the very commission

Caitlin Freddy 36
 of an act of insolvency which entitles the creditor to apply for the winding up of a debtor’s
estate. It is for this reason that the creditor’s cause of action, relying upon section 8, must
necessarily set out the factual basis upon which the existence of a particular act of insolvency
is to be found. This is, of course, not to suggest that reliance may not be placed upon the
commission of a further and subsequent act of insolvency in appropriate circumstances.

Assuming for present purposes that the answering affidavit itself may constitute a notice in
terms of section 8(g), it must, in all respects comply with the requirements of the section.
If the notice does not clearly indicate an inability to pay the debt, the fact that the creditor so
understood it does not establish that the notice complies with section 8(g). The notice must
be construed as it would be by a reasonable person receiving it

According to the judge : “in my view a proper construction of the Respondent’s answering
affidavit establishes no more than that the Respondent is unwilling to pay any amount to the
Applicant on the basis that the underlying indebtedness is in dispute. Accordingly, the
Applicant has not established that the affidavit constitutes written notice as envisaged by
section 8(g) and accordingly that the Respondent has, by deposing thereto committed an act
of insolvency as provided for in the section”

In the result the application is dismissed with costs.

Section 8(h) : inability to pay debts after notice of transfer of business

If, being a trader, he gives notice in the Gazette in terms of section 34(1) [of his intention to
transfer his business] and is thereafter unable to pay all his debts

Section 34(2) provides that, as soon as a notice is published in terms of section 34(1), every
liquidated liability of the trader in connection with his business which would become due at
some future date, falls due forthwith, if the creditor concerned demands payment. The term
‘debts’ in section 8(h) includes debts which become immediately payable by reason of this
subsection.

Proof of inability to pay one debt may be accepted as proof that the debtor is unable to pay all
his debts, but evidence that the debtor was unwilling or has refused to pay a particular debt is
not enough to establish this act of insolvency

Debtor in fact insolvent

▪ Instead of (or in addition to) relying on an act of insolvency by the debtor, the sequestrating
creditor may rely on the fact that the debtor’s estate is insolvent, for example , that his
liabilities exceed his assets. If the creditor relies on an act of insolvency and is unable to
establish that it was committed, but it is clear that the debtor is in fact insolvent, the court
may grant a final sequestration order on the latter ground

Caitlin Freddy 37
▪ Factual insolvency may be established directly, by evidence of the debtor’s liabilities and
the market value of his assets, or indirectly, by evidence of facts and circumstances from
which the inference of insolvency is fairly and properly deducible. For example, that the
debtor has failed to pay his debts and admitted that he is insolvent
▪ In Patel v Sonday two default judgments had been taken against the debtor and a writ issued
in respect of one of them had not been satisfied. In addition, the debtor had approached
some of his creditors—those who knew him well—and requested them to participate in a
distribution scheme. The court held that these facts raised a very strong prima facie view
that the debtor was insolvent, and this view was confirmed by the statement of affairs given
by the debtor in his replying affidavit.
▪ Insolvency cannot be inferred simply from the fact that the debtor has not paid his debts,
or has requested time to pay , or has offered to pay a certain amount in the rand immediately
and the balance later

Section 8A
➔ New section (with effect from 13 March 2015): A debtor who has applied for a debt review
must not be regarded as having committed an Act of insolvency.
➔ This insertion was a result of the National Credit Act Amendment 19 of 2014
➔ This additionally highlighters the interplay between the Insolvency Act and the National
Credit Act as seen in the prescribed case law

Reason to believe sequestration will be to the advantage of the creditor

 Before the court can grant a final order of sequestration, it must be satisfied that there is
reason to believe that it will be to the advantage of creditors if the debtor’s estate is
sequestrated (section 12(1)(c)). ‘Creditors’ means all, or at least the general body of
creditors
 The question is whether a ‘substantial portion’ of the creditors, determined according to the
value of the claims, will derive advantage from sequestration
 For sequestration to be to the advantage of creditors it must ‘yield at the least, a not
negligible dividend’. If, after the costs of sequestration have been met, there is no payment
to creditors, or only a negligible one, there is no advantage
 In Cohen v Jacobs ,it appeared that the debtor’s only asset, a piece of land, could, if rezoned,
be sold for nearly three times the price offered for the property at a sale in execution. The
court held that, in the light of this, a prima facie case had been made out that it would be to
the advantage of creditors to sequestrate the estate.
 The fact that there will be a significant amount for distribution after the costs of
sequestration have been satisfied does not necessarily mean that sequestration will be to
the advantage of creditors. Sequestration is, in a sense, merely an elaborate means of
execution and, because of its costs, an expensive one too. It is necessary to compare the
position of the creditors if there is no sequestration with their position if there is a
sequestration. Sequestration will only be to the advantage of creditors if it will result in a
greater dividend to them than would otherwise be the case—for example, through the
setting aside of impeachable transactions, or the exposure of concealed assets—or if it will
prevent an unfair division of the proceeds of the assets or some creditors being preferred to
others
 Sequestration is usually considered to hold no advantage for creditors unless the debtor has
assets valued in excess of the estimated cost of sequestration. However, the converse does
not apply: the fact that there is more than the required minimum amount in the estate does
not mean that sequestration is assumed to be advantageous to creditors

Caitlin Freddy 38
 It is not necessary to prove that the debtor has any assets, provided it is shown either that
the debtor is in receipt of an income of which substantial portions are likely to become
available to creditors in terms of section 23(5)or that there is a reasonable prospect that the
trustee, by invoking the machinery of the Insolvency Act, will unearth or recover assets
which will yield a pecuniary benefit for creditors
 The onus of establishing advantage to creditors remains on the sequestrating creditor
throughout, even where it is clear that the debtor has committed an act of insolvency. In
certain earlier cases, the view was taken that once an act of insolvency [for example, any
act] is proved, the court will require convincing reasons to persuade it that sequestration
will not be to the advantage of creditors. However, more recently, the courts have held that
the commission of an act of insolvency is not necessarily material to the question of
advantage to creditors. Certain acts of insolvency, by their nature, tend to indicate
advantage to creditors—for instance, a disposition of property which prejudices creditors
or prefers one creditor above another—but other acts, for example, a nulla bona return, do
not
 Why is the standard lower with regards to the same requirement in terms of voluntary
surrender?

According to the Friedman case: “…there is a reasonable prospect – not necessarily a

likelihood, but a prospect which is not too remote – that some pecuniary benefit will result to
creditor. It is not necessary to prove that the insolvent has any assets. Even if there are none at
all, but there are reasons for thinking that as a result of enquiry under the [Insolvency Act]
some may be revealed or recovered for the benefit of creditors, that is sufficient”

This was confirmed by the Constitutional Court in Stratford v Investec from Meskin: “… there
is a reasonable prospect of an actual payment being made to each creditor who proves a claim,
however small such payment may be, unless some other means of dealing with the debtor’s
predicament is likely to yield a larger such payment…”

Stratford v Investec (CC)

Part 1 of the case

This is an appeal against the final sequestration order and dismissal of a counterapplication
by the Western Cape Division of the High Court, Cape Town1 (High Court), the Supreme
Court of Appeal having refused leave to appeal. In terms of the Insolvency Act a
sequestration order granted against a debtor has the effect of suspending contracts of service
of the debtor’s employees with immediate effect.

The effect of the suspension is that the employees are not entitled to any remuneration and
no employment benefits accrue to the employees, save for unemployment benefits in terms
of section 35 of the Unemployment Insurance Act.

An amendment to the Insolvency Act in 2002 inserted section 9(4A). It provides that a copy
of the sequestration application must be furnished to employees of the insolvent debtor
before an order for provisional sequestration may be granted. The Supreme Court of Appeal
in Gungudoo interpreted this amendment to apply only to employees of the insolvent’s
business, to the exclusion of domestic employees. The appellants assert that this
interpretation is wrong and that domestic employees must be included in the term
“employees” in section 9(4A).

Caitlin Freddy 39
 The second appellant (Ms Stratford) has been joined to these proceedings in terms of section
17 of the Matrimonial Property Act by virtue of her marriage to Mr Stratford in community
of property. The third appellant (Mr Ngoma), the fourth appellant (Mr Dlokolo) and the fifth
appellant (Mr Adonis) (together, the domestic employees) are employed by Mr and Ms
Stratford (Stratfords) as a domestic worker, gardener and handyman respectively.

On 29 May 2012, Investec launched sequestration proceedings on an urgent basis against the
Stratfords in the High Court, alleging that the Stratfords owed it over R240 million, plus
interest. A candidate attorney, employed by the attorneys representing Investec, furnished a
copy of the notice of motion and the founding affidavit to the Stratfords. She also enquired
from the Stratfords whether they had a domestic employee. The Stratfords informed her that
they had a domestic worker, but did not disclose that they also had two other domestic
employees in their employ. The candidate attorney then left a copy of the petition on the
kitchen table for the identified domestic worker, Mr Ngoma, without directing that the
Stratfords bring it to the attention of the domestic worker.

The application was set down for hearing in the High Court on 4 June 2012. By agreement
between the parties, it was heard only on 15 October 2012. Cloete AJ refused an application
for a postponement by the Stratfords and granted a provisional order of sequestration. On 24
October 2012, the sheriff served a copy of the provisional order of sequestration on Mr
Stratford and Mr Ngoma and, on 30 October 2012, a copy was served on Ms Stratford, Mr
Adonis and Mr Dlokolo. A rule nisi was issued in terms of the provisional sequestration
order calling upon the Stratfords, and all interested parties, to show cause why a final
sequestration order should not be granted on 26 November 2012. The Stratfords opposed the
sequestration application on 23 November 2012 and baldly denied that Investec had a
liquidated claim against them and that they had committed an act of insolvency as required
by section 8(b) of the Insolvency Act. On the same date, the domestic employees filed an
application to intervene as applicants in the proceedings, which was granted.

In February 2013, the domestic employees – together with the Stratfords – launched a
counterapplication joining the Minister of Labour and the Minister of Justice and seeking an
order declaring that: (1) section 9(4A) is unconstitutional in that it indirectly discriminates
against domestic employees; and (2) failure to notify them of the sequestration proceedings,
amounted to a breach of their constitutional right to fair labour practices and the right of
access to courts. They submitted that had they been given prior notice of the provisional
sequestration proceedings; they would have sought legal assistance and opposed the
application.

On 14 August 2013, the High Court (Mantame J) found that the Stratfords had committed
an act of insolvency and had failed to explain their financial situation. The Court further
found that Investec had proved, on a balance of probabilities, that there were prospects of
pecuniary benefit to creditors. The Court was satisfied that a proper investigation by the
trustee would likely uncover a substantial amount of assets from the Stratfords’ joint estate.

Was the granting of a final sequestration order correct? In terms of the Insolvency Act, a
court may grant a sequestration order, either provisionally or finally, if “there is reason to
believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated”.
It is the petitioner who bears the onus of demonstrating that there is reason to believe that
this is so. In Friedman the Court held: “The facts put before the Court must satisfy it that
there is a reasonable prospect – not necessarily a likelihood, but a prospect which is not too

Caitlin Freddy 40
 remote – that some pecuniary benefit will result to creditors. It is not necessary to prove that
the insolvent has any assets. Even if there are none at all, but there are reasons for thinking
that as a result of enquiry under the [Insolvency Act] some may be revealed or recovered for
the benefit of creditors, that is sufficient”.

The meaning of the term “advantage” is broad and should not be rigidified. This includes
the nebulous “not-negligible” pecuniary benefit on which the appellants rely. To my mind,
specifying the cents in the rand or “not-negligible” benefit in the context of a hostile
sequestration where there could be many creditors is unhelpful. Meskin et al state that “the
relevant reason to believe exists where, after making allowance for the anticipated costs of
sequestration, there is a reasonable prospect of an actual payment being made to each creditor
who proves a claim, however small such payment may be, unless some other means of
dealing with the debtor’s predicament is likely to yield a larger such payment. Postulating a
test which is predicated only on the quantum of the pecuniary benefit that may be
demonstrated may lead to an anomalous situation that a debtor in possession of a substantial
estate but with extensive liabilities may be rendered immune from sequestration due to an
inability to demonstrate that a not-negligible dividend may result from the grant of an order.”
The correct approach in evaluating advantage to creditors is for a court to exercise its
discretion guided by the dicta outlined in Friedman. For example, it is up to a court to assess
whether the sequestration will result in some payment to the creditors as a body; that there
is a substantial estate from which the creditors cannot get payment except through
sequestration; or that some pecuniary benefit will result for the creditors.

Given the potential impeachable transactions detailed by Investec, totalling over R37
million, it is evident that there is reason to believe that there will be an advantage to
creditors. It is apparent from the facts that the sequestration is inevitable. I will not interfere
with the final sequestration order.

Part 2 of the case

In determining whether section 9(4A) includes domestic employees, we must be guided by
the Constitution. Section 39(2) of the Constitution requires courts to promote the spirit,
purport and objects of the Bill of Rights when interpreting any legislation. The Constitution,
therefore, requires that section 9(4A) be interpreted in conformity with it. Thus, if there is a
reasonable interpretation that promotes the spirit, purport and objects of the Bill of Rights,
that interpretation must be preferred

The term “employees” is not defined in the Insolvency Act except for the definition of
“employee” in section 98A(5), which is similar to the definition of “employee” in the
LRA. However, it is apparent from section 9(4A) that “employees” is capable of including
domestic employees because it does not distinguish between a debtor’s domestic employees
and those who are employed in the debtor’s place of business.

Notice prevents a situation where employees would show up at work and suddenly find out
that they can no longer render their services or receive remuneration. Notice at an earlier
stage, before a provisional sequestration order, will not only warn an employee of the
tumultuous financial state of the employer, but also meaningfully enable employees to find
alternative jobs or make alternative arrangements. These are the virtues of being informed
of the possibility of a sequestration. Notice, ultimately, signifies respect for the human
dignity of employees.

Caitlin Freddy 41
 Finally, given the ordinary meaning of “employees”, the interpretation of various provisions
in the LRA and constitutional considerations, I conclude that “employees” in section 9(4A)
includes all employees, as well as domestic employees. The challenge to the constitutional
validity of the provision therefore falls away.

Cohen v Jacobs
 There are two applications before me an application for the provisional sequestration of
the respondent which is opposed by a third party. Arising out of the background to and
history of the Respondents affairs, there is an application by the third party for leave to
intervene in the provisional sequestration application.
 The applicant applies for the provisional sequestration in his capacity as a creditor of the
Respondent. The Respondent does not oppose this application. Std 675 Dowerglen (Pty)
Ltd ('Dowerglen") is a third party who purchased immovable property at a sale in
execution before these sequestration proceedings commenced. The respondent is the
registered owner of that immovable property situate at Erf 154 Melrose North,
 It is not in dispute that the Respondent has been indebted to tile Applicant in the amount
of R 150 000 since 12 January 1994 which sum was not repaid when due. The
indebtedness was confirmed in an increased and total amount of R 200 000 during March
1994 and which sum was still not paid when due. On 16 June 1994 a fourth mortgage
bond was registered by the Respondent over the Melrose property in favour of the
Applicant as security for the indebtedness.
 Applicant submitted that the Melrose property which was sold to the third party on
public auction during May 1997 for R 301 000 has value considerably in excess thereof;
that ownership not passed out of Respondent's estate; that on sequestration the property
would fall in the insolvent estate, that the property would then be administered by the
trustee who would find and realise the additional value for which applicant contends thus
advantaging all creditors.
 The issue for consideration by the court is whether there is reason to believe that there
will be advantage to creditors if and when this process takes place. What is the possibility
that the Trustee will find additional value, for example, value over and above the sale
price to the 3rd party of R 310 000?
 It thus emerges that the only asset of respondent of which I have knowledge may have a
value nearly three times the amount for which it was sold in May 1997. The realisation
of a possible R 900 000 less costs will possibly if not probably cover the total sum of
respondent's liabilities, including the interest which is accruing thereon.
 I can only but conclude that a prima facie case has been made out which gives me reason
to believe that it will be to the advantage of creditors to sequestrate the estate of
respondent.

Friendly sequestration
- Estate of debtor is sequestrated by amicable creditor
- Courts are not opposed to such applications
There is nothing to prevent a debtor from having his estate sequestrated by an amicable creditor.
The debtor may, for instance, arrange with a friend to whom he owes a debt and whom he is
unable to pay, that he (the debtor) will commit an act of insolvency—for instance, write saying

Caitlin Freddy 42
that he cannot meet the debt—and the friend will then apply for compulsory sequestration on
the strength of this act of insolvency. An application for compulsory sequestration brought by
a creditor who is not at arm’s length is generally referred to as a ‘friendly’ sequestration.

