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MRL3701 EXAM PACK 2023
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MRL3701
EXAM PACK
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UNIVERSITY EXAMINATIONS
May / June 2023
MRL3701
Insolvency Law
100 Marks
4 Hours
First examiner: Mrs Z Taljaard

Second examiner: Ms E Mbiriri
INSTRUCTIONS FOR A TAKE-HOME EXAM ON MYEXAMS
Instructions:
Please read the below very carefully to ensure you comply with all instructions.
We wish you the best for your examination!
PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE ANSWERING THE

EXAMINATION QUESTIONS.
THIS PAPER CONSISTS OF 9 PAGES.

1. The examination question paper counts 100 marks.
2. It consists of three questions. Answer ALL of the questions.
3. The duration of the examination on the timetable is 4 (four) hours.
4. In addition to the duration of the examination indicated on the timetable, you are given 30
minutes to FINALISE the uploading of your exam file. Your exam file must be uploaded
via the myExams platform on 10 June 2023 BEFORE 12:30 pm (South African Standard
Time).
5. This is an open-book examination. You may consult your prescribed study material during
the examination.
6. This examination is proctored via the Invigilator App. You are required to activate (or log in to)
the Invigilator app between 07:45 am and 08:30 am (South African Standard Time).
The QR code is below:

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6.1 Please note: If a student is found to have been outside the invigilator app for a total of 10
minutes during their examination session, they will be considered to have violated Unisa's
examination rules and their marks will be withheld.
6.2 You only have 15 minutes after the due time to submit your script on the Invigilator App
6.3 You will have 48 hours from the date of their examination to upload their invigilator
results from the Invigilator App. Failure to do so will result in students deemed not to have
utilised the invigilation or proctoring tools.
7. The uploading of your exam file on the myExams platform must be finalised within 30
minutes of the scheduled (timetabled) end of the exam.
7.1 When ready to submit, open the Take-Home (Assignment) assessment again and click on
the Add Submission button.
7.2. Note the file requirements such as:

a. File size limit.
b. Number of files that can be submitted.
c. File formats allowed.


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7.3. Check the acknowledgment checkbox and upload your answers document and then click on
the Save changes button.
7.4. Review your submission information regarding the status and click on your submission file
link to check if it's correct.
7.5. If you need to resubmit a file, you can click on the Edit Submission button. Note: You will
need to delete any existing files.

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7.6 Use proper PDF conversion software to create the final file for upload. Free PDF conversion
software is available on the Internet.
7.7 Add your student number and the module code in the file name. That will assist you to select
the correct document to upload during submission.
7.8 You are advised to preview your submission (answer script) to ensure legibility and that the
correct answer script file has been uploaded.
8. The cover page for your take-home exam must include your name, student number and the
module code.
9. It is preferred that your take-home exam is typed. However, handwritten submissions will also
be accepted.
10. Whether your answers are typed or handwritten, your submission on the myExams platform
on Moodle must be made in the form of one PDF document. Only the last file uploaded and
submitted will be marked.
10.1 The exam answer file that you submit must not be password protected or uploaded as a “read
only” file.
10.2 Your examination answer file will not be marked if:
10.2.1 you send your examination answer file via email.
10.2.2 you submit the incorrect examination answer file. A mark of 0% will be awarded.
10.2.3 you submit your exam answer file on an unofficial examination.
10.2.4 you submit your examination answer file in the incorrect file format.
10.2.5 you submit a password-protected document.
10.2.6 you submit your examination answer file late
10.2.7 you submit your answer file from a registered student account that is not your own.

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10.3 The mark awarded for an illegible examination answer file submission will be your final mark.
You will not be allowed to resubmit after the scheduled closing date and time of the exam.
10.4 Listening to audio (music) and utilising audio-to-text software has been strictly prohibited during
your examination session, unless use of the software is related to a student’s assistive device
which has been declared. Listening to music, utilising such software and/or failing to declare the
software is a transgression of Unisa’s examination rules and the student's marks will be withheld.
11. If your answers are typed, ensure that the following requirements are adhered to. Items 11.3-
11.6 applies to written assignments as well.
11.1 The text must be typed in Arial font, size 12 with single line spacing within the paragraph, and
double line spacing after the paragraph.
11.2 The text must be justified.
11.3 All of the pages must be numbered in the right-hand corner at the bottom of the page.
11.4 All margins must be 2.5cm, but the left margin must be 3cm.
11.5 South African English and not American English should be used. For example, the correct
spelling is “Labour” and not “Labor”.
11.6 Do not use abbreviations or SMS language.
11.7 All quotes that are two lines long (or less), must form part of the main text, be written in italics,
and be bracketed by quotation marks. Where a quotation is longer than two lines, it must be
typed in a separate paragraph in italics in size 11 font and must be indented by 1 cm. No
quotation marks are required when the quotations stand alone. Use quotations very sparingly.
In this take-home exam, a maximum of 5% of the text may be quoted.
12. When answering the take-home exam questions, remember that an open-book exam is a test
at a higher level than the usual type of exam, where memory is tested as much as insight. In
an open-book exam, you need not memorise any information. You are expected to prove that
you can use information, rather than merely repeat it. In brief, what is being tested is factual
knowledge, understanding and the correct application thereof, not memory skills. For this
reason, you do not earn marks by merely detailing a list of all the information that you think
might be relevant to a particular question. This gives no indication that you know what statutory
or other provisions are applicable in a specific context. You are expected to identify precisely
what information applies, and then explain why you think so.
12.1 Also, because you have the guide available when answering questions, we do not give marks
for direct quotations from the guide. You are therefore assessed on your level of understanding
of the legal principles by looking at how well you applied the principles to the questions.
12.2 PLEASE DO NOT CUT AND PASTE ANSWERS FROM THE STUDY GUIDE (OR ANY
OTHER SOURCE).
13. The arguments that you make must be logical, well-structured and substantiated by all of the
relevant legal principles. Use the time given wisely.
13.1 Ensure that you give reasons for each answer. Substantiate your answers by referring to ALL
of the relevant authorities, e.g. sections from relevant legislation and/or court cases in the text
or in your footnotes.

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13.2 You are required to have read and summarised the prescribed cases yourself. The summaries
in the Study Guide are not sufficient for this exam. When using case law to support your
answer, please include complete references to the relevant cases in your footnotes. This
means that you must not only include the name of the case but also the exact page and section
and/or paragraph where the information can be found. The same applies to articles and books
used.
13.3 A number of students lose marks because they do not approach problem-type questions
correctly. When answering such questions, it is important to first clarify for yourself the area of
work where the answer must be sought. Once you have done this, set out the relevant legal
principles. Deal only with those principles that relate to the given facts. Next, apply these
principles to the facts. This is where most of the students lose marks - they set out the law in
some detail, but then do not illustrate how it applies to the factual situation they have been
asked to solve. Finally, state your conclusion.
14. You must complete the online declaration of own work when submitting.
14.1 By ticking the Honesty Declaration, you confirm that you have read (i) the University’s Policy
on Copyright Infringement and Plagiarism and the Student Disciplinary Code, which are both
available on myUnisa: www.unisa.ac.za/unisarules, and (ii) the information relating to student
values and plagiarism that is found at https://www.unisa.ac.za/sites/myunisa/default/Study-@-
Unisa/Student-values-and-rules.
14.2 Students suspected of dishonest conduct during the examinations will be subjected to
disciplinary processes. Students may not communicate with other students, or request
assistance from other students during examinations. Plagiarism is a violation of academic
integrity, and students who do plagiarise or copy verbatim from published work will be in
violation of the Policy on Academic Integrity and the Student Disciplinary Code and may be
referred to disciplinary hearing. Unisa has a zero tolerance for plagiarism and/or any other
forms of academic dishonesty.
14.3 The use of Artificial Intelligence software (ChatGPT, etc) and online sources (Course Material)
during your online examination session is strictly prohibited.
14.4 Unless a student is exempted because of disability or incarceration, students who have not
utilised invigilation or proctoring tools will be deemed to have transgressed Unisa’s
examination rules and will have their marks withheld.
PLEASE NOTE:
If you experience challenges with the Invigilator app, please send a WhatsApp message to the
technical helpdesk on 073 505 8273. DO NOT CONTACT THE LECTURERS.
For all other exam-related challenges, you may contact the SCSC on 080 000 1870 or e-mail
Examenquiries@unisa.ac.za or refer to Get-Help for the list of additional contact numbers.

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Question 1
1.1 Explain the purpose of a sequestration order. (5)
1.2 “A sequestration order may not be granted if a debtor has only one creditor and there
are not enough assets to cover the costs of sequestration.” Indicate whether this
statement is true or false, and then provide the reasons for your answer. (5)
1.3 David approaches you for advice. He informs you that his brother, Samuel, owes him
R15 000 for painting services rendered by his company. David explains to you that
despite various attempts to get Samuel to pay his debts, he has yet to make any
payment. David is especially upset because he has heard a rumour that Samuel owes
money to several people, amongst them a mutual best friend, Lenny. Lenny informed
David that Samuel wrote him a letter stating that he is unable to pay his debts to him
(Lenny) and asked in the letter whether they could make arrangements to pay him back
in instalments. David now wants to know from you whether you can assist him to apply
for the compulsory sequestration of Samuel‘s estate. Explain the conduct above and
refer to relevant legislation. (10)
1.4 Critically discuss Harksen v Lane 1998 (1) SA 300 (CC). (10)
1.5 Explain how section 27 of the Insolvency Act 24 of 1936 has the potential to violate
section 9(3) of the Constitution. (10)
1.6 Critically discuss Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC). (10)
TOTAL QUESTION 1: [50]

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Question 2
2.1 Explain the difference between a secured claim and a preferent claim. (10)
2.2 Rachel is an insolvent. She very much wishes to stand as a candidate in the upcoming
municipal elections for the SAD party. Her trustee is of the opinion that she should not
begin her political career at this stage. Explain whether Rachel’s trustee may interfere
with her intended political career. (5)
2.3 What must a plaintiff prove to succeed in bringing the actio Pauliana action? (5)
2.4 The Master may, under certain circumstances, remove a trustee from office. Name and
discuss these instances. (5)
Question 3
3.1 Critically discuss the important issues the court had to consider regarding the abuse of
the sequestration process in Ex Parte Snooke 2014 (5) SA 426 (FB). (10)
3.2 Daniel’s estate was sequestrated in 2022. His concurrent creditors received no dividend
and even had to pay contributions. Daniel has not yet been rehabilitated. He has just
won a motorcar to the value of R250 000 in a competition. The trustee of Daniel’s
insolvent estate has heard about his good fortune and claims delivery of the car. Explain
whether Daniel has to deliver the car to the trustee. (5)

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3.3 With reference to Close Corporations, explain how many members a Close Corporation
must consist of. In your answer you must refer to whether juristic persons may be
appointed as members. (5)
3.4 Explain whether a director of a company can apply for a winding-up of a company.
(5)
TOTAL MARKS: [100]
©
UNISA 2023

MRL3701
MAY JUNE 2023
COMPLETE PORTFOLIO 2023
QUESTION 1
1.1.
The main objective of a sequestration order is to secure the orderly and equitable
distribution of a debtor’s assets where they are insufficient to meet the claims of all his
creditors. Once an 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 the individual creditor. Creditors who have proved a
claim have the right to share with other proved creditors in the proceeds of the estate
assets replacing their right to recover claims by judicial proceedings.