Friendly sequestrations can be described as follows: ‘Friendly sequestrations seem to share

certain characteristics. Although, like pornography, they may be hard to define, they are easy
to recognise. The debt which the sequestrating creditor relies upon is almost always a loan. It
is usually quite a small loan, very often made in circumstances where it would have been
apparent to the whole world that the respondent was in serious financial difficulty. Despite this,
the loan is customarily made without security of any sort. It is seldom evidenced by a written
agreement, or even subsequently recorded in writing. The only writing that is produced to the
Court is the letter stating, with appropriate expressions of dismay that the debt cannot be paid,
and, sometimes, for good measure, setting out details of the respondent’s assets and liabilities.
Very often debtor and creditor are related: fathers commonly sequestrate sons, wives
sequestrate husbands and sweethearts sequestrate each other, without, I am sure, any damaging
effect on their relationship.’

In practice friendly sequestrations (or friendly liquidations of companies) are commonplace

and, in such cases, the motive of the creditor instituting proceedings is more often than not
simply to assist the insolvent (or company).

The legal position in regard to friendly sequestrations may be summarized as follows:

▪ The mere fact that an application for compulsory sequestration is brought by a creditor who
is prepared to co-operate with the debtor, or who is motivated partly by a desire to assist
the debtor, does not preclude the granting of a sequestration order. An order should not be
refused simply because there is goodwill between the parties
▪ However, the court must be mindful of the fact—it being a matter of common experience—
that where debtor and creditor in sequestration proceedings are not at arm’s length, there is
considerable potential for collusion and malpractice. Collusion consists of an agreement
between the parties to suppress facts or manufacture evidence in order to make it appear to
the court that one of the parties has a cause of action or a defence. Examples of malpractices
that typically arise in friendly sequestrations are: reliance on a non-existent claim; inclusion
of protected (non-saleable) assets, overvaluation of assets, or underestimation of costs to
convince the court that a significant dividend will be payable; and repeated extensions of
the return date for final sequestration
▪ As is evident from the above quotation, a friendly sequestration application may be, and
often is, brought with the sole purpose of obtaining a stay of civil proceedings, and in
particular, the stay of an approaching sale in execution. The debtor resorts to a friendly
compulsory sequestration rather than voluntary surrender to achieve the stay because the
former procedure is better suited to his purpose: it may be obtained on an urgent basis and
without preliminary formalities or advance notice to creditors; it involves a less strenuous
onus (the applicant being required to establish merely that there is reason to believe that
sequestration will be to the advantage of creditors, not that it will be); and the result of the
application is, initially, only a provisional order which must be served on the debtor and
may be postponed and subsequently discharged at the instance of the sequestrating creditor.
▪ A debtor may even use a friendly sequestration as a method of freeing himself entirely from
his debts. Where an application for sequestration is granted and the free residue in the estate
turns out to be insufficient to cover the costs of sequestration, any creditors who have
proved claims are obliged to contribute to these costs. If the creditors of the debtor in a
friendly sequestration are made to believe (for example, because of the paucity of the

Caitlin Freddy 43
 known assets) that there is an appreciable risk that they will be called upon to pay a
contribution should they prove claims, they will refrain from doing so. Where no claims
are proved within six months after sequestration, the debtor may apply for his rehabilitation
and is thereupon released from his debts
▪ In the light of the above considerations, the courts have accepted that they must, as a matter
of policy, scrutinize every friendly sequestration with particular care to ensure that the
requirements of the Act are not subverted, and the interests of creditors are not prejudiced

In particular, the court should, in each case, require the following from the sequestrating
creditor:
• full details of the creditor’s claim and locus standi, , what the claim is for, when and where
it arose, the creditor’s relationship with the debtor, who acted for each of the parties, what
circumstances rendered it necessary for the debtor to become indebted to the creditor, and
the terms of payment or repayment
• if the debt is an unsecured loan, an explanation for the lack of security
• documentary evidence establishing that he has actually performed as alleged, for example,
receipts, paid cheques, withdrawal slips, invoices full details of the debtor’s realizable
assets, including cogent evidence (not merely the creditor’s opinion) as to what the assets
are likely to raise on a forced sale—any expert opinion by a valuer should be based on facts
or information properly proved by the valuer or other witnesses and supported by the
valuer’s reasons
• if it appears that another creditor has already attached the debtor’s property in execution,
proof that prior notice of the application has been given to that creditor
• if he requires an extension of the return date of the rule nisi, an affidavit setting out proper
reasons for the extension

Epstein v Epstein
➔ Whilst the fact that an application for compulsory sequestration is a 'friendly
sequestration' will not preclude the grant of a provisional sequestration order when the
requirements of sections 10(a ), (b ) and (c ) of the Insolvency Act 24 of 1936 are
genuinely satisfied, the Court should scrutinise such applications with particular care in
order to protect the interests of creditors.
➔ Where the application has been brought primarily for the relief of a harassed debtor, the
interests of creditors are of secondary importance.
➔ This is not the object of the Insolvency Act, nor was it ever intended that the compulsory
sequestration procedure thereunder should be used for the purpose of aiding or shielding
harassed debtors.
➔ The more appropriate procedure for a debtor in such a position is the voluntary surrender
of his estate in respect of which procedure sections 4 and 6(1) provide certain statutory
safeguards.
➔ The Court should not readily encourage the avoidance of the statutory safeguards for
creditors by sanctioning recourse to a friendly sequestration via the easy route of s 8(g )
of the Act, unless it is clear that the general body of creditors will benefit.
➔ It is clear from the provisions of section 65F(3) of the Magistrates' Courts Act 32 of 1944
that a judgment debtor who can show that he is bona fide unable to pay a debt, which he
has been ordered to pay in terms of section 65A of the Act, through lack of means is
immune from imprisonment for contempt of court.
➔ The statute does not provide for civil imprisonment of a debtor for a failure to pay his
debts per se. Committal to prison is only sanctioned in the event of the debtor's wilful
refusal to obey the court's order and as a penalty for his contempt of court.

Caitlin Freddy 44
 • This is an application for a provisional order sequestrating the respondent's estate.
• It is what is known as a 'friendly sequestration'.
• The applicant is the respondent's mother.
• The act of insolvency relied on is respondent's plaintive notification to her in a letter that
he is unable to repay to her a loan of R6 000, cannot raise any moneys to pay his debts
and is'... hopelessly insolvent and desperate because several creditors have threatened to
have me committed to gaol by issuing court process against me for the non-payment of
these debts'.
• Respondent is employed by her as a manager of a business in Woodstock which belongs
to her and is called 'Mr Robot Video'.
• He earns a salary of about R900 per month, his exact income being dependent upon the
amount of business generated.
• Respondent is married, has no assets at all and is in receipt of financial assistance from
his wife's family
• Respondent formerly ran a furniture business, Robot Furnishers, through a company,
Robot Enterprises (Pty) Ltd, of which he is a director
• He got into serious financial difficulties and stopped trading
• From his conduct of Robot Furnishers, respondent became indebted to a number of his
creditors as surety for the debts of his business.
• The applicant has prima facie established a liquidated claim entitling her to apply for the
sequestration of respondent's estate and that respondent's letter to her constitutes an act
of insolvency

The first two requirements for the grant of a provisional order are therefore met. The third
requirement led to difficulty in this matter. In the present case the pertinent facts are the
following:
i) It is clear that the respondent is not possessed of any assets whatsoever.
ii) His salary of approximately R900 per month is insufficient to meet the current needs of
his family, since he is being partially supported by his wife's family. Furthermore, he is
at present unable from his monthly income to meet any commitments to creditors and
faces applications for committal to prison, for failure to satisfy judgments in the
magistrate's court, in proceedings under s 65A(1) of the Magistrates' Courts Act. There
is accordingly no reasonable prospect that respondent would be able, even if freed from
such commitments by a sequestration order, to contribute anything from his earnings for
the benefit of the creditors.
iii) There is no suggestion here that respondent has engaged in transactions which require
investigation and may result in the discovery of assets which could be recovered for the
benefit of the creditors. Had there been such a prospect there may well have been reason
to believe that sequestration would redound to the benefit of the creditors. In such a case
the Court will usually find that there is such reason to believe. There must, however, be
a proper factual foundation laid in the application.
iv) The only funds which would become available for distribution amongst creditors is the
paltry sum of about R1 000 from the amount of R2 500 which respondent's father-in-law
is prepared to make available to creditors in the event of respondent's estate being placed
under sequestration. If one excludes applicant's claim of R6 000, there are creditors
amounting to R40 000, one of whom, the Trust Bank, has some security for its claim in
the form of a cession of the debtors of Robot Furnishers. If, however, regard is had to
the fact that the Receiver of Revenue is a creditor in respect of general sales tax and

Caitlin Freddy 45
 income tax for the amounts of R7 428 and R5 467 respectively, it would seem that
concurrent creditors will not receive any benefit at all. In terms of section 99(1)(C) of
the Act any balance of the free residue remaining after defraying the costs of
sequestration shall be applied in defraying the amount of any sales tax which was due by
the insolvent immediately prior to sequestration. It follows that the Receiver of Revenue
would 'scoop the pool', to use an apt colloquialism. The preference created by section
101(a ) in regard to pre-sequestration income tax would not come into play, though if it
did it would similarly exclude any benefit for concurrent creditors. The sequestration of
respondent consequently holds naught for the comfort of the concurrent creditors.
Indeed, sequestration will not on the afore going analysis benefit the general body of
creditors taken as a whole.

This is a 'friendly sequestration'. The more appropriate procedure for a debtor in respondent's
position is the voluntary surrender of his estate. A judgment debtor who can show that he
is bona fide unable to pay the debt through lack of means is immune from imprisonment for
contempt.

In conclusion, the court held that there is no reason to believe that it will be to the advantage
of respondent's creditors if his estate is sequestrated the application for sequestration must
be refused.

Van Rooyen v Van Rooyen

This case confirmed Epstein’s approach to friendly sequestration that the courts scrutinise
with caution and the main object to benefit creditors, not provide protection for harassed
debtor [rely on voluntary surrender for that]

This was a friendly sequestration [mother for daughter]. The advantage for the creditors were
not established as in the daughter’s estate, there were insufficient assets. There was a
liquidated claim, act of insolvency but the sequestration was not granted because there was
no advantage for the creditors.

In this case, it was stated that the sequestration proceedings are cumbersome and an
expensive method of dividing monthly earnings. None of them are secured creditors and
would enjoy preference if sequestrated. Dividend would be very small, if assets don’t fetch
values suggested, would be negligible dividends. Therefore there is no advantage

Application process
Provisional sequestration
The sequestrating creditor has to approach the court twice: once to obtain a provisional order
of sequestration [section 10], and the second time to have the provisional order confirmed and
made final [section 12]. On each occasion, the creditor must establish the same requirements,
but the standard of proof differs. At the provisional stage, the court must be of the opinion that
prima facie the requirements for a sequestration order are satisfied; at the final stage, the court
must be satisfied that those requirements are proved on a balance of probabilities. A final order
cannot be granted without a provisional one first being made; so, if the provisional order
granted is for some reason a nullity, then the final order has to suffer the same fate

When application is made for a provisional order of sequestration, the following must be
before the court:

Caitlin Freddy 46
▪ The notice of motion (including a draft of the desired provisional order of sequestration)
and the founding affidavits.
▪ The Master’s certificate that security has been given.
▪ The affidavit of search made by the sequestrating creditor’s attorney (in the Western
Cape).
▪ The Master’s report or, if none, proof of service of the papers on him.
▪ The sequestrating creditor’s affidavit (if any) responding to the Master’s report.
▪ An affidavit by the person who furnished copies of the application to the debtor and other
interested parties in compliance with sections 9(4A)(a), setting out the manner in which
this was done.

After considering the documents placed before it, the court may make an order sequestrating
the estate of the debtor provisionally, or it may dismiss the application, or it may postpone the
hearing, or it may make such other order as appears to be just in the circumstances (section
9(5)). On making a provisional sequestration order, the court must simultaneously grant a rule
nisi, for example, an order calling upon the debtor to show cause, on a day mentioned in the
rule, why his estate should not be finally sequestrated (section 11(1)).

An order of provisional sequestration gives the creditor a simple and speedy remedy for
preserving the debtor’s estate and enforcing his claim. The court may make the order based on
incomplete information or hearsay evidence, although it cannot rely on evidence obtained in
violation of the debtor’s constitutional rights. What amounts to a prima facie case for the
purposes of sections 10, differs according to whether the debtor has placed facts in dispute. If
he has not done so, the test is that normally applied to determine whether a litigant has
established a prima facie case, namely, whether the creditor’s allegations, if taken to be true,
satisfy the requirements for a sequestration order. If the debtor has raised a factual dispute, the
test for establishing a prima facie case is whether, on a consideration of all the affidavits (for
example , those filed for both creditor and debtor), the requirements for sequestration are
established on a balance of probabilities.

‘Where the application for a provisional order . . . is not opposed or where, though it is opposed,
no factual disputes are raised in the opposing affidavits, the concept of the applicant, upon
whom the onus lies, having to establish a prima facie case . . . seems wholly appropriate; but
not so where the application is opposed and real and fundamental factual issues arise on the
affidavits, for it can hardly be suggested that in such a case the Court should decide whether or
not to grant an order without reference to respondent’s rebutting evidence.’

If, in an opposed application, the creditor succeeds in establishing a balance of probabilities in

his favour, the court will generally refuse any application by the debtor to refer the matter to
oral evidence (to disturb the balance of probabilities). If the creditor cannot show that the
probabilities favour him, he may apply for an order referring the matter to oral evidence. The
court will be more inclined to grant this application if the probabilities are evenly balanced than
if they favour the debtor

The courts accept the proposition that, since sequestration procedure does not exist to settle
disputed claims, if the debtor disputes the creditor’s claim, genuinely and on reasonable
grounds, then irrespective of where the probabilities lie, the court should postpone the
sequestration proceedings until after the creditor has proved his claim. ‘A distinction is . . .
drawn between disputes regarding the respondent’s [debtor’s] liability to the applicant

Caitlin Freddy 47
[creditor] and other disputes. Regarding the latter, the test is whether the balance of
probabilities favours the applicant’s version on the papers. If so, a provisional order will usually
be granted. If not, the application will either be refused or the dispute referred for the hearing
of oral evidence, depending on, inter alia, the strength of the respondent’s case and the
prospects of viva voce [moral evidence ]evidence tipping the scales in favour of the applicant.
With reference to disputes regarding the respondent’s indebtedness, the test is whether it
appeared on the papers that the applicant’s claim is disputed by respondent on reasonable and
bona fide grounds. In this event it is not sufficient that the applicant has made out a case on the
probabilities.’

Service of rule nisi

The rule nisi (together with the application papers if the debtor has not already been served
with them) must be served on the debtor in accordance with the Rules of Court. If the debtor
has been absent for 21 days from his usual place of residence and from his business, if any,
within the Republic, the court may direct that the rule will be sufficiently served if a copy is
attached to the door of the courthouse and published in the Gazette, or the court may direct
some other mode of service (section 11(2)). It has been held that this provision is permissive
and not peremptory. If the court decides to give instructions about service, it need not choose
the mode of service described in the Act, but may determine and select the most practical way
of bringing the rule to the attention of the respondent

A copy of the rule nisi must also be served on any registered trade union that represents the
debtor’s employees (section 11(2A)(a)), the employees themselves (section 11(2A)(b)), and
the South African Revenue Service (section 11(2A)(c)). Service on the debtor’s employees
must be affected either:
➔ by affixing a copy of the papers to a notice board to which the employees have access inside
the debtor’s premises; or
➔ if they do not have such access, by affixing a copy of the papers to the front gate; or,
➔ failing the latter, by affixing a copy of the papers to the front door of the premises from
which the debtor conducted any business at the time of the presentation of the application
(section 11(2A)(b)).

For the purpose of effecting service in accordance with the above requirements, the sheriff
must establish whether the employees are represented by a registered trade union and whether
there is a notice board inside the employer’s premises to which the employees have
access (section 11(4)).

Opposition to application
After granting of the rule nisi, the debtor (if he has not already done so) and other interested
parties may oppose the application by filing affidavits with the Registrar setting out the grounds
of their opposition. These affidavits must be served on the sequestrating creditor in sufficient
time to enable him to reply before the return day. If a provisional trustee obtains information
which has a bearing on the various matters arising for determination on the return day, he may
place the information before the court by way of affidavit, although he is under no statutory
duty to do so

Anticipation of return day

On the application of the debtor, the court may anticipate the return day of the rule nisi for the
purpose of discharging the provisional order, provided 24 hours’ notice of the application has
been given to the sequestrating creditor (section 11(3)). The court will anticipate the return day

Caitlin Freddy 48
only if it is satisfied that all creditors, not merely the sequestrating creditor, have been given
notice and that none has any valid objection, or if it is obvious that creditors will not oppose
the discharge of the rule

Intervention by another creditor

In Fullard v Fullard 1979 (1) SA 368 (T), the position regarding intervention by a creditor was
stated as follows: A creditor is entitled to intervene at any stage, either to have the provisional
order set aside, or, where the sequestrating creditor withdraws his application or drags his feet,
to obtain a fresh sequestration order in his own right and name. In the latter event, the existing
sequestration order cannot be confirmed at the instance of an intervening creditor: it must be
set aside, and a fresh order issued with the intervening creditor as the applicant. He then
becomes the dominus litis and the original applicant drops out of the picture. The intervening
creditor must make out a case for sequestration, furnish security for costs, as though he were
the original applicant, but he does not have to restate facts which appear from the record in the
existing proceedings. The court ‘takes a practical view in these matters, and also bears in mind
the interests of the general body of creditors’

In M&V Tractor and Implement Agencies BK v Vennootskap DSU Cilliers en Seuns en andere
(Kelrn Vervoer (Edms) Bpk tussenbeitredend) 2000 (2) SA 571 (NC) 577, the court pointed
out that intervention by a creditor in insolvency proceedings differs substantially from
conventional intervention and is, from a procedural point of view, sui generis, being a
substantive application which is launched when the creditor arrives at court with his own
evidence (usually on the return day)

Final sequestration
On the return day, in addition to the papers filed at the provisional stage, the court must have
before it:
• the sheriff’s return of service of the rule nisi;
• any opposing affidavits of the debtor and/or other interested parties;
• the replying affidavit of the applicant;
• any affidavit by the provisional trustee.
The practice is for the applicant’s counsel to appear in court and ask for the provisional order
of sequestration to be made final (or for alternative relief). The insolvent may appear personally
or be represented by counsel to oppose the granting of a final order, and other creditors may
appear to oppose or support it.

The sequestrating creditor bears the onus of proving on a balance of probabilities that the
requirements for final sequestration have been met. There is no onus on the debtor but an
evidentiary burden to show that the provisional order is resisted on bona fide and reasonable
grounds

If the court is satisfied that the creditor has discharged the onus resting on him, it may confirm
the provisional order. If it is not so satisfied, it must either dismiss the application and set aside
the provisional order or require the creditor to produce further proof of the allegations in his
application and postpone the hearing for a reasonable time, but not sine die [section 12(2)]. The
court may allow such further proof in a replying affidavit, subject to the debtor’s being allowed
an opportunity to deal with the new matter. It has been held that, since the ordinary procedure
for settling disputed questions of fact is by viva voce evidence, the court cannot make a final
order of sequestration on papers which raise disputes of fact unless it is satisfied that oral
evidence will not disturb the balance of probabilities

Caitlin Freddy 49
Whether, in particular circumstances, an application for sequestration should be dismissed or
whether further proof of insolvency should be allowed is a matter relating to the conduct of the
business of the court hearing the application. A court of appeal can interfere only if the court a
quo exercised its discretion capriciously or upon a wrong principle, or did not bring its unbiased
judgment to bear on the question, or did not act for substantial reasons

When a provisional order of sequestration has been made final, the date of sequestration is
thereafter for all purposes taken to be the date upon which the provisional order was originally
granted and not the date upon which it was made final

VBS Mutual Bank v Ramavhunga and others [2018]ZAGPJHC 516

The application by VBS is in terms of Section 10 of the Insolvency Act 24 of 1936 which
provides: “Provisional sequestration”
If the court to which the petition for the sequestration of the estate of a debtor has been
presented is of the opinion that prima facie –
(a) the petitioning creditor has established against the debtor a claim such as is
mentioned in subsection (1) of section nine; and
(b) the debtor has committed an act of insolvency or is insolvent; and
(c) there is reason to believe that it will be to the advantage of creditors of the debtor if
his estate is sequestrated,
it may make an order sequestrating the estate of the debtor provisionally.”

It is VBS’s contention that both the Ramavhungas and Madzonga are indebted to it in an
amount of not less than R100 but at least R1.5 billion as at the launching of each application;
that the estates of both the Ramavhungas and Madzonga are insolvent, and that it will be to
the advantage of the general body of the creditors, that their respective estates be
provisionally sequestrated. As pointed above, both the Ramavhungas and Madzonga dispute
VBS’s contentions. Prior to dealing with the allegations against them and their respective
defences to the said allegations, it is appropriate to first dispose of the meaning of a prima
facie case in terms of section 10 of the Insolvency Act.

The question in the two applications is therefore whether VBS has, on a balance of
probabilities, having regard to the defences raised by each of the respondents, established on
a prima facie basis the requirements of section 10 of the Insolvency Act. The resolution of
this question requires the examination of VBS’s claim against the respondents and their
defences to enable this court to determine on which side the scale of probabilities tilt.

The first part of the case deals with the following:

Ramavhunga, so contends Rooplal, as a chartered accountant and in his position as the CEO
of VBS should have been aware of the fraud. It is the latter’s contention that Ramavhunga
approved of the fraud. In addition, so the contention goes, the said Ramavhunga, realising
that VBS was experiencing liquidity crisis, utilised the amount of R1.5 million belonging to
VBS to bribe officials of PRASA to invest about R1 billion with VBS to address the liquidity
crisis. In addition Ramavhunga, apart from other financial rewards he received as a result of
the fraudulent scheme, he received an amount of R15 million stolen from VBS, which
amount was deposited into the bank account of his company, Dambale Holdings (Pty) Ltd
(Dambale), his alter ego.

Caitlin Freddy 50
 According to Ramavhunga, the R15 million was a fee earned as introductory and success fee
in enabling Vele to acquire a company, known as Mvunonala Holdings (Mvunonala). The
fee was earned while he was the CEO of Vele, the major shareholder of VBS, and while in
position of trust in a company to which he owed an utmost good faith and trust.

The uncontested evidence is that the shares in Mvunonala as at April 2017 were owned by
Gasela Trust which acquired Mvumonala for R700 million. That the R15 million is the
proceeds of fraud is more probable if not true. The attempted explanation by Ramavhunga
of the origins of this amount is not only beyond reasonable doubt false but is a lie. The R15
million is the proceeds of fraud perpetrated on VBS. In the result, the court finds his
explanation implausible and not bona fide. VBS has established a prima facie case against
him for the provisional sequestration of his estate.
It being undisputed that the Ramavhungas’ estate falls far short of VBS’s loss in the sum of
R1.5 billion, it will be to the benefit of the creditors that their estate be provisionally
sequestrated.

The second part of the case deals with the following

Similarly, with regard to Madzonga, the court only concentrated on part of the VBS’s claim
of R1.5 billion being R4.5 million, allegedly the promotion fee paid by Matodzi in elevating
Madzonga to the position of the Group Chief Executive Officer of Vele.

During the investigation, Phophi Londolani Mukhodobwane (Mukhodobwane), the head of

Treasury, in VBS deposed to an affidavit in terms of section 136(1)(a) of FIRSA. The content
of the affidavit reveals in detail the fraud perpetrated by all the role players including
Madzonga.

According to Mukhodobwane’s affidavit, Matodzi instructed him to make down payments

and deposits into the mortgage loan obligations of Madzonga in the amount of R4.5 million.
The amount of R4.5 million was the proceeds of the fictitious funds from Vele deposited
into VBS. That this amount was paid to Madzonga is common cause. He, however, proffers
the explanation why the said amount was paid to him.

According to Madzonga, once promoted to the position of the Group Chief Executive Officer
of Vele, Matodzi, the Chairman of both VBS and Vele informed him that as Vele’s
investments were insufficient to meet his new salary for the new position, Matodzi agreed to
pay him a once-off signing fee bonus of R5 million, net of tax. The said signing fee was to
be paid within a period of ninety days of his promotion as the Group Chief Executive
Officer.

Once he received the R4.5 million from Vele, he paid this money as a deposit towards the
purchase price of R9.4 million relating a property described as Stand No. 42, Blue Hills
Country Estate Country Estate in Johannesburg. This resulted in VBS only lending him and
mortgaging the property to the value of R4.9 million.
The objective evidence however reveals that Madzonga’s explanation of the R4.5 million is
a lie. The agreement entered into for the purchase of the Blue Hills property doesn’t require
a deposit. In fact, in terms of the agreement, the principal debt is still reflected as the amount
of R9.4 million. On 31 October and 31 November 2017, VBS addressed two letters to him
that are telling. The two letters record his loan as the amount of R9.4 million and that the
monthly repayments, for a period of 60 months, is the amount of R214 000. However, other
than few monthly repayments in the amount of R213 000, it does not appear that Madzonga

Caitlin Freddy 51
 regularly serviced the capital advanced to him by VBS. In any event, it is common cause that
the transfer of the property into his name was effected on 29 September 2017. The amount
of R4.5 million cannot therefore be a deposit on a property already transferred.

It being common cause that Madzonga’s assets also fall far short of VBS’s claim, the
interests justice cry out for the sequestration of his estate.

VBS Mutual Bank v Ramavhunga [2019] ZAGPJHC 295 (23 August 2019)

Should the provisional sequestration order be made in the first case be made final?

This is an application for the final sequestration of the joint estate of the respondents, Mr and
Mrs Ramavhunga, who are married in community of property. The joint estate of the
respondents was provisionally sequestrated on 3 August 2018 by a court order granted by
His Lordship Mr Justice Tsoka.

Liquidated claim
Ramavhunga contends that VBS has failed to establish a liquidated claim against him. He
argues that the claim on which VBS has based its application is not for a liquidated amount
as the amount has not yet been determined. Ramavhunga refers to Rooplal’s affidavit where
it is stated that the Bank has suffered a loss of over R1 521 925 280.54. Mr Ramavhunga
maintains that the debt cannot be proven without extrinsic evidence as the investigation itself
remains ongoing.

In Irvin & Johnson Ltd v Basson, a manager was dismissed when an investigation into the
affairs of the branch that he managed revealed that he had to misappropriated funds from his
employer, the sequestrating creditor. The investigations were not yet complete. The
respondent argued unsuccessfully that the applicant had not proven a liquidated claim. The
court held:‘For the present purposes, it is of no consequence, in my view, that the full extent
of the respondent's liability may eventually prove to be in excess of the amount of
R103 925,49. The evidence, as it stands, if it is accepted, establishes a liability of not less
than the amount to which I have referred.

I accordingly find that VBS’ claim of R1 521 925 280.46 is a liquidated claim and it
therefore satisfies the requirements of sections 9(1) and 12(1)(a) of the Insolvency Act 24 of
1936

I now turn to consider the essential issue relating to the provisions of section 12(1) read
with sections 9(1) of the Insolvency Act. The section provides as follows: ‘12. Final
sequestration or dismissal of a petition for sequestration— (1) If at the hearing pursuant to
the aforesaid rule nisi the court is satisfied that
(a) the petitioning creditor has established against the debtor a claim such as is mentioned in
subsection (1) of section nine; and
(b) the debtor has committed an act of insolvency or is insolvent; and
(c) there is reason to believe that it will be to the advantage of creditors of the debtor if his
estate is sequestrated, it may sequestrate the estate of the debtor.

Caitlin Freddy 52
 Section 9(1) of the Insolvency Act, in so far as is relevant to this matter, provides that a
creditor who has a liquid claim for not less than R100 against a debtor who has committed
an act of insolvency or is insolvent may petition the court for the sequestration of the estate
of the debtor. It is not disputed that it will be to the advantage of creditors of the joint estate
if the estate is sequestrated.

Factual insolvency
Mr Ramavhunga submits that VBS has not in its founding papers made the critical averment
that he is factually insolvent and has not attended to any valuation his assets and liabilities.
He argues that that VBS has failed to provide any evidence that he and his wife are factually
insolvent and that their liabilities exceed their assets.

The court is empowered to grant a final order of sequestration despite the fact that factual
insolvency was not specifically relied upon in the application. Such proof need not be direct.
It is enough if facts are proved from which the inference of insolvency is fairly and properly
deducible. The question of whether or not the debtor is, in fact, insolvent is decided on the
balance of probabilities. If the debtor’s liabilities (fairly valued) exceed his assets (fairly
valued) he is insolvent.

In the investigation, Mr Ramavhunga testified before Advocate Terry Motau SC that he was
indebted to Mr Matsepe, who had granted him a personal loan of R750 000. He testified that
he had repaid R100 000 and that he is unable to repay the balance due to Mr Matsepe. The
best proof of solvency is payment of debts, and consequently, Mr Ramavhunga’s failure to
pay is itself an indication of actual insolvency.

Ramavhunga admits receipt of R15 million from Dambale Holdings. Neither he nor Dambale
have filed tax returns in respect of this income, and they have not been assessed for income
tax. Since Dambale is Ramvhunga’s alter ego, it is likely that he is personally responsible
for this tax liability.

Mr Ramavhunga has failed to disclose that he has a bank account with Investec Bank into
which more than R2.1 million was deposited between August 2018 and April 2019, despite
him being advised of his obligations in terms of section 23 of the Insolvency Act.

Advantage to creditors
There is a reasonable possibility that a pecuniary benefit will redound to VBS if the joint
estate of the respondents is sequestrated. The is also the prospect that the trustee of the joint
estate will be in a position to conduct a proper enquiry into the affairs of Mr Ramavhunga
and his wife which might yield further assets falling into the insolvent estate that may have
been concealed. VBS has discharged the onus of establishing that there is reason to believe
that the sequestration will be to the advantage of creditors.
In the circumstances, I find that a proper case has been made out for the sequestration of the
respondents joined estate.

I accordingly make the following order:

➔ The joint estate of Ramavhunga, Andile Malusi Attwell and Ramavhunga, Zanele
Pertunis Mazeer is placed under final sequestration;
➔ The cost of the application, including the costs of two counsel, shall be the costs in the
sequestration of the estate.

Caitlin Freddy 53
 VBS Mutual Bank v Madzonga [2019]ZAGPJHC 273 (23 August 2019)

Should the provisional sequestration order be made in the first case be made final?

This is an application for the final sequestration of Mr Mmbulaheni Robert Madzonga (‘Mr
Madzonga’). The applicant avers that he was a co-perpetrator who knowingly participated
in a fraudulent scheme which caused the VBS Mutual Bank (‘VBS’) a loss of at least
R1 521 925 280.46 and that accordingly, as a joint wrongdoer, he is jointly and severally
liable to the applicant for that loss.

VBS has a liquidated claim within the meaning of the Insolvency Act

Counsel for Mr Madzonga contended that VBS has failed to establish a liquidated claim
against him. As regards the requirements for the granting of a final sequestration order,
section 12 of the Insolvency Act provides:
(1) If at the hearing pursuant to the aforesaid rule nisi the court is satisfied that-
(a) the petitioning creditor has established against the debtor a claim such as
is mentioned in subsection (1) of section nine; and
(b) the debtor has committed an act of insolvency or is insolvent; and
(c) there is a reason to believe that it will be to the advantage of creditors of
the debtor if his estate is sequestrated, it may sequestrate the estate of the
debtor.

Section 9(1) of the Insolvency Act, in so far as is relevant to this matter, provides that a
creditor who has a liquidated claim for not less than R100 against a debtor who has
committed an act of insolvency or is insolvent, may petition the court for the sequestration
of the estate of the debtor.

The case for VBS rests mainly on circumstantial evidence. In AA Onderlinge Assuransie Bpk
v De Beer, the Appellate Division espoused the following notion—‘It is not necessary for a
plaintiff invoking circumstantial evidence in a civil case to prove that the inference which
he asks the Court to make is the only reasonable inference. He will discharge the onus which
rests on him if he can convince the Court that the inference, he advocates is the most readily
apparent and acceptable inference from a number of possible inferences.’