QUESTION 1
1.1.
The main objective of a sequestration order is to secure the orderly and equitable
distribution of a debtor’s assets where they are insufficient to meet the claims of all his
creditors. Once an 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 the individual creditor. Creditors who have proved a
claim have the right to share with other proved creditors in the proceeds of the estate
assets replacing their right to recover claims by judicial proceedings.
Court won’t grant a sequestration order if no advantage to creditors has been shown
and generally not when there is only one creditor. If debtor’s assets are not enough to
cover the costs of sequestration, there is no sense in sequestrating his estate as
creditors won’t get anything thus being a waste of time and money. The debtor is
divested of his estate and can’t burden it with more debts.
1.2.
TRUE
There will be no conflicting interests between creditors which must be equitably

resolved if there is only one creditor. Further, if the debtor’s assets are not sufficient
to cover the cost’s of sequestration, there is no advantage to be derived from
sequestration process to any creditors. In the caseas depicted above, sequestration
would merely amount to a waste of time and money.
1.3.
The compulsory sequestration of an individual's estate is a legal process where the

individual's assets are taken over by a trustee to pay off their debts. The Insolvency
Act, No. 24 of 1936 provides for the procedure to follow for compulsory sequestration.
In terms of section 8 of the Act, any creditor who is owed more than R100 can apply
to court for the compulsory sequestration of the debtor's estate.

Section 9(1) allows proceedings for the compulsory sequestration of a debtor’s estate.
Court must be satisfied that:
 The applicant has established a claim which entitles him, in terms of s9(1) to
apply for sequestration of the debtor's estate.
 the debtor has committed an act of insolvency or is insolvent
 there is reason to believe that it will be to the advantage of creditors of the
debtor if his estate is sequestrated (s12(1))
Onus of satisfying court on these three matters rests throughout on the sequestrating
creditor
Considering the facts in the case, Dumisani has a valid claim in terms of the services
he provided to his brother. This satisfies the first requirement. In terms of section 8(c),
a debtor commits an act of insolvency if he makes, or attempts to make, a disposition
of any of his property which has or would have the effect of prejudicing his creditors
or of preferring one creditor above another.
However, before applying for compulsory sequestration, David must first ensure that
he has exhausted all other available legal remedies to recover the debt owed by
Samuel. This includes sending letters of demand and filing a summons in the
Magistrate's Court.
Furthermore, it is crucial to note that applying for compulsory sequestration is a serious

action with significant consequences for the debtor. The debtor will lose ownership
and control of their assets, and their credit record will be negatively affected for up to
ten years.
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 the creditors. The onus of
establishing an advantage remains on the sequestrating creditor even if the debtor
committed an act of insolvency. Therefore I assist him to apply for the complusory
sequestration of Benson’s estate
It is also advisable for David to collaborate with Lenny and other creditors owed by
Samuel to maximize the chances of successful debt recovery.

1.4.
Harksen v Lane 1998 (1) SA 300 (CC) was a historic judgment delivered by the South
African Constitutional Court relating to the right to administrative justice. The case
involved a challenge to the constitutionality of section 3(4)(f) of the Alienation of Land
Act, which allowed the government to cancel the sale of state-owned land without
providing the buyer with a hearing.
In this case, Mr. Harksen had purchased a piece of land from the South African
government, but the government later cancelled the sale without giving him an
opportunity to be heard. Mr. Harksen challenged the decision, claiming that it was
unconstitutional as it violated his right to administrative justice under section 33 of the
South African Constitution.
The court held that the right to administrative justice was a fundamental right that was
guaranteed under the Constitution. The court reasoned that a person affected by an
administrative action was entitled to a hearing and a meaningful opportunity to be
heard before any decision that would affect his or her rights, interests or legitimate
expectations could be taken.
The court further elaborated that the right to administrative justice was an important
component of the protection of human dignity, which was a foundational value of the
Constitution. The court also found that the Alienation of Land Act provision violated
the right to administrative justice and the right to property, which was protected under
section 25 of the Constitution.
The court ordered that the Alienation of Land Act be amended to provide for a hearing
before the cancellation of a sale of state-owned land could take place. The decision in
Harksen v Lane therefore affirmed the importance of the right to administrative justice
and the constitutional protection of property rights.
However, the case also sparked controversy and criticism from some who argue that
it unfairly targeted wealthy landowners without providing adequate compensation. The
case's long-term impact on land reform policies and constitutional interpretation in
South Africa remains to be seen.
In conclusion, the Harksen v Lane judgment is of great significance as it affirmed the

importance of the right to administrative justice and the constitutional protection of

property rights. The ruling demonstrated that administrative action must be conducted
in a procedurally fair manner, which includes giving the affected party a meaningful
opportunity to be heard before any decision that would affect their rights, interests or
legitimate expectations could be taken.
1.5.
Section 27 of the Insolvency Act violates section 9(3) of the Constitution on the
grounds of sexual orientation, marital status and birth. The prohibition of unfair
discrimination on the ground of sexual orientation protects those who are attracted to
members of the same sex.
It prohibits the granting of benefits to married people that are not granted to same-sex
life partners. The right to equality in section 9 of the Constitution seeks to provide equal
benefits before the law to persons in the same or similar positions by prohibiting unfair
discrimination.
Section 9(3) prohibits unfair discrimination on anyone on the grounds of marital status,
sexual orientation and birth, among others. This makes section 27 of the Insolvency
Act vulnerable to constitutional review under section 9(3) of the Constitution on the
grounds of marital status, sexual orientation and birth because it unfairly distinguishes
between benefits given to husbands and wives, civil unions partners, children born
outside of wedlock and children adopted by civil union partners
Furthermore, the application of section 27 could disproportionately affect vulnerable

groups such as those with disabilities or those living in poverty, who may be more
likely to accumulate debt.
Therefore, it is important that section 27 is applied in a manner that does not

discriminate against debtors based on any of the grounds listed in section 9(3) of the
Constitution, and that it is not used to unfairly target vulnerable group.