The inference that Mr Madzonga participated in and benefited from the fraudulent scheme
is the most readily apparent. Had Mr Madzonga not appropriated the proceeds of the
fraudulent scheme, VBS would not have suffered the loss to the extent that it did. The
perpetrators’ independent wrongful acts combined to produce the same damage, namely, the
loss by VBS of the amount of at least R1 521 925 280.46. Mr Madzonga, as a concurrent
wrongdoer, is accordingly liable for the full amount of VBS’s loss.

In Irvin & Johnson (Pty) Ltd v Basson, Basson, who was the manager of the applicant’s
branches, had been dismissed after he had misappropriated funds of the applicant. The
investigation was not yet complete, and Basson had admitted to misappropriation in the
amount of R16 000. The evidence established that the applicant had a claim of at least
R103 925.49 against Basson. The court held that as the investigation had established liability
over R100, the applicant had established that it had locus standi. The court stated as
follows:‘For the present purposes, it is of no consequence, in my view, that the full extent of
the respondent's liability may eventually prove to be in excess of the amount of R103 925,49.

Caitlin Freddy 54
 The evidence, as it stands, if it is accepted, establishes a liability of not less than the amount
to which I have referred. Then, there is also the evidence that the respondent confessed or
admitted to having misappropriated a fixed sum of R16 000. On that basis, and without
expressing any views as to the conclusion to which a Court might come when all the
affidavits are eventually considered, I am satisfied that, for the present purposes, the
applicant has established that it has locus standi.’

I accordingly find that VBS’ claim of R1 521 925 280.46 is a liquidated claim and it,
therefore, satisfies the requirements of sections 9(1) and 12(1)(a) of the Insolvency Act.

Factual insolvency
There are two ways in which the applicant can prove that the debtor is insolvent if the creditor
does not rely on an act of insolvency. Firstly, factual insolvency may be established by
demonstrating that the liabilities of the debtor exceed his assets. Secondly, factual insolvency
may be established inferentially. As stated in Cohen v Jacobs, ‘Factual insolvency may also
be established indirectly by adducing circumstances indicative thereof – such as the facts
that respondent’s debts remain unpaid…’ This was also set out in Prudential Shippers SA
Ltd v Tempest Clothing Co (Pty) Ltd and Others, where McEwan J held:‘One of the strongest
proofs of solvency is that a man pays his debts and failure to do so gives rise to an inference
that he is insolvent….’

In this third answering affidavit, Mr Madzonga states that he does not owe VBS any monies
which would lead to the factual insolvency of his estate. He states, without any substantiating
evidence, that his estate is worth more than R30 million. According to Mr Madzonga, he
currently only owes VBS a sum of R8 151 924.43, plus interest. This amount consists of
debts relating to a mortgage and five vehicle finance agreements with VBS. On 26 March
2019, the attorneys for VBS, acting on Mr Rooplal’s instructions, addressed a letter of
demand to Mr Madzonga in respect of this debt. Mr Madzonga has acknowledged receipt of
the letter of demand and does not dispute his indebtedness. He has failed to make payment
of the outstanding balance; this is indicative of the fact that he is unable to repay his debts.
Furthermore, Mr Madzonga, on his version, does not have assets over R1.5 billion. He is
accordingly factually insolvent.

Advantage to creditors
In Stratford v Investec Bank Limited, the approach in evaluating the advantage to creditors
was set out as follows by the Constitutional Court:‘The correct approach in evaluating
advantage to creditors is for a court to exercise its discretion guided by the dicta outlined
in Friedman. For example, it is up to a court to assess whether the sequestration will result
in some payment to the creditors as a body; that there is a substantial estate from which the
creditors cannot get payment, except through sequestration; or that some pecuniary benefit
will redound to the creditors.’

In my view, there is a reasonable prospect that some pecuniary benefit will result to creditors
as a result of an enquiry under the Act. The trustee of the estate will be in a position to
conduct a proper enquiry into the affairs of Mr Madzonga, which may yield to a recovery of
the debt, or a portion thereof.

The Court’s discretion in sequestration proceedings

Even if a court is satisfied that the three elements set out in section 12(1) of the Insolvency
Act have been met, it is not obliged to grant the final order of sequestration. The court still

Caitlin Freddy 55
 has an overriding discretion to be exercised on a consideration of all the circumstances of a
particular case.

In FirstRand Bank v Evans, Wallis J describes the exercise of this discretion as

follows:‘Once the applicant for a provisional order of sequestration has established on
a prima facie basis the requisites for such an order, the court has a discretion whether to grant
the order. There is little authority on how this discretion should be exercised, which perhaps
indicates that it is unusual for a court to exercise it in favour of the debtor. Broadly speaking,
it seems to me that the discretion falls within that class of cases generally described as
involving a power combined with a duty. In other words, where the conditions prescribed
for the grant of a provisional order of sequestration are satisfied, then, in the absence of some
special circumstances, the court should ordinarily grant the order. It is for the respondent to
establish the special or unusual circumstances that warrant the exercise of the court's
discretion in his or her favour….’

The courts have exercised their discretion in favour of debtors in circumstances where the
debtor provided independent evidence to show that he was factually solvent; or where the
debtor has instituted a damages claim against the creditor which, if successful, would
extinguish the creditor’s claim.

There are no exceptional or unusual circumstances in this case that warrant the Court
exercising its discretion in favour of Mr Madzonga.

In all the circumstances, the applicant has discharged its onus for the order finally
sequestrating the estate of Mr Madzonga. The following order shall issue
It is ordered that:
➔ The estate of the respondent is placed under final sequestration;
➔ The respondent's estate is to pay the costs of this application, including the costs of senior
counsel and all previously reserved costs.

Courts discretion
Even if the court is satisfied that the requirements discussed above have been established on a
balance of probabilities, it is not bound to grant a final order of sequestration. In each case, it
has an overriding discretion, to be exercised upon a consideration of all the circumstances.
Thus, the court exercised its discretion against sequestration, notwithstanding proof of an act
of insolvency and the other requirements of a sequestration order, where the debtor furnished
independent evidence that his estate was solvent, where the debtor had instituted an action for
damages against the creditor which, if successful, would wipe out the creditor’s claim and
where the creditor’s real motive was to prevent the debtor from enforcing a claim against his
(the creditor’s) son.

The fact that the debtor has committed an act of insolvency is an important consideration in the
decision whether his estate should be sequestrated. In Metje & Ziegler Ltd v Carstens 1959
considered that it places the sequestrating creditor in a ‘much stronger position’ than a mere
general allegation of insolvency. In De Waardt v Andrew & Thienhaus Ltd 1907, Solomon J
held that ‘in my opinion, where it is clearly proved that a man has committed an act of
insolvency it is a matter of discretion for the judge to decide whether or not he shall sequestrate
the estate, and he is not debarred from doing so merely because the debtor produces evidence
to show that his assets are in excess of his liabilities. In such cases [the judge] may either
sequestrate the estate, or he may in the exercise of his discretion give the insolvent time to pay.’

Caitlin Freddy 56
 The effects of sequestration : the legal position of the insolvent
Outcomes: After completion of this theme you should have full knowledge and understanding
of the following: The legal position of the insolvent;

Compulsory reading:
• Hockly Chapters 4
• WL Caroll & Co v Ray Hall Motors (Pty) Ltd 1972 (4) SA 728 (T);
• Roestoff M : The income of the insolvent and sequestration under the Insolvency Act 24 of
1936 (2017) 29 SA MERC LJ;
• Ex Parte van Dyk (1869/2015) [2015] ZAGPPHC 154 (26 March 2015];

Introduction
Sequestration of a debtor’s estate imposes on him a form of reduction in status
[capitisdiminutio] which curtails his capacity to contract, earn a living, litigate and hold office.
It is assumed for all chapters dealing with the effect of a sequestration order that a sequestration
order has in fact been granted

Contracting

Caitlin Freddy 57
The Insolvency Act does not deprive the debtor of his contractual capacity generally and,
accordingly, he retains a general competency to make binding agreements. However, to protect
creditors, the Act imposes certain restrictions on the debtor’s capacity to contract.

• Section 23(1) subject to the provisions of this section and of section 24, all property
acquired by an insolvent shall belong to his estate
• Contractual capacity restricted to a degree [Section23(2)]
• Section 20(1)(a): insolvent divested of his estate (master, then trustee)
• Section 20(2): Estate includes:
a) property at date of sequestrations including property of the proceeds thereof which are
in the hands of a sheriff or messenger under writ of attachment
b) Property acquired or accrued during sequestration except as otherwise provided in
section 23
• Section 2 definition of ‘property’ means moveable or immoveable property wherever
situate within the republic and including…

Section 23(2):
The fact that a person entering into a contract is insolvent, does not affect the validity of the
contract: provided that the insolvent does not thereby purport to dispose of any property of his
insolvent estate, and provided further that an insolvent shall not without the consent in writing
of the trustee of his estate, enter into any contract whereby his estate or any contribution
towards his estate which he is obliged to make it or likely to be adversely affected but in either
case subject to the provisions of subsections of section 24
- Contribution in terms of section 23(5)
- Can only claim once Master indicates it is not necessary for the support of the insolvent
and his dependents

Section 23(5):
• Contracts which adversely affects [or likely to affect contribution]
• The trustee shall be entitled to any moneys received or to be received by the insolvent in
the course of his profession, occupation or other employment which in the opinion of the
Master are not or will not be necessary for the support of the insolvent and those dependent
upon him, and if the trustee has notified the employer of the insolvent that the trustee is
entitled, in terms of this subsection, to any part of the insolvent’s remuneration due to him
at the time of such notification, or which will become due to him thereafter, the employer
shall pay over that part to the trustee.

Caitlin Freddy 58
Prohibited contracts
➔ The debtor may not make a contract which purports to dispose of any property of his
insolvent estate (section 23(2)). Furthermore, he may not, without the written consent of
the trustee, enter into a contract which adversely affects (or is likely to adversely affect) his
estate or any contribution which he is obliged to make towards his estate
➔ The contribution referred to here is that claimable by the trustee in terms of section 23(5)
from moneys earned by the insolvent in the course of his profession, occupation or
employment
➔ The contribution becomes due to the trustee only once the Master has expressed the opinion
that the moneys in question are not necessary for the support of the insolvent and his
dependants. It follows that, prior to the Master’s assessment of a contribution, the insolvent
need not obtain the trustee’s consent to enter into the contract.
➔ In Mervis Brothers (Pty) Ltd v Hanekom 1963 (2) SA 125 (T), M sued H, an insolvent, for
the amount of a debt incurred prior to sequestration. The action was based on an
undertaking given by H after sequestration that he would pay the full amount of the debt to
M. The trustee had not consented to H’s giving this undertaking. The magistrate’s court
held that the undertaking was likely to affect adversely any contribution which H would be
obliged to make, if called upon to do so and, in the absence of the trustee’s consent, was
not binding. On appeal, the court held that, as the Master had not assessed a contribution,
H was not obliged, at the time of contracting, to make a contribution. Accordingly, the
trustee’s consent had not been required and H’s undertaking was binding.
➔ If a person avers that a particular contract with an insolvent is invalid for any reason, he
must set out the facts on which he bases his allegation

Effect of contract which is not prohibited

+ Where the trustee’s consent is not necessary, or where it is and is given, the contract is valid
and binding on the parties (section 23(2)).
+ However, according to De Polo & another v Dreyer & others 1991 (2) SA 164 (W),
although the contract is binding, the insolvent may not enforce performance in his favour
unless the Insolvency Act (or some other statute) specifically gives him the right to do so.
In the absence of an empowering statutory provision, the trustee is the proper person to
enforce the claim.

Caitlin Freddy 59
+ Thus, for example, the insolvent cannot compel payment of money due in terms of a post-
sequestration partnership entered into with the trustee’s consent, since there is no statutory
provision which entitles him to recover for his own benefit money due under a partnership.
Only the trustee may demand this payment
+ On the other hand, the insolvent may enforce payment for work done after sequestration
because section 23(9) expressly gives him the right to recover this remuneration for his
own benefit
+ In De Polo’s case, Morris AJ explained the principle as follows : The mere fact that an
insolvent can enter into a contract does not have the consequence that he is entitled to sue
on that contract for his own benefit. That follows from the proposition that all assets,
whether pre-existing or after acquired, fall within the estate and vest in the trustee. Where
section 23(6) refers to a claim due to him under this section, in my opinion it refers to the
succeeding subsections which . . . refer to the insolvent being entitled to sue ‘‘for his own
benefit’’. That expression occurs in all three subsections and those, it seems to me, are the
circumstances where a claim is due to him under the section. There is no nexus between
the right to enter into a contract and the entitlement to receive the benefit of that contract
adversely to the estate. There may be circumstances in which an insolvent can enforce a
contract which he has entered into, but if it comes to claiming benefits, whether in the form
of assets or money accruing under that contract, I find nothing in the Act which entitles the
insolvent to sue in his own name and for his own benefit . . . Had the Legislature intended
that the insolvent could recover the benefits of the contract without reference to the trustee
and for his own benefit, then that could have been stated in section 23(2) in words similar
to those appearing in sections (7), (8) and (9).’
+ The contractual rights which the insolvent is specifically empowered to enforce for his own
benefit in terms of section 23(7)-(9) of the Insolvency Act are set out below but it can also
be enforced in terms of another piece of legislation

Effect of prohibited contract

→ If the insolvent enters into a contract which purports to dispose of estate property, the
contract is voidable at the option of the trustee; it is not void (W L Carroll & Co v Ray Hall
Motors (Pty) Ltd 1972 (4) SA 728 (T)). The position is the same if the insolvent contracts
without obtaining his trustee’s consent where it is required. Should the trustee choose not
to set aside the contract or simply stand by without avoiding it, the contract remains binding
on the parties
→ However, as in the case of a contract which does not require consent or to which consent
has been given, the insolvent cannot sue for performance unless there is a statutory
provision giving him the right to enforce for his own benefit performance under that type
of contract
→ If the trustee elects to set aside a contract, he may recover any performance rendered by the
insolvent, but he must restore to the third party any benefits that the insolvent has received
under the transaction

Section 24(1) provides a measure of protection to third parties who contract with the debtor,
ignorant of the fact that he is insolvent. The section states that, if an insolvent purports to
alienate for valuable consideration and without the consent of the trustee property, or any right
to property, which the insolvent acquired after the sequestration of his estate (and which
thereby became part of the estate), to a person who proves that he was not aware and had no
reason to suspect that the estate of the insolvent was under sequestration, the alienation is
nevertheless valid. The following should be noted in this regard:

Caitlin Freddy 60
▪ The section applies only to new assets which came into the insolvent’s possession after
sequestration and not to assets acquired by the insolvent in exchange for, or in replacement
of, property in the estate at the time of sequestration. In Wessels v De Klerk & another
1960 (4) SA 310 (T), the insolvent sold immovable property that formed part of his
insolvent estate at the time of sequestration and received two promissory notes in part
payment of the purchase price. He subsequently endorsed the notes to a bona fide
purchaser. The court held that the sale of the notes was not validated by section 24(1) and,
therefore, was voidable at the option of the trustee.
▪ The section places the onus upon the third party to prove that, at the time when he received
the property in question, he was neither aware, nor had any reason to suspect, that the debtor
was an insolvent. It does not suffice for the third party to show that he had no reasonable
ground to suspect insolvency; he must go further and establish that he had no reason
whatsoever to suspect it. This was seen in the case of Fey NO and another v Mackay [2004]
4 ALL SA 50 (C)

For example, Meyer, after the sequestration of his estate, exchanges a painting which he had
for another painting of similar value. He then sells this painting to X. What is the legal
position of X and the trustee of Meyer’s insolvent estate respectively in respect of the sale?
Cannot rely on protection of section 24 and therefore the contract remains valid but is
voidable at the instance of the trustee

Earning a living
It being in nobody’s interest that the insolvent or those dependent upon him should be rendered
destitute, he is allowed to follow any profession or occupation or enter into any employment
[section 23(3)] and he may make whatever contracts are reasonably necessary for this purpose
(George v Lewe 1935 AD 249). But the insolvent may not, without the consent in writing of
his trustee, carry on, be employed in any capacity in, or have any direct or indirect interest in,
the business of a trader who is a general dealer or a manufacturer (section 23(3)). There is an
exception that states that anyone of the creditors of the insolvent estate or the insolvent himself
may, if the trustee gives or refuses such consent, appeal to the Master, whose decision shall
final

The term ‘trader’ is widely defined in the Act (section 2). It includes, among others, any person
who carries on any trade, business or undertaking in which property (movable or immovable)
is sold, or is bought, exchanged, or manufactured for the purpose of sale or exchange, or in
which building operations of whatever nature are performed.
➔ Neither ‘general dealer’ nor ‘manufacturer’ is defined in the Act. It has been held that a
milk depot selling only milk is not a general dealer for these purposes [Ex parte Du Plessis
1957 (2) SA 253 (W)].
➔ The same conclusion was reached in regard to a restaurant business [R v Papangelis 1960
(2) SA 309 (O)].
➔ In S v Van der Merwe 1980 (3) SA 406 (NC), the court, after considering the earlier cases,
held that a ‘general dealer’ is someone who trades at a fixed and recognized place in all
sorts of wares and not just in one kind or a few particular kinds.
A consent to trade in a particular business does not entitle the insolvent to do anything other
than trade in the manner specified in that type of business. But he may make contracts
reasonably incidental to the type of business, including, it would seem, a contract of partnership
(Priest v Charles 1935 AD 147). If the insolvent pursues a vocation without obtaining consent
where it is required, he commits a criminal offence [section 137(c)]. He cannot escape liability

Caitlin Freddy 61
on the basis that he did not know consent was necessary (R v Cassim 1932 CPD 209).
Furthermore, any contracts which he makes in the course of the unlawful vocation are voidable
at the option of the trustee. Should the trustee give or refuse his consent to carry on a trade, any
of the creditors or the insolvent, as the case may be, may appeal to the Master whose decision
is final [section 23 (3)]. A copy of any consent given must immediately be forwarded by the
trustee to the Master

WL Caroll & Co v Ray Hall Motors (Pty) Ltd 1972 (4) SA 728 (T); [where you enter into
contracts where the consent of the trustee is necessary, and consent is not obtained from the
trustee , the contract is voidable at the opinion of the trustee and not void ab initio]

The appellant, a chartered accountant, instituted action in the magistrate's court of Pretoria
against the respondent for payment of R1 000. The magistrate dismissed his claim with costs
and he now appeals against that order. I shall refer to the appellant as the plaintiff and to the
respondent as the defendant.