1.6.
Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC) is a case that presents a
critical discussion around the issue of access to essential healthcare services by
indigent individuals. The case is centered on a constitutional challenge launched by
Ms. Sarahwitz, an indigent individual who was denied access to a life-prolonging
medication known as Trastuzumab under the auspices of the Gauteng Department of
Health. The medication, which was prescribed by her treating physician, was sought
as part of her treatment for breast cancer.
The central issue at hand was whether the refusal to provide the medication to
Sarahwitz was a violation of her constitutional rights, particularly the rights to dignity,
equality, and access to healthcare services. The Constitutional Court ultimately held
that the Gauteng Department of Health's decision to refuse Sarahwitz access to the
medication was unconstitutional and invalid. The Court ruled that the Department’s
decision failed to take into account the essential nature of the medication to prolong
the life of the indigent Sarahwitz. The decision was seen as being a violation of the
right to access healthcare services as stipulated in section 27 of the Constitution.
The Court also held that the state had a duty to ensure that all individuals were
guaranteed access to essential healthcare services regardless of their socio-economic
status. It was seen that the state had a constitutional obligation to ensure that indigent
individuals have access to healthcare services of the same quality as those enjoyed
by affluent individuals. In summary, the Court held that essential healthcare services
should be accessible to all individuals irrespective of their socio-economic status.
The Sarrahwitz v Maritz NO and Another case presents an important debate regarding
the provision of healthcare services to indigent individuals within South Africa, and the
constitutional framework under which access to essential services is guaranteed. The
case highlights the necessity of the state ensuring that all individuals have access to
essential healthcare services and that socio-economic status should not be a barrier
to accessing essential healthcare services. The case establishes that the state must
be held accountable for ensuring that essential healthcare services are delivered
equally to all South Africans, regardless of their economic status and wealth.

QUESTION 2
2.1.
A secured claim is a claim that is secured by collateral or property owned by the

debtor. In the event of bankruptcy or default, the creditor has the right to seize the
collateral or property and sell it to recover the debt owed. This type of claim is given
priority over unsecured claims, as it has a higher likelihood of being satisfied.
A secured claim is paid out of the proceeds of a specific encumbered asset. (If those
proceeds are insufficient, the unpaid balance is paid as a concurrent claim from the
free residue, unless the creditor has waived the unsecured balance of his claim.)
On the other hand, a preferential claim is a claim that is given priority over other
unsecured claims in bankruptcy proceedings. These claims are made by certain
types of creditors, such as employees owed wages, and are paid before other
unsecured debts. Preferential claims are designed to ensure that certain types of
creditors receive payment for their services or goods before others who are
considered less essential.
A preferent claim is paid out of the free residue (the proceeds of the unencumbered
assets), but enjoys preference over concurrent claims. (If only part of a claim enjoys
preference, the balance is also treated as a concurrent claim.)
While secured claims are tied to collateral or property, preferential claims are based
on priority status given to certain types of unsecured claims. Both types of claims
have higher priority than other unsecured claims in bankruptcy proceedings.
2.2.
In general, a trustee has the responsibility to manage the assets and liabilities of an
insolvent person and must act in the best interest of the creditors. Therefore, if
Rachel's trustee believes that her political career would be detrimental to her
creditors or to the administration of her bankruptcy estate, they may advise her
against it or seek a court order to prevent her from doing so.

Rachel's trustee may have the power to interfere with her intended political career,
depending on the circumstances. If Rachel is still under sequestration or has not
been rehabilitated, she may not be allowed to stand as a candidate in the elections.
Additionally, depending on the terms of the sequestration order, she may need to get
permission from the trustee or the Master of the High Court before engaging in
certain activities, including running for political office.
2.3.
To succeed in this action, the plaintiff must prove that:
1. The transaction diminished the debtor’s assets.
2. The person who received from the debtor, did not receive his own property.
3. There was intention to defraud.
4. The fraud took effect.
If the disposition is made for countervalue, the requirements for the actio Pauliana
are stricter than those for a disposition without value. It must be proved that the
insolvent had the intention to defraud the creditors and that the party who benefited
from the transaction knew of this intention and was a party to the fraud.
2.4.
The Master may remove a trustee from office on the grounds that:
 he was not qualified for appointment, or that his election or appointment was
illegal, or that he has become disqualified;
 he has failed to perform his duties satisfactorily or to comply with a lawful
demand of Master;
 he is mentally or physicaly incapabe of performing his duties as trustee
satisfactorily;
 the majority of the creditors has requested in writing that he be removed; or
 he is no longer suitable, in the opinion of the Master.

QUESTION 3
3.1.
The matter of Ex Parte Snooke 2014 (5) SA 426 (FB) relates to an application for
rehabilitation on an ex parte basis on the grounds that no claims were lodged against
the insolvent estate in terms of section 124(3) of the Insolvency Act, Act 24 of 1936.
As there were no creditors, there was no indication of who nominated Ms. Van Wyk
and Mr. Potgieter to be the provisional trustees. They were later appointed by the
Master after the first meeting of creditors, where no voting took place as there were
no claims.
The excessive legal fees charged was also criticised by Daffue J, and he stated that
the legal practitioner was guilty of overreaching in spite of the bill of costs being
taxed and approved
It was held that there was an abuse of the process of voluntary surrender, when
considering the Applicant’s previous tracked original applications in hearing the
application for rehabilitation, as it was found that there were discrepancies and that
sequestrations seldom benefitted the creditors. The Applicant was granted relief that
would in fact not have been granted had the true facts been revealed to the court
3.2.
All assets of the insolvent at the time of sequestration, and all assets that the
insolvent acquires during sequestration, that is before rehabilitation, fall into the
insolvent estate, unless the property is specifically excluded by the Insolvency Act in
terms of section 23.
The car that David has won is not excluded by the Act and thus forms part of the
insolvent estate. Even on rehabilitation the assets in the insolvent estate do not
(subject to one exception) pass to the insolvent again. But David may approach the
court for a declaratory order which would enable him to keep the car. He may apply
for this order when he applies for rehabilitation.
The basis of a declaratory order is that the creditors have waived their rights with
respect to the property. As was decided in Vorster v Steyn NO en andere, the court