In the summons it is stated that the plaintiff's claim is for payment of the sum of R1 001,62
(of which R1,62 was abandoned to bring the matter within the jurisdiction of the magistrate's
court), that being the agreed remuneration payable by the defendant to the plaintiff in respect
of services rendered by the plaintiff for and on behalf of the defendant. It is evident from an
account furnished by the plaintiff in his further particulars and his evidence later at the trial
that what the plaintiff was in fact claiming was the amount which he alleged was still
outstanding on an original claim of R1 656,50. That account, which is annexure A to the
further particulars, reflects a total indebtedness of R1 656,50 in respect of fees for accounting
and audit services rendered by the plaintiff for the years 1963 to 1967 and for certain
disbursements made by the plaintiff on behalf of the defendant from which amount the
plaintiff deducted two items, firstly the sum of R154,88 in respect of what the plaintiff calls
in the account "agreed reduction", and secondly the sum of R500 which, it is common cause,
was the amount paid by the defendant to the plaintiff on 31st March, 1969.

The defendant's plea denied that the sum of R1 001,62 was agreed remuneration payable by
the defendant to the plaintiff as alleged, or at all. It alleged in effect that the plaintiff was
entitled to a fair and reasonable remuneration for his services, that he had grossly neglected
his duties to the defendant over the years, and finally that the parties had come to a verbal
agreement in March, 1969, that an amount of R900 was fair and reasonable remuneration for
those services, which amount the plaintiff agreed to accept in settlement of his charges. The
plea went on to allege that the defendant had paid that sum to the plaintiff before the issue
of summons by means of a cheque for R500 in March, 1969, and a subsequent cheque for
R400 sent to the plaintiff's attorney on the 9th October, 1969

The plaintiff filed a replication to the plea in which he denied the alleged verbal agreement
of settlement in March, 1969, and pleaded in the alternative that, in the event of the Court
finding that there was such a verbal agreement, in terms of which the plaintiff accepted R900
in settlement of his charges, then, the plaintiff says, his estate was at the material time under
provisional sequestration and that in the circumstances the verbal agreement was void,
alternatively, voidable at the instance of his trustee in terms of section 23 (2) of Act 23 of
1936, and that the trustee had so avoided the agreement by way of a letter dated 7th May,
1969.

The plaintiff further stated that Mr. Hall mentioned various other amounts in addition to

Caitlin Freddy 62
 the one I have mentioned which he sought to settle at the meeting. According to the plaintiff,
however, he was not prepared to agree to a settlement of any of those matters. The plaintiff's
evidence was that Mr. Hall then gave him the cheque for R500 aforementioned which leaves
a balance of R1 001,62 still outstanding. When the plaintiff was asked why he would not
agree at the meeting to a settlement of the other matters in dispute his reply in evidence
was "on 31st March with my affairs in the hands of a provisional trustee no creditor could
go against me. I had no need to settle". I may point out in passing that it is common cause
that the plaintiff's estate was placed under provisional sequestration on 11th March, 1969,
and that it remained so until the provisional order was discharged on 7th October, 1969.

At no stage until the issue of summons in December, 1969 was there a denial of the
defendant's assertion made as early as May, 1969 that the plaintiff had agreed to accept R900
in settlement of his claim. This fact furnishes additional support for the view that on a balance
of probabilities the plaintiff had agreed to accept R900 in settlement of his claim in March,
1969.

On the totality of the evidence and not overlooking the magistrate's impression of the
plaintiff as a witness and his reliability as such, I have come to the conclusion that it has not
been shown that the magistrate was wrong when he found in favour of the defendant on this
aspect of the case. The next question to be considered is the argument addressed to us by Mr.
Goldstein, for the plaintiff, based on the provisions of section 23 (2) of the Insolvency Act,
24 of 1936. He submitted in the first place that because the agreement of settlement was
concluded while the plaintiff's estate was under provisional sequestration it was voidable at
the instance of the trustee and that the trustee had so avoided the agreement by way of the
letter previously referred to, annexure B to the plaintiff's further particulars. I shall assume
for present purposes, in favour of the plaintiff, that it has been shown that the contract in this
case was one which required the consent in writing of the trustee as contemplated by the
second proviso to section 23 (2) and consider the problem on the basis of the admitted fact
that the trustee's written consent was never obtained. The question then simply is whether
the letter, annexure B, can be construed as an avoidance by the trustee of the agreement. The
relevant part of that letter which is dated 7th May, 1969, reads as follows: "We have been
instructed by the provisional liquidator to demand from you as we hereby do, payment of the
sum of R1 001,62 being the balance due by you . . . in respect of professional services
rendered . . ."

If it had been shown that the provisional trustee when he wrote this letter knew of the verbal
agreement of settlement there may well have been room for an argument that the letter
constituted an implied avoidance of the contract. The evidence shows, however, and indeed
it was common cause, that the provisional trustee at no time knew of the agreement between
the plaintiff and the defendant. Where the evidence shows that the trustee was
unaware of the agreement any attempt to regard the letter as an avoidance of that agreement
by him must, I think, fail.

It was argued by Mr. Goldstein in the alternative that if the agreement was not avoided by
the trustee it was in any event void in terms of section 23 (2). He contended, if I understood
his argument correctly, that on a proper construction of that subsection any contract whereby
an insolvent purports to dispose of property of his insolvent estate is void ab initio as distinct
from merely voidable at the instance of the trustee. Subsection (2) of section 23 reads as
follows: "(2) The fact that a person entering into any contract is an insolvent, shall not affect
the validity of that contract: Provided that the insolvent does not thereby purport to dispose

Caitlin Freddy 63
 of any property of his insolvent estate; and provided further that an insolvent shall not,
without the consent in writing of the trustee of his estate, enter into any contract whereby his
estate or any contribution towards his estate which he is obliged to make, is or is likely to be
adversely affected, but in either case subject to the provisions of subsection (1) of section
24."

It has been authoritatively laid down that, where an insolvent enters into a contract of the
kind requiring the trustee's written consent in terms of the second proviso to section 23 (2),
without such consent the contract is not void but merely voidable at the option of the trustee.

Instituting and defending legal proceedings

The fact that a person is insolvent does not necessarily preclude him from being a party to legal
proceedings

Proceedings which may be brought or defended personally by an insolvent

In terms of section 23(6)-(10), an insolvent may sue or be sued, as the case may be, in his own
name and without reference to the trustee of his estate, in the following cases:
• In a matter relating to status such as divorce.
• Where the matter relates to a right which does not affect the insolvent estate, such as a right
to receive maintenance from the insolvent (Weinberg v Weinberg 1958 (2) SA 618 (C)) or
the right not to be unlawfully dispossessed of property (Marais v Engler Earthworks (Pty)
Ltd; Engler Earthworks (Pty) Ltd v Marais 1998 (2) SA 450 (E) 454).
• Where the claim is to recover remuneration or reward for work done or professional
services rendered by him or on his behalf after the sequestration of his estate.
• Where the claim is for a pension to which he is entitled for services rendered.
• Where the claim is for compensation in respect of loss or damage that he has suffered by
reason of defamation or personal injury
• Where the matter concerns a delict committed by him after the sequestration of his estate .

Although the insolvent is, by and large, divested of his estate, he retains a reversionary
interest in it and, accordingly, may litigate to ensure that it is properly administered. For
instance, he may institute action to recover or protect property which vests in the trustee, if the
latter refuses to take the necessary action [Mears v Rissik, Mackenzie NO and Mears’ Trustee
1905 TS 303] and he may apply for an interdict to prohibit the trustee from realizing assets in
the estate if those already sold have yielded sufficient funds to meet all the claims proved by
creditors. He may also sue the trustee for damages in respect of any loss incurred as a result of
his maladministration of the estate

The fact that the insolvent is entitled to litigate in matters concerning the administration
of the estate does not mean that he has a general right to prescribe how the estate should
be administered. He may bring proceedings to interfere with the administration of the estate
only if he suffers an injustice due to an irregularity or a lack of bona fides on the part of the
trustee or creditors. This point is illustrated by Kruger v Symington NO en andere 1958 (2) SA
128 (O). The creditors had resolved to sell an asset in the estate at a price which, unbeknown
to them at the time, was lower than the real value of the asset. The court held that this fact was
not, per se, sufficient reason for attacking the resolution or prohibiting the sale.

Holding office

Caitlin Freddy 64
An unrehabilitated insolvent is disqualified from holding a large number of positions
 He cannot be appointed as a trustee in an insolvent estate (section 55(a) of the Insolvency
Act) and, if he is already a trustee when his estate is sequestrated, he must vacate his office
(section 58(a)).
 He is not capable of being a member of the National Assembly, National Council of
Provinces, or a provincial legislature (sections 47(1)(c), 62 and 106(1)(c) of the
Constitution of the Republic of South Africa, 1996).
 Unless granted an exemption by the court, he is disqualified from being a director of a
company (ss 69(8)(b)(i) and 69(11) of the Companies Act 71 of 2008). Under the previous
Companies Act of 1973, the courts allowed an unrehabilitated insolvent to become a
director of a company only if there was no danger to the private interests of the members
or to the public who might be injured by dishonest trading. Presumably, the same rule will
apply under the new Act.
 Save with the authority of the court he cannot participate in the management of a close
corporation (s 47(1)(b)(i) of the Close Corporations Act 69 of 1984).
 He may not be a member of the governing board of the National Credit Regulator and may
not be a registered credit provider (s 20(2)(a), (c) and s 46(2) of the National Credit Act 34
of 2005). The National Credit Act, curiously, does not expressly prohibited him from
registering as a debt counsellor, though it prohibits parties who are subject to administration
orders or debt re-arrangement (s 46(4)(a), (b)).
 Being disqualified from acting as a director of a company, he is also disqualified from being
a business rescue practitioner (section 138(1)(d) of the Companies Act 71 of 2008), and he
may not sit on the board of the Land and Agricultural Development Bank of South Africa
(ss 1 and 10(e) of the Land and Agricultural Development Bank Act 15 of 2002).
 If he is a practising attorney, he faces removal from the roll of practising attorneys or
suspension from practice by the court on application by the law society in whose
jurisdiction he practises, unless he can satisfy the court that despite the sequestration he
nevertheless remains a fit and proper person to continue as a practising attorney (section
22(1)(e) of the Attorneys Act 53 of 1979). The position is evidently different if he is a
practising advocate—an unrehabilitated insolvent is not expressly disqualified from
continuing to practise as an advocate (section 7 of the Admission of Advocates Act 74 of
1964).
 To hold a fidelity fund certificate under the Estate Agency Affairs Act 112 of 1976, he
needs a certificate from the trustee of the insolvent estate to the effect that he (the insolvent)
is a fit and proper person to hold a position of trust and be issued with the fidelity fund
certificate (section 27(a)(ii)).
 He cannot be a registered manufacturer or distributor of liquor (section 11(2)(b) of the
Liquor Act 59 of 2003). The trustee of his insolvent estate may continue the registered
activities in the name of the estate or propose to the Minister that the registration be
transferred to another qualified person
 His office as executor of a deceased estate is not automatically terminated by the
sequestration of his estate, provided he can otherwise perform his duties according to
section 23 of the Administration of Estates Act 66 of 1965. The same applies to his tutorship
or curatorship. However, he faces termination of his office if he does not lodge sufficient
security with the Master on written notice (s 77(3) of the Administration of Estates Act).

Caitlin Freddy 65
 If he is the trustee of a trust, the Master may remove him from office (section 20(2)(c) of
the Trust Property Control Act 57 of 1988). Sequestration of his estate will, in any event,
terminate his trusteeship if the trust deed contains a provision to this effect.
Ex Parte van Dyk (1869/2015) [2015] ZAGPPHC 154 (26 March 2015];

The crux of this matter is what applicant stated further in paragraph 8.1 that “However, if
this application is granted, I will be placed in the position to easily afford monthly payments
of R2, 900. 00 to my insolvent estate in terms of Section 23(5) of the Insolvency Act”

In the subsequent paragraphs, applicant stated the following

- Accordingly, should my application be granted, I herewith irrevocably undertake to assist
either the Master or my Trustee in anyway possible to give effect to the forfeiture of a
portion of my income, being no less than R2, 900.00 per month, in terms of Section 23(5}
of the Insolvency Act2. I herewith also consent to the deductions being made in favour
of my trustee for distribution amongst my creditors as opposed to realization of my
inadequate unencumbered assets
- I am aware that there is always a risk that I might lose my job at any time in the future,
but the relevant risk exist regardless whether the application is granted. In any event my
Trustee would ensure that the implementation of Section 23(5) is re-instituted after I had
once again obtained employment.
- I am also fully aware that the repayment period would run until the rehabilitation of my
estate and that I will not be able to apply for sais rehabilitation unless 4 years (48 months)
have lapsed since my sequestration, except on the recommendation of the Master of the
High Court3. Furthermore I realize that neither the Master nor any of my creditors can
or may be compelled to agree to my rehabilitation after the expiration of the required
period

The relevant paragraph of the Mars book reads as follows : It has been held in the past that
it would be to the advantage of creditors to accept the surrender where a debtor receiving a
salary undertakes to make available to creditors a portion of his salary in terms of Act. In
recent times, this option has seldom been exercised as such an order is very difficult to police
and payment of a portion of the salary usually tendered to be made in monthly installments,
delays the liquidation of the insolvent estate. If it is accepted at all, the contributions that
accrue to the insolvent estate will have to be administered by the trustee in terms of the
provisions of section 23(5) of the Act

Section 23(5) of the Act provides as follows: The trustee shall be entitled to any moneys
received or to be received by the insolvent in the course of his profession, occupation or
other employment which in the opinion of the Master are not or will not be necessary
for the support of the insolvent and those dependent upon him, and if the trustee has
notified the employer of the insolvent that the trustee is entitled, in terms of this subsection,
to any part of the insolvent's remuneration due to him at the same time of such notification,
or which will become due to him thereafter, the employer shall pay over that part to the
trustee,

The question of whether the applicant would at anytime in the future require additional funds
to take care of himself and his dependants in is in my view relevant.

Caitlin Freddy 66
 As I have already stated, I do not know whether he is qualified in any trade or profession to
assess the probabilities of his job tenure. His family needs too may change. The question that
arises then is whether the Master may lawfully deprive him of the protection afforded by
section 23(5) or whether applicant would be bound by his undertaking.