has no discretion to make a declaratory order if one or more creditors are opposed to
it.
To obtain a declaratory order, David will have to comply with the requirements as set
out in Ex parte Steele 1948 (1) SA 1203 (W) at 1204 and Ex parte Kriel 1949 (1) SA
971 (O) at 976.
These requirements are as follows:
(a) He must give notice in the Government Gazette of his intention to apply for
the order, and indicate in what circumstances he acquired the car.
(b) He must give copies of the above-mentioned notice to the Master, the trustee,
and all unpaid creditors. If he cannot trace a creditor, he should explain what
steps he has taken to trace him.
(c) He must indicate that the creditors and the trustee have been fully informed
about the property and that they have laid no claim to the property.
In this case, where the creditors had to pay a contribution, the chances are good that
they will not waive their rights to the property. And even if they do not object to the
declaratory order, the court will perhaps make D’s rehabilitation subject to the
repayment of the contributions to the creditors.
3.3.
According to the Close Corporations Act, a Close Corporation must consist of at
least one member, but no more than ten members.
Juristic persons, such as companies or trusts, may also be appointed as members of

a Close Corporation, provided they meet the requirements of the Act.
3.4.
Generally, a director of a company may apply for a winding-up of the company, but
only in certain circumstances. For example, a director may apply for a voluntary
winding-up of the company if the company is unable to pay its debts and the director
believes that there is no possibility of the company being able to continue in

business. However, if the company is solvent and the director has no valid reason for
seeking a winding-up, the court may reject the application or require the director to
provide further evidence to support the application.

May / June 2023

Religious Students Exemption Exam
MRL3701
Insolvency Law
100 Marks
4 Hours

Second examiner: Ms E Mbiriri
INSTRUCTIONS FOR A TAKE-HOME EXAM
Instructions:


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THIS PAPER CONSISTS OF SIX (6) PAGES.

2. Answer ALL the questions.
3. The duration of the examination is 4 hours. Your take-home exam must be submitted via email
to Mrs Taljaard to taljaz@unisa.ac.za on 22 June 2023 before 13:00 pm (South African
Standard Time).
4. You MUST ALSO upload your answer sheet on MyExams before 13:00 pm (South African
Standard Time). Exam answer sheets will be marked on MyExams.
5. This is an open-book examination. You may consult your prescribed study material during the
examination.
6. This examination is invigilated. You have to access the Invigilator App within the allocated
time. Failure to do so will result in the institution withholding your marks. Be reminded to also
upload your answer sheet on the Invigilator App (as well as on the MyExams platform). For
any queries WHATSAPP the Invigilator Teams, do not call them or contact the Lecturer.
SUBMISSION OF YOUR EXAMINATION ANSWER FILE
7. Your answer sheet to this take-home examination must be submitted to Mrs Taljaard by the due
date and allocated time, to taljaz@unisa.ac.za
8. Your answer sheet MUST also be uploaded onto the Invigilator App and on the MyExams
platform for marking.
9. You are allowed to send ONE PDF file. You are advised to preview your submission to ensure
that it is legible and that the correct answer file has been uploaded.
10. The cover page on your take-home exam answer file must include your name, student number
and the module code.
11. It is preferred that your portfolio exam is typed. However, handwritten submissions will also be
accepted.
12. Whether your answers are typed or handwritten:
The exam answer file that you submit MUST NOT be password protected OR a “read only” file.
Your examination answer file WILL NOT be marked if:
• you submit the incorrect examination answer file;

• you submit a password-protected document;

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• you submit your examination answer file late.

• The mark awarded for an incomplete examination answer file submission will be your final
mark. You will not be allowed to resubmit after the scheduled closing date and time of the
exam.
• The mark awarded for an illegible examination answer file submission will be your final mark.
13. If your answers are typed, ensure that the following requirements are adhered to.
• The text must be typed in Arial font, size 12.
• Single line spacing within the paragraph, and double line spacing after the paragraph.
• The text must be justified.
• All the pages must be numbered in the right-hand corner at the bottom of the page.
• All margins must be 2.5cm, but the left margin must be 3cm.
• South African English and not American English should be used. For example, the correct
• Do not use abbreviations or SMS language.
14. All quotes that are two lines long (or less), must form part of the main text, be written in italics,
and be bracketed by “quotation marks”. Where a quotation is longer than two lines, it must be
typed in a separate paragraph in italics in size 11 font and must be indented by 1 cm. No quotation
marks are required when the quotations stand alone. Use quotations very sparingly. In this take-
home exam, a maximum of 5% of the text may be quoted.
an open-book exam, you need not memorise any information. You are expected to prove that you
can use information, rather than merely repeat it. In brief, what is being tested is factual
knowledge, understanding and the correct application thereof, not memory skills. For this reason,
you do not earn marks by merely detailing a list of all the information that you think might be
relevant to a particular question. This gives no indication that you know what statutory or other
provisions are applicable in a specific context. You are expected to identify precisely what
information applies, and then explain why you think so.
16. Also, because you have the guide available when answering questions, we do not give marks for
direct quotations from the guide. You are therefore assessed on your level of understanding of
the legal principles by looking at how well you applied the principles to the questions.