Roestoff M : The income of the insolvent and sequestration under the Insolvency Act 24 of
1936 (2017) 29 SA MERC LJ;

The fact that sequestration can eventually afford a debtor a discharge of his or her debts, has
resulted in the sequestration process often being used — or according to some, abused —
usually in the form of an application for a so-called friendly sequestration, to obtain debt
relief. Debtors seeking debt relief have now reverted to the voluntary surrender procedure,
because of the push-back by our courts with regard to friendly sequestration applications.20
However, the advantage for creditors requirement has remained the main obstacle for debtors
wishing to utilise sequestration as a measure to obtain a discharge of debt. In this regard,
our courts have often stated that the primary object of the Insolvency Act is to benefit
creditors and not to grant debt relief to harassed debtors

According to case law, a trustee is only entitled to the relevant portion of an insolvent’s
income if the Master indeed expresses the opinion that the income is not necessary for the
support of the insolvent and his or her dependants. Furthermore, the Act does not provide
for any time limit within which a trustee should act to claim the surplus income and a
trustee may thus decide to impose the provisions of section 23(5) at any time before
rehabilitation.

The effects of sequestration : vesting of the assets of the insolvent

Outcomes: After completion of this theme you should have full knowledge and understanding
of the following: the effect of sequestration on the estate of the insolvent (vesting of assets)

Prescribed material
 Chapter 5
 Fourie N.O. v Edkins (740/12) [2013] ZASCA 117 (19 September 2013)
 Du Plessis v Pienaar NO & Others 2003 (1) SA 671 (SCA)
 Durandt NO v Pienaar NO and Others [2000] 4 All SA 77 (C)

Caitlin Freddy 67
Introduction
The function of the trustee is to collect the assets in the estate, realize them, and distribute the
proceeds amongst creditors in the order of preference laid down by the Act. To enable the
trustee to do this, the Act provides that the effect of a sequestration order (including a
provisional order ) is to divest the insolvent of his estate and vest it in the Master and thereafter
in the trustee, once he has been appointed (section 20(1)(a)). The vesting occurs even in respect
of property which has been sold in execution if the debtor’s estate is sequestrated before
delivery or transfer of the property concerned. If a provisional trustee is appointed, the estate
vests in him before vesting in the trustee (section 54(5)).

The estate remains vested in the trustee until:

- the discharge of the sequestration order by the court (Mahomed v Lockhat Brothers &Co
Ltd 1944 AD 230 241); or
- the acceptance by creditors of an offer of composition made by the insolvent which
provides that the insolvent’s property will be restored to him ; or
- an order for the insolvent’s rehabilitation is granted in terms of section 124(3)
If a trustee vacates his office, is removed from office, or dies, the estate revests in the Master
until a new trustee is appointed (section 25(2)). If there is a co-trustee, the estate remains vested
in him

Section 20
→ 20(1)(a): insolvent divested of his estate
→ 20(1)(b): civil proceedings
→ 20(1)(c): execution stayed
- Remember section 5
- Fourie N.O. v Edkins
→ 20(1)(d) – release from prison

Caitlin Freddy 68
 Fourie N.O. v Edkins (740/12) [2013] ZASCA 117
This case dealt with the circumstances in which a court can exercise discretion in terms of
section 20(1)(c) to stay an execution where a sheriff sold immovable property in execution
of judgement to a purchaser before the debtor applied for sequestration and prior to
registration → exceptional circumstances must be pleaded to persuade court to validate the
deed of sale and transfer property

• The notice to bring application in terms of section 4(1) was published.

• Fourie was the trustee of the insolvent estate and Edkins had purchased the estate in
execution.
• Mr Edkins bought the property for almost half the price. Edkins fulfilled all the
requirements and then instructed his attorneys to register the property under his name to
complete the transfer. But on 6 August 2010, the judgement of the debtor’s attorney
published a section 4(1) notice under the insolvency act in the Government Gazette and
local newspaper. He was going to voluntarily surrender his estate via application on the
3 September 2010. On 3 September, the court accepted and placed the estate under
sequestration. On the 2nd of August 2011, the appellants appointed as trustees.
• Both the Sheriff and Edkins were unaware of the acceptance and publication of notice.
The sale in execution happened prior to the publication. When Edkin’s attorneys went to
register the property they were notified of a resolution 54 of 2009, namely that of if a
debtor is sequestrated after a sale in execution, the sheriff is prevented from transferring
the property into the name of the purchaser.
According to the court a quo
- Edkins requested 2 things
- Firstly declaratory order validating the sale on the 3 August 2010 between him and the
sheriff
- Secondly to direct the registrar to transfer the property into his name.
- Relief was granted as the court indicated that the sale agreement was concluded before
the publication of notice.

Caitlin Freddy 69
 According to the Supreme Court of Appeal:
 The court with the question of whether or not they can direct that the sale can proceed?
 When Mr Edkins brought his application, it was interpreted within section 5(1), which
envisaged the situation where the sheriff/ debtor are prohibited from selling any assets
from the estate after publication unless they were not aware.
 The purpose is to protect creditors from anyone including the debtor from dissipating the
assets of the estate.
 The court the looked at section 20(1)(a)
• First vests in the master then the trustee upon appointment and includes property
that is sold but not yet transferred.
• Section 20(1)(c) and section 20(2)(a) become relevant , when the sheriff becomes
aware of the sequestration, he is by duty bound to stay the execution unless directed
otherwise.
• In order to exercise discretion of the execution, purchaser must place sufficient facts
before the court for the court to decide in his favour but in this case, he failed to
persuade the court. The interested party must also show that it is in the interest of
the body of creditors because concursus creditorum comes into operation.
• in this case, the court also looked at the price of mortgage and selling price.
• Ownership of the attached movable property only vests upon registration and it is
not concerned if bona fides.
It is stated that upon publication of notice according to section 4(1) , the provisions of section
20(1)(c) and (2)(a) immediately come into operation. Therefore the control of an insolvent
estate vests in master until a trustee is appointed and thereafter control vests in trustee.
Ownership remains with solvent debtor. Once concursus creditorum is established, nothing
may be done by any creditor to alter the rights of other creditors. At once the rights of the
general body of creditors have to be taken into consideration. No transaction can then be
entered by single creditor to prejudice of general body. The bona fides of creditors or
execution of such a purchaser is irrelevant.

Insolvent estate:
o Section 20(2)(a): Property at date of sequestration
o Section 20(1)(c): Property in hands of sheriff
o Section 23(1) and 20(2)(b): Property acquired by insolvent during sequestration

Property which falls into the estate

Subject to certain exceptions flowing from the Act and from other enactments, the insolvent
estate comprises the following:
➔ all property of the insolvent at the date of sequestration, including property (or the proceeds
thereof) in the hands of a sheriff under a writ of attachment; and
➔ all property which the insolvent acquires or which accrues to him during the sequestration
(section 20(2)), including any property that the insolvent recovers for the benefit of the
estate where the trustee fails to take the necessary action
According to section 2: “property” means movable or immovable property wherever situate
within the Republic, and includes contingent interests in property other than the contingent
interests of a fideicommissary heir or legatee
▪ ‘Immovable property’ is defined as land and every right or interest in land or minerals
which is registrable in a deeds registry within the Republic

Caitlin Freddy 70
▪ By ‘movable property’ is meant every kind of property and every right or interest which is
not immovable property. Movable property includes a liquor licence (section 118(a) of the
Liquor Act 27 of 1989) and a right of action, other than one that the insolvent may enforce
personally
▪ Assets situated outside the Republic are not included even though, if the debtor is domiciled
within the jurisdiction of the court, the sequestration order divests him of all his movable
property, wherever situated
▪ Whenever an insolvent has acquired possession of property which is claimed by the trustee,
it is deemed to belong to the insolvent estate unless the contrary is proved (section 24 (2)).
But if a person who became a creditor of the insolvent after sequestration alleges that a
particular asset does not belong to the estate and claims a right to the asset, it is deemed not
to belong to the estate unless the contrary is proved [Du Plessis v Pienaar]
▪ Sequestration of a joint estate makes both spouses ‘insolvent debtors’ for purposes of the
Act, with the consequence that the property of both of them (comprising their shares in the
joint estate as well as separately owned property) vests in the trustee and is available to
meet the claims of creditors. Thus, property inherited by a spouse to a marriage in
community of property forms part of the insolvent estate, even if the will contains a
provision specifically excluding the property from any community of property
▪ Property inherited by an insolvent during his insolvency falls into his insolvent estate,
notwithstanding a contrary provision in the testator’s will. However, if an insolvent refuses
to accept property bequeathed to him or an insurance benefit of which he has been
nominated as a beneficiary, the property or benefit in question does not vest in his estate.
The reason is that the insolvent merely has a competence or power to accept the bequest or
nomination, and he acquires no right to the property or benefit until he has accepted. An
insolvent may, thus, by repudiating a legacy, inheritance or insurance benefit, ensure that
it passes to someone other than the trustee and the creditors of his insolvent estate.
▪ The property of the spouse of the insolvent, where the marriage is out of community of
property, also vests in the trustee of the insolvent estate, until it is released by the trustee
[section 21]

According to Stern And Ruskin, No v Appleson [1951] 3 All SA 177 (W), the term “contingent
interest” is used in contradistinction to a vested interest. It is something which may ripen into

Caitlin Freddy 71
a vested interest on the happening of an event, but it must be such that the happening of the
event, without more, gives the vested interest. A person cannot be said to have a contingent
interest in something which another may or may not choose to give him in the future. There is
ample authority for the view that a bare possibility of getting something in the future is not a
contingent interest.

Wasserman v Sackstein NO 1980 (2) SA 536 (O)

 Position of fideicommissary heir
 Until vested, not included as it is contingent [need to be alive on the happening of the event]
 In this case , the applicant was an unrehabilitated insolvent whose estate was sequestrated
in 1976. His parents had concluded a joint will and in the will they indicated that the net
income of the trust was to vest in the beneficiaries, paid each month as indicated that a the
trust was to come to an end ten years after the wives death where the capital of the trust
was to be paid out to the children in equal shares. The applicant was 1 of 4 children and the
respondent is the trustee of the applicant’s insolvent estate. The trust completed under the
will held a lot of assets. The will created a fideicommissum where the wife was the
fiduciary and the children were the fideicommissary heirs. The trustees had no beneficial
enjoyment. The applicant’s contention was that his interest was a contingent interest and
has not vested, therefore excluded from the insolvent estate, but the respondent was of the
view that it was a vested right. The court held that one has to look at will. For the child to
obtain a vested interest, the child must still be alive at the expiration of the 10-year period.
To obtain the income, they must be alive at the end of each month. The court held that there
was only contingent right under the share of the trust capital. Therefore in order to obtain a
vested interest, he needs to be alive 10 years after mother’s death. Is the applicant allowed
to sell a contingent right to the capital share? The consent of the trustee is necessary where
the estate of the trustee is likely to be adversely implicated. The applicant cannot enter into
a valid agreement of sale of his contingent right without the consent of the trustee because
this would adversely affect the estate according to section 23(2)

Inheritance
According to the case of Vorster v Steyn, property inherited by an insolvent during his
insolvency falls into his insolvent estate, notwithstanding a contrary provision in the testator’s
will.

According to the case of Badenhorst v Bekker (“free from the debts of any community of
property”), property inherited by spouse in community of property forms part of insolvent
estate, even if will contains provision specifically excluding the property from any community
of property

Du Plessis v Pienaar NO & Others 2003 (1) SA 671 (SCA)

“not to fall within any possible insolvent estate of the husband”

• In this case, the appellant had inherited certain immovable property from her father, she
was married in community of property at the time and marriage was still in existence
when this case came before court.
• The father, bequeathed in the will certain immovable property which was said to be, not
subject to marital power, not form a part of the insolvent estate of husband, not form part
of joint estate nor vest in the trustee of such an estate.

Caitlin Freddy 72
 • The appellants husband was a money lender and the joint estate was the sequestrated as
a result
• The first and second respondent were the trustees of the insolvent estate, and they tried
to lay claim to the property for the benefit of the creditors. The appellant wanted to
prohibit the trustees from selling the property for the creditors benefit and to compel
them to restore the property to her.
• Where spouses are married in community of property, a debt incurred by the one spouse
accrues to them both. Therefore, the creditors could look to both debtors for recovery of
the debt. Separate property was recognised in Matrimonial Property Act but applicable
only to relationship of spouses and not to rights of third parties. The Insolvency Act does
not recognise separate estates of a debtor or allow for sequestration of only part of estate.
• Therefore, even if there is a stipulation in a will that states that property inherited should
not form part of an heir’s joint estate or the estate upon insolvency, it is ignored.
• The view of the Badenhorst’s case is accepted here

However, if the insolvent repudiates inheritance or insurance benefit, it does not vest in estate.
Insolvent merely has a competency or a power to accept nomination and acquires no right to
property or benefit until he has accepted

Durandt NO v Pienaar NO and Others [2000] 4 All SA 77 (C)

• Is a repudiation of an inheritance a disposition of property without value? Section 26
• The question before the court is whether you can set aside disposition of property made
2 years before the sequestration.
• The applicant was the trustee of the 5th respondent’s insolvent estate. The 5th respondents
parents executed a joint will where the joint estate was to be given to the mother and
child. The 5th respondent repudiated the inheritance in favor of the mother and it was
done 2 years before her sequestration. The applicant [the trustee] sought an order to set
aside the repudiation.
• The court referred to voet , where he stated that there can be no alienation of that which
has never been acquired. At most, the court showed, you have a personal right to claim
the testamentary benefit and then you have a right to adiate or repudiate. If you repudiate,
it is assumed in law that the right never vested.
• Therefore repudiation does not amount to a disposition of property. If you repudiate, then
the right is assumed in law never to have vested

Property which does not fall into the estate

Wearing apparel or bedding
The insolvent may retain for his own use his wearing apparel and bedding, as well as such
household furniture, tools and other means of subsistence as the creditors may (by resolution)
determine (section 82(6)). The insolvent may renounce, in favour of his creditors, the
protection from execution which the Act confers in respect of particular assets

Remuneration for work done

• Section 23(9) provides that the insolvent may recover for his own benefit (to the exclusion
of the estate) the remuneration or reward for work done or professional services rendered
by him, or on his behalf, after sequestration. This provision is qualified by section 23(5),

Caitlin Freddy 73
 which says that the trustee is entitled to any moneys which the insolvent has received (or
will receive) in the course of his profession, occupation, or employment which, in the
opinion of the Master, are not necessary for the support of the insolvent and his dependants.
The combined effect of these two provisions is that the earnings which an insolvent receives
for work done remain vested in him until the Master (on application by the trustee) has
expressed an opinion that a portion thereof is unnecessary. Only if the Master expresses
this opinion is the insolvent divested of the relevant portion of the earnings in favour of the
trustee. The Master’s decision in this regard constitutes the exercise of a quasi-judicial or
administrative discretion and is, therefore, reviewable under section 151. To enable the
trustee to place sufficient details before the Master for purposes of making an assessment,
the Act places a duty on the insolvent to keep records of his earnings and to furnish these
to the trustee on demand
• The trustee may obtain payment of that portion of the insolvent’s wage or salary which the
Master has determined unnecessary, simply by informing the insolvent’s employer that he
(the trustee) is entitled, in terms of section 23(5), to part of the insolvent’s remuneration
(section 23 (5)). Moreover, the trustee may recover any amount from the insolvent by writ
of execution issued by the Registrar on production to him of a certificate by the Master
stating the amount claimable (section 23(11)).
• The Act does not lay down any time limit within which the trustee must take steps to have
the insolvent divested of surplus income, and the trustee may conceivably act at any time
before rehabilitation. It is open to the insolvent, before or at the time of applying for
rehabilitation, to approach the court for an order declaring particular property to be his own.
The insolvent’s right to earn and recover income relates only to lawful income: if the
insolvent obtains income from an unlawful source, it is not excluded from his insolvent
estate and he cannot keep any of it for himself [Singer NO v Weiss & another 1992 (4) SA
362 (T)]
Pension
The insolvent may recover for his own benefit any pension to which he may be entitled for
services rendered by him (section 23(7)). There are a number of other statutory provisions
protecting pension moneys, of which the most important is s 3 of the General Pensions Act 29
of 1979.