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PLEASE DO NOT CUT AND PASTE ANSWERS FROM THE STUDY GUIDE (OR ANY OTHER
SOURCE OR PRESCRIBED MATERIAL).
17. The arguments that you make must be logical, well-structured, and substantiated by all the
relevant legal principles. You are given 4 hours to complete the take-home exam. Use the time
given wisely.
18. Ensure that you give reasons for each answer. Substantiate your answers by referring to ALL
the relevant material, e.g., sections from relevant legislation and/or court cases in the text.
19. You are required to have read and summarised the prescribed cases yourself. The summaries in
the Study Guide are NOT sufficient for this exam.
20. Several students lose marks because they do not approach problem-type questions correctly.
When answering such questions, it is important to first clarify for yourself the area of work where
the answer must be sought. Once you have done this, set out the relevant legal principles. Deal
only with those principles that relate to the given facts. Next, apply these principles to the facts.
This is where most of the students lose marks - they set out the law in some detail, but then do
not illustrate how it applies to the factual situation they have been asked to solve. Finally, state
your conclusion.
21. You must include an Honor Pledge. By including this, you confirm that you have read (i) the
University’s Policy on Copyright Infringement and Plagiarism and the Student Disciplinary Code,
which are both available on myUnisa: www.unisa.ac.za/unisarules, and (ii) the information relating
to student values and plagiarism that is found at
https://www.unisa.ac.za/sites/myunisa/default/Study-@-Unisa/Student-values-and-rules.
22. Students suspected of dishonest conduct during the examination will be subjected to
disciplinary processes. UNISA has zero tolerance for plagiarism and/or any other forms of
academic dishonesty.
PLEASE NOTE:
The following applies to a student who registered for the module for the first semester and was
awarded the deferred exam due to the time-tabled exam being written on a Saturday and the student
has therefore a religious exemption to write it on the alternative day specified:
(i) he or she can utilise the exam opportunity EITHER in this exam OR the October/November 2023
exam sitting. (ii) if he or she chooses not to sit for this exam or fails to submit the examination answers
before the cut-off time, he or she will automatically be admitted to the next examination.

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Questions
1. The requirement of “advantage to creditors” is more strenuous in Voluntary Surrender

than in Compulsory Sequestration. Explain the reasons for this statement. (5)
2. Explain the purpose of a sequestration order. (10)
3. Your grandfather, knowing that you are studying towards your law degree, approaches
you for advice. He informs you that his entire estate is held in a trust. He is however
worried about the fact that he is currently struggling financially and informs you his
creditors are constantly harassing him to make payments of his debts. He now wants to
know from you whether, if things turn worse, his trust will be liquidated (like a company)
or sequestrated (like a debtor in the usual sense of the word).
3.1 Identify the correct case that would correspond to the factual scenario above and
provide the correct citation for the case. (2)
3.2 Give reasons why the court in your case identified above was satisfied that the
applicants had made out a case for the relief sought (the urgent grant of a provisional
sequestration order). Your answer should include the reasons for the court’s finding.
(8)
4. Martin approaches you for advice. He informs you that his brother, Eric, owes him
R24,000 for pool cleaning services rendered by his company. Martin explains to you that
despite various attempts to get Eric to pay his debts, he has yet to make any payment.
Martin is especially upset because he has heard a rumour that Eric owes money to
several people, amongst them a mutual best friend, Kenneth. Kenneth informed Martin
that Eric wrote him a letter stating that he is unable to pay his debts to him (Kenneth)
and asked in the letter whether they could make arrangements to pay him back in
instalments. Martin now wants to know from you whether you can assist him to apply for

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the compulsory sequestration of Eric‘s estate. Explain the conduct above and refer to
relevant legislation. (10)
5. Critically discuss Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC). (15)
6. Regarding meetings of creditors, a “Special Meeting” may be called for one of two
purposes. Discuss each of these purposes. (10)
7. Jack’s estate has been sequestrated. Three creditors, Andrew, Barker and Charlize,
proved their claims against his estate. Jack is indebted to these creditors in the amounts
of R10, 000, R20, 000 and R40, 000 respectively. At the first meeting of creditors,
Vincent was elected as the trustee by Andrew and Barker while Charlize elected Winnie
as the trustee. Who will be appointed as the trustee of Jack’s insolvent estate?
Substantiate your answer. (10)
8. Regarding the Insolvency Act 24 of 1936, distinguish between a common-law

compromise and a section-119 composition. (10)
9. Critically discuss the important issues the court had to consider regarding the abuse of
10. With reference to Close Corporations, explain how many members a Close Corporation
must consist of. In your answer you must refer to whether juristic persons may be
appointed as members. (5)
TOTAL: [100 MARKS]
©
UNISA 2023

MRL3701 MAY JUNE 2023 MEMO
QUESTION 1
1. The requirement of "advantage to creditors" is more strenuous in Voluntary

Surrender than in Compulsory Sequestration for the following reasons:
a) Voluntary Surrender is initiated by the debtor themselves, wherein they voluntarily

hand over their assets and control over their financial affairs to a trustee. In this case,
the burden is on the debtor to demonstrate that the sequestration will be advantageous
to their creditors, as they are essentially seeking the court's assistance in managing
their debts.
b) In Compulsory Sequestration, on the other hand, the sequestration order is usually

initiated by one or more creditors who believe that the debtor is unable to pay their
debts. The court's primary concern in this case is to protect the interests of the
creditors and ensure the fair distribution of the debtor's assets. Therefore, the burden
of proof lies with the creditor to demonstrate that the sequestration would be
advantageous to them and other creditors.
c) The more stringent requirement for advantage to creditors in Voluntary Surrender

arises from the need to prevent any abuse or misuse of the sequestration process.
Since the debtor is actively participating in initiating the process, the court needs to
ensure that it is not being done solely for the debtor's personal benefit or to evade their
responsibilities towards creditors. The advantage to creditors requirement helps
ensure that the debtor's actions are genuinely in the best interests of their creditors.
d) Lowering the burden of proof for advantage to creditors in Compulsory

Sequestration recognizes the inherent financial distress of the debtor and the urgency
in protecting the interests of the creditors. It allows the court to swiftly intervene and
take control of the debtor's assets to prevent further losses or dissipation of funds.