Compensation for defamation or personal injury

 Section 23(8) allows the insolvent to recover for his own benefit compensation for any loss
or damage which he may have suffered, whether before or after sequestration of his estate,
by reason of defamation or personal injury. The term ‘personal injury’ here includes not
only bodily injury, but also injury to personality interests, for example, iniuria in the wide
sense [De Wet NO v Jurgens 1970 (3) SA 38 (A)]. In this case, an insolvent was held to be
entitled to recover for her own benefit damages for contumelia (insult) and loss of
consortium (marital companionship) arising from adultery committed by the defendant
with the insolvent’s husband. ‘Loss or damage’ means loss or damage for which damages
would normally be recoverable (Santam Versekeringsmaatskappy Bpk v Kruger 1978 (3)
SA 656 (A)). Thus, an insolvent who has sustained bodily injury (whether before or after
sequestration) may recover for his own benefit, to the exclusion of his trustee, not only so-
called ‘general damages’ (for example , compensation for pain and suffering, loss of

Caitlin Freddy 74
 amenities and the like) but also ‘special damages’ (for example, medical expenses and other
kindred expenses and loss of earnings)
 Prior to the Santam case (supra), the courts adopted the view that, in an action for
defamation, the right to recover compensation for damage to the insolvent in his business
(for example, economic loss) vests in the trustee and that the insolvent may recover for his
own benefit only in respect of the injury to his reputation. In the light of Santam, it seems
that this distinction is not valid
 It follows from section 23(8) that, if, prior to sequestration, the insolvent is awarded an
amount of compensation for defamation or personal injury, he may retain that amount as
his own separate property (Santam Ltd v Norman 1996 (3) SA 502 (C)).
 In terms of the proviso to section 23(8), the insolvent may not, without leave of the court,
institute an action against the trustee of his estate on the ground of malicious prosecution
or defamation.
Other property which does not fall into the estate which were not discussed by the lecturer
→ Compensation for occupational injury or diseases
→ Benefits payable to miner
→ Unemployment insurance benefits
→ Insurance polices
→ Share in accrual [only falls into estate upon dissolution of marriage]
→ Trust property or funds
→ Rights of labour tenant to land or right in land
→ Friendly society moneys and assets
→ Property acquired with money from above sources
Acquisition of new estate during insolvency
In view of the fact that various property does not vest in the trustee, it is clear that the insolvent
may, during the period of his insolvency, acquire a new estate and hold it with a title adverse
to his trustee. The courts have held that the after-acquired estate can, in turn, be sequestrated

Caitlin Freddy 75
 The effects of sequestration : vesting of the assets of the solvent
spouse
Prescribed material
 Chapter 6
 Harksen v Lane 1998 (1) SA 300 (CC)
 Beddy NO v Van der Westhuizen 1999 (3) SA 913 (SCA)
 Rens v Gutman & Others 2003(1) SA 93 (C)
 Evans R.G. 2004 (1) Stellenbosch Law Review (SLR) 193- 200: Release of a solvent
spouse’s property under sec 21 (2) (c) of the Insolvency Act 24 of 1936
 De Villiers NO v Delta Cables (Pty) Ltd 1992 (1) SA 9 (A);
 Matlala DM : Some aspects regarding the vesting of property of the solvent spouse in the
trustee of the insolvent spouse’s estate Codicillius XXXXIII Nr / NO 2 (2002) 43 (1 )

Introduction
→ Marriages in community of property [both spouses will be declared insolvent as there is a
single estate]
→ Marriages out of community of property are problematic in terms of insolvency because
there are two separate estates but when one of the spouses is declared insolvent, the other
will be effected. This is also applicable to individuals who are cohabiting
→ Section 21(1) is used to prevent or hamper collusion.
→ Which items belong to insolvent estate?

Vesting of assets in the trustee

It was explained earlier that the effect of a sequestration order is to vest the property of the
insolvent in the Master and thereafter in the trustee, once he has been appointed. In terms of
section 21(1), the additional effect of a sequestration order—which by definition includes a
provisional order: see section 2 —is to vest the separate property of the spouse of the insolvent
in the Master and subsequently the trustee, as if it were the property of the insolvent estate, and
to empower the Master or trustee to deal with the property accordingly. Sequestration, thus,
makes the trustee owner of the solvent spouse’s property in the same way as it makes him
owner of the insolvent’s property. The transfer of ownership is not intended to be permanent,
since the solvent spouse may secure the release [and thereby regain ownership] of assets falling
within the categories set out in section 21(2). However, until an asset is actually released, the
solvent spouse has none of the ordinary powers of ownership over it and cannot, for example,
dispose of it or encumber it [De Villiers NO v Delta Cables (Pty)]

Section 21 was introduced to prevent, or at least hamper, collusion between spouses to the
detriment of creditors of the insolvent estate [De Villiers NO v Delta Cables (Pty) Ltd] ; in
particular, to make it difficult for an insolvent and his spouse to deprive the estate of assets to
which it is entitled by pretending that they are the separate property of the solvent spouse. The
section still performs this function [Harksen v Lane NO]. However, over the years, section 21
has also come to serve the wider purpose of assisting the trustee in determining in all cases
(even where no collusion is present) which items of property in the possession of the spouses
belong to the insolvent estate. This is often a matter of complexity for the spouses themselves
and, hence, is even more difficult and complex for a trustee who comes as a complete stranger
to the spouses’ financial affairs

Caitlin Freddy 76
According to section 21(1): the additional effect of the 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 ...] 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
following provisions of this section.

Section 21(1) is a bit problematic because in terms of section 14 of the Divorce Act 70 of 1979,
it specifies that it shall not be competent for a court to issue an order for the restitution or
judicial separation. Therefore judicial orders of separations cannot longer be granted as a result
of section 14

De Villiers NO v Delta Cables (Pty) Ltd 1992 (1) SA 9 (A)

There is a clear transfer of dominium of the assets of the solvent spouse.

Part of the reasoning of the Full Bench was that, despite the vesting provided for by section
21(1), a trustee "does not become the owner of the solvent spouse's property". This was
expressed as follows : "Having regard to our system of the registration of immovable
property and the principle referred to in Estate Phillips, one would expect the Legislature, if
it wished to provide for a transfer of dominium from the solvent spouse to the insolvent
spouse's trustee, to have said so. It did not say so; it merely used the words "to vest in him
(the trustee) all the property . . . of the spouse whose estate has not been sequestrated".'

It has always been accepted that a trustee becomes the owner of the property of the insolvent.
The Legislature did not say so in so many words, but a transfer of dominium is clearly
inherent in the terminology employed in section 20(1)(a) which provides that a sequestration
order shall divest the insolvent of his estate and vest it first in the Master and later in the
trustee. In order to obviate repetition I shall henceforth refer only to a vesting in the trustee.
Section 21(1) employs very much the same terminology. It also provides for a vesting in the
trustee. True, the subsection does not speak of a divesting, but it goes on to provide that the
property so vests 'as if it were property of the sequestrated estate'. This can only mean that
the property of the solvent spouse vests in the trustee to the same extent as does the property
of the insolvent. In my view, therefore, the Legislature made it perfectly clear that a transfer
of dominium of the assets of the solvent spouse takes place. He or she thus no longer retains
any of the attributes of ownership of the property concerned.

Meaning of solvent spouse

According to section 21(13), in this section the word ‘spouse’ means not only a wife or
husband in the legal sense, but also a wife or husband by virtue of a marriage according to any
law or custom and also a woman living with a man as his wife or man living with a woman as
her husband, although not married to each other

Civil Union Act 17 of 2006

According to MARS law of insolvency, the commencement of the Civil Union Act on 30
November 2006 = a spouse in terms of the Insolvency Act has by implication been amended
to include persons of the same sex who have entered into a civil union. Therefore a Civil union
partner falls within definition of the word spouse and section 21 will apply with equal force

Caitlin Freddy 77
For the purposes of section 21, ‘spouse’ has an extended meaning and includes a wife, or a
husband married according to any law or custom, and also a person living with a member of
the opposite sex, although not married to her or him [section 21(13)]. However, according to
Chaplin NO v Gregory on the insolvency of a married man or woman who is living with a third
person ( not the legal spouse), only the property of the legal spouse, and not that of both the
spouse and the third person, vests in the trustee.

Parties of the same sex who have concluded a ‘civil union’, as defined in the Civil Union Act
17 of 2006, qualify as spouses for purposes of section 21 and are subject to its provisions. A
civil union is a voluntary union of two persons who are both 18 years of age or older, which is
solemnized and registered as a marriage or civil partnership in accordance with the procedures
prescribed in the Act, to the exclusion, while it lasts, of all others. The legal consequences of a
marriage under the Marriage Act 25 of 1961 apply with the necessary contextual changes to a
civil union [section 13(1) of the Civil Union Act 17 of 2006] and, with certain exceptions, any
reference to a husband, wife or spouse includes a civil union partner [section 13(2)]

Section 21 applies only where there is, indeed, a solvent spouse. Where the joint estate of
spouses married in community of property is sequestrated, both spouses become insolvents and
section 21, accordingly, has no application. The property of the spouses vests in the trustee in
terms of section 20, including assets which a spouse owns as his or her separate property and
which, therefore, do not form part of the joint estate

Section 21 contemplates an existing relationship between the spouses. If, prior to sequestration,
the relationship has been terminated [by death or divorce in the case of a marriage, or by
separation in the case of an ‘informal’ relationship], then section 21 is not applicable. It follows
that the section does not apply to a previous spouse or to the surviving spouse in the case of
the sequestration of a deceased estate

Harksen v Lane 1998 (1) SA 300 (CC)

This case was decided in terms of the interim constitution and dealt with the right to property
[expropriation] and the right to equality

According to the textbook

In Harksen v Lane NO & others, it was contended that section 21 is invalid for violating the
solvent spouse’s constitutional rights, in particular, the right not to have property
expropriated without compensation and the right to equality before the law and not to be
unfairly discriminated against. The majority of the Constitutional Court rejected the
contention. Its reasoning may be summarized as follows:
• The section cannot be regarded as expropriating the solvent spouse’s property since it
does not contemplate a permanent transfer of ownership to the Master or the trustee. The
purpose of the section is merely to ensure that the insolvent estate is not deprived of
property to which it is entitled.
• The section does indeed differentiate between the solvent spouse and other persons who
might have had dealings with the insolvent, but this differentiation is legitimate and does
not infringe the right to equality before the law because the section has a legitimate
purpose, and the differentiation has a rational connection to that purpose.
• The differentiation of the section amounts to discrimination, but it does not constitute
unfair discrimination because (a) it does not affect a vulnerable group or a group that has

Caitlin Freddy 78
 suffered discrimination in the past; (b) it is intended to achieve a worthy and important
societal goal, viz, protecting the rights of creditors of insolvent estates; and (c) it does
not impair the fundamental dignity of solvent spouses or bring about an impairment of a
comparably serious nature.
Facts of the case
 There were two issues raised, the right to property and right to equality.
 The effect of a sequestration of the insolvent estate means that a solvent spouse’s estate
will vest in the master and thereafter the trustee, but the vesting is not permanent and one
can claim release under certain circumstances.
 In this case, the 1st and 2nd respondent = trustees, the 3rd respondent = master, the 4th =
minister of justice.
 This case deals with section 21, section 64 and section 65 of the Insolvency Act against
section 8 [equality clause] and section 28 [property clause] interim constitution. In the
circumstances, our focus on section 21, dealing with a spouse married out of community
of property , therefore section 21(1) is applicable
 Mrs H estate vested [it was worth 6mill at the time] and the estate was not released and
it seemed that she had not applied for the release of property.
 Donations between spouses are valid and therefore it does not create a higher burden of
proof [still based on a balance of probabilities]. There is only one thing required when
looking at donation, one must prove validity of the transaction [not simulated
transaction/aimed at removing property from the insolvent estate]

Majority judgement of Goldstone

→ By looking at section 28, it is said that it expropriates her property without compensation.
→ The court discussed the purpose of section 21 and said that vesting transfers property
ownership in the property of the solvent spouse to the master and then the trustee. Full
ownership did pass to the trustee of the insolvent estate.
→ But the court considered that the purpose of section 21 is to ensure that insolvent estate
is not deprived of property to which it is entitled to.
→ The court also indicated that the transfer of property of the solvent spouse is not
permanent, it is just for them to determine if any property is part of the insolvent estate.
Further, the solvent spouse can utilize the provisions of the Insolvency Act to obtain
release of the property and therefore there are no expropriation of rights and therefore
this does not contravene section 28(3).
→ In terms of section 8, the court stated that it discriminates unfairly against her because it
imposes severe disadvantages against the solvent spouses beyond those who the
insolvent had other dealings with. The court looked at equality jurisprudence and found
that section 21 does differentiate between solvent spouses and other persons who had
dealings with the insolvent, but it needs to consider the purpose of the section. Is this a
legitimate reason or is there a rational connection to that purpose? Yes, therefore the
court said that it had not established this as unfair discrimination.

Minority judgement of O’Regan:

o Agreed that challenge was ill founded on the property issue.

Caitlin Freddy 79
 o On equality, this judge agreed with the approach adopted, but disagreed with the
application of the approach. She held that the basis of the differentiation is the marital
status, but the marital status is not a defined ground but that does not mean that it cannot
be unfair discrimination in terms of section 8(2)
o Judge stated that the rules reflect and entrench deep inequalities between men and
women, because women’s experience of marriage is often one of subordination.
Furthermore , the implications for solvent spouse severe.
o Section 21(10) mitigates effects to some extent but do not vitiate the onerous
implications of the section.
o It is not always easy for a spouse to satisfy the court that she will be able to provide
necessary protection. Therefore the extent of impairment is substantial and sufficient to
constitute unfair discrimination.
o This judge said that it cannot be saved by section 33 [limitations clause] because this
section is over broad and there is little evidence that the provision is effective in its aim.
o Foreign jurisdictions use other mechanisms for that purpose.
o Balance between spouse interest and creditors interest are not achieved and therefore it
is inconsistent with Constitution.

Minority judgment of Sachs:

➔ Section 21 reinforces a stereotypical view of a marriage relationship which in light of the
new constitutional values is demeaning to both spouses.
➔ Spouses agree to be accountable for each other in sickness and in health but not
necessarily through insolvency and solvency.
➔ The judge stated that the stereotypical view of marriage inhibits the ability of self-
realization and affects the quality of the relationship with each other as free and equal
persons and encourages society to deem them as a single existence.
➔ There are other mechanisms in the act to achieve the same purpose, for example, such as
the impeachable dispositions provision

Postponement of vesting
The vesting of the solvent spouse’s property in the trustee may have serious consequences for
her. The Act accordingly makes provision for the postponement of vesting of some or all of
the solvent spouse’s assets. In terms of section 21(10), if the solvent spouse is carrying on the
business of a trader apart from the insolvent spouse, or if it appears to the court that the solvent
spouse is likely to suffer serious prejudice through the immediate vesting of her property, the
court may, when making the sequestration order or at a later date, exclude her property or part
of it from the operation of the order for such period as it thinks fit. The court may only postpone
the vesting of the solvent spouse’s property if it is satisfied that she is willing and able to make
arrangements protecting the interest of the insolvent estate in the property concerned, and the
court must make the postponement conditional upon the immediate completion of these
arrangements

To obtain a postponement, the solvent spouse must furnish the court with full particulars of the
nature and value of the assets claimed, the nature and origin of her title to those assets, the
prejudice which she will suffer if the postponement is not granted, and the arrangements she
intends and is able to make to safeguard the interest of the insolvent estate. The sort of
contingencies against which the insolvent estate must be protected are alienation or fraudulent

Caitlin Freddy 80
abandonment of the assets by the solvent spouse, malicious or accidental damage to the
property by the solvent spouse or by a third person, and theft of the assets by a third person. In
each case, the court will pose the question whether the arrangements proposed by the solvent
spouse offer adequate protection against all the contingencies that could possibly take place.
Only if there is no reasonable possibility of a contingency occurring may it be left out of the
account.

Release of the solvent spouses property by the trustee

Categories of property that must be released

(i) Property owned before marriage to the insolvent

The trustee must release property that was the solvent spouse’s property immediately
before her marriage to the insolvent, or before 1 October 1926 (section 21(2)(a)).

(ii) Property acquired under a marriage settlement

Another category of property which the trustee must release is that acquired by the solvent
spouse under a marriage settlement (section 21(2)(b)). The solvent spouse need not prove that
the settlement was bona fide. She would have to prove this to avoid having the donation set
aside as a disposition without value in terms of section 27 but section 27 and 21 are quite
independent of each other. In Turnbull v Van Zyl NO 1974, it was pointed out that an
antenuptial contract is interpreted in accordance with the general rules of interpretation
applicable to ordinary contracts and that, if the terms of a donation in the contract are too
uncertain to be enforced, the solvent spouse cannot rely on the donation to obtain release of the
property. The court held that a clause in an antenuptial contract settling upon the wife ‘all
household furniture and effects’ was too vague to be enforced and therefore was not a valid
ground for releasing the items claimed by the solvent spouse.