QUESTION 2
The purpose of a sequestration order is to take control of a debtor's assets and

financial affairs in order to ensure a fair and orderly distribution of their assets among
their creditors. The key objectives of a sequestration order include:
a) Fair distribution: A sequestration order aims to prevent a debtor from favoring

certain creditors over others or disposing of their assets in a way that unfairly benefits
specific creditors. By centralizing control over the debtor's assets, the court can ensure
that all creditors are treated equitably and receive a fair share of the debtor's available
resources.
b) Protection of creditors: A sequestration order helps protect the interests of creditors

by preventing the debtor from transferring or dissipating their assets to avoid repaying
their debts. It provides a legal mechanism for creditors to access and recover as much
of their outstanding debts as possible.
c) Efficient debt resolution: By consolidating the debtor's assets under the control of a
trustee, a sequestration order facilitates a more efficient and coordinated process for
resolving the debtor's debts. The trustee can assess the debtor's financial situation,
collect and liquidate assets, and distribute the proceeds to creditors according to the
established priority rules.
d) Rehabilitation and fresh start: In some cases, a sequestration order can also help
debtors obtain a fresh start by discharging them from their debts once the
sequestration process is completed. This allows the debtor to regain control over their
financial affairs and start anew, without the burden of overwhelming debts.
QUESTION 3

QUESTION 4
Based on the information provided, Martin is considering applying for the compulsory
sequestration of Eric's estate due to his outstanding debt. Compulsory sequestration
is a legal process where a court orders the debtor's assets to be liquidated in order to
pay off their debts.
In this case, Martin would have to prove that Eric is unable to pay his debts and that
the compulsory sequestration is necessary. One factor supporting this is the letter Eric
sent to Kenneth, admitting his inability to pay the debts and requesting installment
arrangements.
The relevant legislation regarding compulsory sequestration in South Africa is the

Insolvency Act, 1936. Section 9 of the Act provides for the grounds on which a person
may be declared insolvent, including:
1. Inability to pay debts: If a debtor is unable to pay his debts within a reasonable time.
2. Proof of debt: If the debtor has admitted in writing that he cannot pay his debts, as
demonstrated by the letter Eric sent to Kenneth.
To apply for compulsory sequestration, Martin would need to approach a court and
present evidence of Eric's outstanding debt, his inability to pay, and the letter admitting
his financial situation. If the court is satisfied with the evidence and finds that the
compulsory sequestration is justified, they may order the liquidation of Eric's assets to
pay off his debts.
It is important to note that the process of compulsory sequestration can be complex

and time-consuming, and legal advice should be sought to ensure that all
requirements are met and the application is properly prepared.

QUESTION 5
The case of Sarrahwitz v Maritz NO and Another is a significant decision by the

Constitutional Court of South Africa in 2015. In this case, the Constitutional Court had
to consider the constitutionality of the so-called "Surrogacy Act" and its compatibility
with the rights protected under the Constitution of South Africa.
The Surrogacy Act allowed for surrogacy agreements, which involved a surrogate
mother carrying a child on behalf of another individual or couple. The Act had certain
requirements, such as the need for the commissioning parent(s) to be unable to
conceive and carry a child themselves, and the surrogate mother had to voluntarily
and without inducement agree to enter into the agreement.
The main issue before the Constitutional Court in this case was the legality of denying
unmarried couples the right to enter into surrogacy agreements. The Act limited the
right to enter into surrogacy agreements to married couples, excluding unmarried
couples and single individuals.
The Constitutional Court, in a unanimous decision, found this limitation to be

unconstitutional and therefore invalid. The Court held that the restriction unfairly
discriminated against unmarried couples, as it denied them the same rights as married
couples when it came to starting a family through surrogacy. The Court stated that the
limitation in the Act failed to pass the test of constitutionality as it did not serve a
legitimate government purpose.
The decision of the Constitutional Court in Sarrahwitz v Maritz NO and Another is

significant for several reasons. Firstly, it reinforces the principle of equality enshrined
in the South African Constitution. The Court emphasized that everyone, regardless of
their marital status, should be treated equally when it comes to the right to start a
family through surrogacy.

Secondly, the case highlights the importance of reproductive rights in South Africa.
The Constitutional Court recognized that the right to start a family is a fundamental
aspect of reproductive autonomy. By striking down the restriction on unmarried
couples, the Court affirmed that reproductive choices should not be limited based on
marital status.
However, while the decision in this case is significant in promoting equality and
reproductive rights, it also raises questions and concerns. The Court's reasoning
implies that any distinction between married and unmarried couples could potentially
be seen as unconstitutional. This could have broader implications for other areas of
law that differentiate between married and unmarried couples, such as inheritance
rights or adoption laws.
Additionally, the Court's decision did not provide guidelines for regulating surrogacy
agreements. While the Act was found to be unconstitutional, the Court did not suggest
how the legislation should be amended to address the issue. This leaves a gap in the
law and creates uncertainty for potential surrogacy arrangements.
In conclusion, Sarrahwitz v Maritz NO and Another is an important decision that

upholds the principles of equality and reproductive rights in South Africa. By striking
down the limitation on unmarried couples' access to surrogacy agreements, the
Constitutional Court ensures that all individuals, regardless of their marital status, can
exercise their right to start a family. However, the decision also raises concerns
regarding potential implications for other areas of law and the lack of guidance on
regulating surrogacy agreements in the future.
QUESTION 6
A "Special Meeting" of creditors may be called for one of two purposes:

1. Decision-Making: The first purpose of a special meeting of creditors is to make

important decisions or take necessary actions that require the approval or participation
of the creditors. These decisions could include approving a proposed debt
restructuring plan, agreeing to a settlement proposal, or making crucial changes to the
terms of a loan agreement. The meeting provides an opportunity for the creditors to
voice their opinions, ask questions, and vote on the proposed matters. It ensures that
the collective interests of the creditors are considered and allows them to have a say
in important financial matters that may impact their rights and claims.
2. Information Sharing and Updates: The second purpose of a special meeting of

creditors is to provide information and updates regarding the financial status, progress,
or developments of the debtor. This meeting serves as a platform for the debtor to
communicate significant updates, such as any changes in the business operations,
financial difficulties faced, or potential measures to be taken. It allows the creditors to
stay informed about the debtor's situation, understand the implications for their claims,
and make informed decisions about their involvement in the proceedings.
Overall, special meetings of creditors serve as a means to foster communication,

transparency, and collective decision-making among the creditor body. They ensure
that creditors have an opportunity to participate actively in the resolution of financial
issues and that they remain informed about the debtor's affairs.
QUESTION 7
Based on the information provided, Vincent was elected as the trustee by Andrew and
Barker, while Charlize elected Winnie as the trustee. It seems that there is a
disagreement among the creditors regarding the appointment of the trustee.
In such cases, the decision on the appointment of the trustee is usually made by the
Master of the High Court or the relevant insolvency authority. The Master or the