(iii) Property acquired by valid title during the marriage

The trustee is obliged to release property which was acquired by the solvent spouse during
her marriage with the insolvent by a valid title against creditors of the insolvent (section
21(2)(c)).This would include property bought by the solvent spouse from her own earnings or
the proceeds of her personal property and donations received by her from friends and family

A donation between spouses, although formerly invalid, is now permitted (section 22 of the
Matrimonial Property Act 88 of 1984) and is, therefore, enforceable, provided it is sufficiently
certain and the formalities required by s 5 of the General Law Amendment Act 50 of 1956 have
been observed. (The latter section provides that an executory contract of donation—one that
has not been fully performed—must be embodied in a written document signed by the donor
or by a person acting on his written authority granted by him in the presence of two witnesses.)
In the result, if the solvent spouse has acquired an asset from the insolvent as a direct gift or
with money provided by the insolvent, she has acquired the asset with a title adverse to the
insolvent’s creditors and the trustee must release it. The fact that the insolvent made the
donation with the specific purpose of shielding the asset in question from creditors and
providing his wife with financial security does not affect the position [Rens v Gutman NO].
However, the trustee may, of course, subsequently institute proceedings in terms of section 26
to have the gift set aside as being a disposition without value

Obviously, to provide the solvent spouse with a valid title, the transaction by which she
acquired the property must have been a genuine one, concluded in good faith. If it was a
simulated or collusive transaction designed to deceive or defraud creditors, the trustee may

Caitlin Freddy 81
disregard it. An important factor in determining the question of bona fides is whether the
parties, at the relevant time, were aware of the alienator’s actual or imminent insolvency
[Beddy NO v Van der Westhuizen]

(iv) Property protected under certain other provisions

Section 21(2)(d) provides for the release of property protected by various other provisions, but
the section has become obsolete because the relevant provisions no longer exist. Section 44(1)
and (2) of the Insurance Act 27 of 1943 which protected part of the value of certain life policies
ceded to, or taken out in favour of, a solvent wife, was found to be unconstitutional and, thus,
void as seen in the case of Brink v Kitshoff NO. The Insurance Act 27 of 1943 has now been
replaced by the Long-term Insurance Act 52 of 1998, which contains no provision similar to
section 44.

(v) Property acquired with proceeds of the above

The trustee is also obliged to release property acquired with any of the property mentioned
above or with the income or proceeds of that property [section 21(2)(e)]

Onus of proof
• The onus is on the solvent spouse to prove that the property she claims falls within a
particular category (Maudsley v Maudsley’s Trustees 1940 WLD 166169). If the trustee
raises pertinent issues pointing to possible collusion, and the solvent spouse makes no
genuine attempt to address these issues or to reconstruct a true picture of the transaction,
the court may find that she has not discharged the onus resting on her [Beddy NO v Van
der Westhuizen]
• On the other hand, if the solvent spouse gives a plausible explanation establishing her title
to the property and the trustee fails to deal specifically with her allegations or provide any
contradictory evidence, she may be held to have discharged her onus.
• In Bernard v Klein NO, the solvent spouse provided evidence to show that she had obtained
the money to pay for the property in question from various sources, including the sale of
her engagement ring and donations from her mother, father-in-law and brother-in-law. The
trustee did not allege any facts to refute this, but simply said that he suspected that the
solvent spouse had received money from the insolvent and that the solvent spouse’s
evidence was ‘doubtful’ and ‘suspicious’. The court held that the solvent spouse’s version
of events, although not without some ‘strange features’, was acceptable per se and, as it
was the only version before the court, it had to be believed.

Beddy NO v Van der Westhuizen 1999 (3) SA 913 (SCA)

Section 21(1) of the Insolvency Act 24 of 1936 provides that upon sequestration of the
separate estate of a spouse ["the insolvent"] all the property of the other spouse [“the solvent
spouse"] vests in the Master and thereafter in the trustee. The insolvent in this case is Hertzog
van der Westhuizen, whose estate was finally sequestrated at Cape Town on 2 February
1995. The solvent spouse, to whom I shall refer as "the wife", is Joan van der Westhuizen,
who was the successful applicant before Van Deventer J, and who is the respondent on
appeal, leave having been refused below and thereafter granted on petition. Her application
was based on section 21(2) of the Act, which provides that the trustee shall release any
property of the solvent spouse "which is proved" by that spouse to have been acquired during
the marriage "by a title valid as against the creditors of the insolvent" [to quote the only one
of the five classes of property listed in the section that is relevant]. The purpose of section

Caitlin Freddy 82
 21 is to "prevent or at least to hamper collusion between spouses to the detriment of creditors
of the insolvent spouse" [as Van Heerden JA put it in De Villiers NO v Delta Cables] ; and,
viewed from the other angle, "to ensure that property which properly belonged to the
insolvent ends up in the estate" [as Goldstone J put it in Harksen v Lane]

The Van der Westhuizens were married out of community of property in 1957. She had been
a teacher and he a farmer in the Aberdeen district. Roundbout 1982 he purchased and had
transferred to himself a holiday home at Hartenbos near Mossel Bay ["the home"]. In
December 1989 he sold his farms and on 23 May 1990 he sold the home to his wife. Transfer
was taken by her on 25 September 1991. His estate was sequestrated in 1995. It was because
of the refusal of the appellant [Mrs Lyndall Beddy the insolvent's trustee hereinafter "the
trustee"] to release the home under section 21(2) that the application by the wife was brought.
The trustee's stand is that the known circumstances, plus the spouses' backwardness in
revealing facts best known to themselves, throw serious doubt upon the genuiness of the sale,
and give strong grounds for suspicion that there was collusion between them to rescue the
house out of his estate to the prejudice of creditors.

As far as onus is concerned, section 21(2) expressly places the onus on the solvent spouse,
and I do not think that that onus is discharged simply by pointing to the ostensible transaction
[in this case the sale] and saying to the trustee "It is now your turn to do your worst with it".
The onus is on the solvent spouse to prove the true transaction and that it is a valid one such
as may confer a valid title. Validity is usually closely related to the parties' knowledge of the
alienor's actual or imminent insolvency. In a case such as the present there are several
theoretical possibilities, in the light of the queries raised by the trustees: that the entire
transaction was not a sale at all but a collusive donation, that it was a sale but the price was
collusively diminished or, again, that it was a sale but with the price collusively agreed not
to be paid by the wife [which latter is really a donation]

In concluding, the judge stated the following, in my opinion the facts clearly indicate that
the true intention of the parties was a collusive donation agreed upon in order to prejudice
creditors and save the home for themselves, which donation they sought to disguise by a
simulation the sale. This means that the wife has not discharged the onus of proving valid
title.

The court also stated that when the wife was asked questions with regards to the sale, she
was largely dismissive. The court also considered that the selling price of the property was
R67 000 but the market value was reflected as being R120 000. Therefore it is clear that the
property was much more and she paid less. The wife furthermore did not persuade the court
that she paid for the property out of her own estate and not from that of her insolvent husband

The release was unsuccessful

Rens v Gutman & Others 2003(1) SA 93 (C)

Applicant seeks an order directing first respondent, in his capacity as trustee of the insolvent
estate of Mr Bernadus Rens to release to her the shares in third respondent in terms of section
24(4) of the Insolvency Act 24 of 1936

Applicant has based her application for relief on the following basis, namely that the
member's interest in Creeper

Caitlin Freddy 83
 Cottage CC ["third respondent"] was transferred to her in terms of a deed of donation dated
13 November 1993. The transfer of the member's interest was then registered in 1994.
Applicant was married out of community of property to the donor at the time of the donation.
This donation between spouses is protected by section 22 of the Matrimonial Property Act
88 of 1984 which provides: "Subject to the provisions of the Insolvency Act 1936 no
transaction effected before or after the commencement of this Act is void or voidable merely
because it amounts to a donation between spouses."

Applicant avers that the donation provides her with a valid title against creditors of the
insolvent donor spouse, provided that it was not a simulated transaction which, in terms of
her case, is not the situation in the present dispute.

Third respondent was converted from a close corporation to a private company on 3

November 1999. Hence the interest which is the subject of these proceedings is the
shareholding in Creeper Cottage (Pty) Ltd. At present the property of the applicant vests in
the first respondent in terms of section 21 of the Act. First respondent has sought
to challenge applicant's title to the member's interest on the following grounds:
• First respondent contends that the donation was specifically concluded in order to allow
applicant's husband, Rens, to avoid liability to his creditors. In this regard first respondent
has filed an affidavit in support of its contention by Rens's former attorney, Mr Francois
Budricks.
• First respondent states that the estate of Rens was insolvent immediately after the
donation of the shareholding to applicant. In this connection first respondent relies on
Rens's former accountant Mr Duncan Nel, who has deposed to an affidavit.
• First respondent alleges that there are strong grounds for suspicion that there was
collusion between Rens and applicant to secure the property out of his estate and
therefore that they colluded to the prejudice of creditors. In support of this contention,
first respondent points to an error made by applicant in explaining how she came to own
the shares in third respondent and which first respondent suggests is indicative of the fact
that the entire transaction was collusive aimed at keeping the property out of the insolvent
estate.
Furthermore, Mr Hodes submitted that there was no suggestion in Budricks's affidavit that
creditors had pressed Mr Rens or that Rens's financial position was in any way vulnerable
during the period which the donation was effected. Accordingly, even if Rens's motivation
was to protect his assets, the protection of assets in terms of a disposition executed at a time
when solvency was not in doubt could not be challenged at this stage by first respondent.

The release was therefore successful

Evans R.G. 2004 (1) Stellenbosch Law Review (SLR) 193- 200 : Release of a solvent
spouse’s property under section 21 (2) (c) of the Insolvency Act 24 of 1936
- Release of property in terms of section 21(2)(c)
- Degree of proof to succeed

▪ This article confirms that marriages concluded out of community of property are not
bullet-proof institutions.

Caitlin Freddy 84
 ▪ Donations of property may not be put out of the reach of the insolvent estate entirely due
to section 21
▪ Section 21 has not been declared unconstitutional because the said property can
thereafter be released as seen in sections 21(2). The vesting is therefore temporary
▪ In claiming such a release, the solvent spouse has to prove the validity of the donation
▪ Donations between spouses which were previously invalid are now valid but as to
whether it will be regarded as a title which is valid in terms of section 21(2)(c) will
depend on the facts and circumstances of each case
▪ Provides an overview of the Rens v Gutman case and questions whether an insolvent
bears an onerous burden such as this. He then confirms that the standard in civil cases is
that of a balance of probabilities. The evidence that is presented will however have to be
more thorough to persuade a reasonable mind

Matlala DM : Some aspects regarding the vesting of property of the solvent spouse in
the trustee of the insolvent spouse’s estate Codicillius XXXXIII Nr / NO 2 (2002) 43 (1);

Should section 21 be repealed?

Section 21 is a controversial provision

- The property of a solvent spouse vests as opposed to the property of another person
- Furthermore this section applies not only to persons married out of community of
property but also to those that are cohabiting
- A judicial order of separation as highlighted in sections 21(1) has been scrapped through
section 14 of the Divorce Act 70 of 1979.
- The South African Law Reform Commission is on favour of this section being scrapped
completely but there are others who argue against it
- This article also provides an overview of the case of Harksen v Lane 1998 (1) SA 300
(CC) and then proceeds to question whether section 21 should be kept in its current form
as the constitutional court found this section to be constitutional
- The term vest is not defined in the Act itself not it is found in section 21 but nevertheless
vesting has the effect that ownership passes to the trustee which was confirmed in the
case of De Villiers NO v Delta Cables but the Harksen v Lane case did not answer the
question of whether ownership passes to the trustee. This is questioned because the
constitutional court in Harksen v Lane has the opportunity to deal with the matter but
instead they opted to confirm the position in Villiers NO v Delta Cables. This article opts
to answer this question however by indicating that ownership of the vested property of
the solvent spouse passes to the master and only upon appointment does it pass to the
trustee
- With regards to the release of vested property, the article argues that only property
mentioned in terms of section 21(2) can be released and the standard of proof is based
on that of a balance of probabilities. Furthermore, if the onus is not discharged, the
property will not be released but if the onus is in fact discharged then the trustee is
obliged to release the property
- Vested property which is not released will eventually be realized by the trustee and the
trustee has to comply with the formalities as set out in section 21(3)

Caitlin Freddy 85
 - With regards to the meaning of spouse, the article highlights the provisions of section
21(13) and indicates that Chaplin NO v Gregory was incorrect as the women with whom
the man is living with also qualifies as a spouse. A living partner and an ex-spouse should
be considered as a spouse in terms of this section as an ex-spouse could be a party to
collusion
- Section 21 raises issues which may not relate to interpretation but rather application
- The article argues that despite the fact that this section passed the constitutionality test,
it is still undesirable because amongst others, it assumes that the property of the solvent
spouse belongs to the insolvent spouse unless the contrary is proven. Therefore it should
be repealed or at least a closer look should be given to this section as this section operates
against individuals, mainly those who are women

Procedure for release of property

 The Act does not stipulate what procedure must be followed to obtain the release of assets.
 The practice is for the solvent spouse to apply to the trustee for the release of the property,
but she is not obliged to take this course and may approach the court directly
 When applying to the trustee, the solvent spouse is normally required to provide him with
an affidavit setting out the nature and origin of her title to the property and any documents
supporting her allegations: invoices, receipts, paid cheques. Affidavits by third parties able
to vouch for the genuineness of her claim may also be included. The trustee must bring his
mind to bear on the claim and must consider any statements by third persons which the
solvent spouse submits to establish it
 If the solvent spouse proves [on a balance of probabilities] that an asset falls into one of the
prescribed categories, the trustee is obliged to release it forthwith. He cannot refuse to do
so on the basis that he may be entitled to set the transaction aside under another section of
the Act
 Moreover, a creditor has no power to intervene and prevent the trustee from releasing the
asset
 If the vesting of certain assets has been postponed, the solvent spouse must, during the
postponement, lay before the trustee evidence of her claim to the assets, and the trustee
must notify the solvent spouse in writing whether or not he will release them [section
21(10)]

Effect of release by trustee

- Where the trustee has released property to the solvent spouse, he is not debarred from
proving subsequently that it belongs to the insolvent estate and from recovering it
accordingly [section 21(12)].
- The court can moreover, on application by the trustee or a creditor, grant an interdict
prohibiting the solvent spouse from selling, mortgaging, or otherwise disposing of the
released property, pending an action to set aside the transaction under which the solvent
spouse acquired the property [Enyati Resources Ltd & another v Thorne NO & another]

Release of the property by the court

• Should the trustee refuse to release property claimed by the solvent spouse, she may apply
to court for an order releasing the property or staying the sale of the property [section

Caitlin Freddy 86
 21(4)]. If the property has already been sold but the proceeds have not yet been distributed
among creditors, the solvent spouse may ask for an order declaring that she is entitled to
the proceeds. She may approach the court without first applying to the trustee, but this
could have adverse cost implications for her
• The court may make whatever order on the application it considers just. It will ordinarily
order the release of property which the solvent spouse proves falls within one of the
prescribed categories, but it will consider each application on its merits and may, in
exceptional circumstances, apply some other principle, such as estoppel
• Section 21(12), which allows the trustee to recover property which he has released to the
solvent spouse, does not apply where the court has ordered the release of the property. In
other words, once the court has made an order, the matter is res judicata between the parties

Sequestration of a solvent spouses estate

The solvent spouse cannot surrender her estate while it vests in the trustee , but civil
proceedings against her are not stayed and, if she commits an act of insolvency, her estate may
be sequestrated by a creditor. The court may postpone the application for sequestration or make
any interim order it considers just, if it is satisfied that the act of insolvency was due to the
vesting and either:
• proceedings are being or will, where necessary, be taken to obtain an order releasing the
property, or
• property of the solvent spouse has been released since the making of the sequestration order
and the solvent spouse is now in a position to discharge her liabilities [section 21(11)]
If the estate of the solvent spouse is sequestrated, the right to obtain release of the property
that belonged to her vests in the trustee of her estate

Caitlin Freddy 87