insolvency authority will consider various factors, including the interests of the
creditors and the qualifications and suitability of the proposed trustees.
It is not possible to determine with certainty who will be appointed as the trustee of
Jack's insolvent estate without further information about the decision made by the
Master or the relevant insolvency authority.
QUESTION 8
In the context of the Insolvency Act 24 of 1936, both a common-law compromise and
a section-119 composition are methods of reaching a settlement between a debtor
and their creditors. However, there are some key differences between the two:
1. Definition:
- Common-law compromise: A common-law compromise refers to an agreement

reached between the debtor and their creditors outside the framework of the
insolvency legislation. It is based on the principles of contract law and is independent
of the provisions in the Insolvency Act.
- Section-119 composition: A section-119 composition, on the other hand, specifically

refers to a formal arrangement regulated by section 119 of the Insolvency Act. It allows
a debtor to propose a composition to their creditors, seeking their agreement to a
specific percentage of payment in satisfaction of all or part of their debts.
2. Requirements:
- Common-law compromise: There are no specific statutory requirements for a

common-law compromise. The terms and conditions are negotiated between the
debtor and their creditors and are based on their mutual agreement.
- Section-119 composition: In contrast, a section-119 composition requires certain

statutory conditions to be fulfilled. This includes a formal proposal to all creditors,

which must be approved by a majority in number and value of the creditors present at
a properly convened meeting.
3. Legal Effect:
- Common-law compromise: A common-law compromise relies on the principles of

contract law. Once agreed upon by the parties, it becomes binding and enforceable,
and the debtor will be released from their obligations in accordance with the terms of
the compromise.
- Section-119 composition: A section-119 composition, when accepted by a majority

of creditors, is binding on all creditors, even if they did not vote in favor of it. It binds
the debtor to make the agreed payment and discharges them from the debts covered
by the composition.
4. Court Involvement:
- Common-law compromise: A common-law compromise does not require court

involvement unless the parties choose to approach the court for confirmation or
enforcement of the compromise agreement.
- Section-119 composition: A section-119 composition requires court approval. The

debtor must apply to the court for an order sanctioning the composition, and the court
will consider its fairness and reasonableness before granting approval.
In summary, a common-law compromise is an agreement reached outside the

Insolvency Act, based on contract law principles, whereas a section-119 composition
is a statutory arrangement specifically regulated by the Insolvency Act, requiring court
approval and binding on all creditors.
QUESTION 9
In Ex Parte Snooke 2014 (5) SA 426 (FB), the court was faced with a case involving
the abuse of the sequestration process. Sequestration is a legal process where a

person's assets are taken away and administered by a trustee to pay off debts owed
to creditors. This case raises several important issues that the court had to consider.
One of the key issues in this case is the abuse of the sequestration process. The court
had to determine whether the debtor in this case had engaged in fraudulent conduct
or misrepresentation to obtain sequestration orders against their own estate.
Sequestration should only be granted if the debtor is genuinely unable to meet their
financial obligations, and any abuse of the process undermines the integrity of the
system.
Another important issue in this case is the role of the court in ensuring procedural
fairness in sequestration proceedings. The court had to assess whether proper
procedural requirements were followed and whether there was sufficient evidence to
support the sequestration orders. This includes evaluating whether the debtor was
given notice of the proceedings and had an opportunity to present their case. If the
court finds that procedural irregularities occurred, it may set aside the sequestration
orders.
The court also had to consider the rights and interests of the creditors in this case.
Sequestration is a mechanism to ensure that creditors can recover at least some of
the debts owed to them. However, if the sequestration process is abused, it may result
in unfair treatment of creditors. The court had to carefully balance the interests of the
creditors with the need to prevent abuse of the process, ensuring that legitimate claims
were not overlooked.
Furthermore, the issue of accountability and potential sanctions for the debtor's abuse
of the sequestration process arises. If the court finds that the debtor engaged in
fraudulent conduct or misrepresentation, it may impose penalties on the debtor, such
as reversing the sequestration orders, imposing costs, or even pursuing criminal

charges. This ensures that those who abuse the sequestration process face
appropriate consequences for their actions.
In conclusion, the court in Ex Parte Snooke 2014 (5) SA 426 (FB) had to critically
consider issues surrounding the abuse of the sequestration process. These issues
included determining if there was fraudulent conduct or misrepresentation, evaluating
procedural fairness, balancing the rights and interests of the creditors, and imposing
accountability for the debtor's actions. By addressing these important issues, the court
sought to uphold the integrity of the sequestration process and protect the rights of all
involved parties.
QUESTION 10
A Close Corporation is a type of business structure that is recognized in some

jurisdictions, allowing for a small group of individuals to form a corporation. In most
cases, a Close Corporation must consist of at least one member.
However, the specific requirements regarding the number of members may vary based
on the jurisdiction and its laws governing Close Corporations. Some jurisdictions may
require a minimum of two members, while others may allow for a single-member Close
Corporation.
As for juristic persons, which refer to legal entities such as corporations or

organizations, their appointment as members of a Close Corporation may depend on
the jurisdiction. In some jurisdictions, only natural persons (human individuals) are
allowed to be members of a Close Corporation. This means that only individuals can
hold ownership and management interest in the corporation.
On the other hand, in some jurisdictions, juristic persons may be appointed as

members of a Close Corporation. This allows for corporations, partnerships, or other

legal entities to hold ownership and management interest in the corporation. In such
cases, the Close Corporation may consist entirely of juristic persons or a combination
of juristic persons and natural persons.
It is important to note that when juristic persons are allowed as members of a Close
Corporation, there may be additional regulations or requirements imposed. These
regulations may vary from jurisdiction to jurisdiction, and it is essential for those
interested in forming or dealing with a Close Corporation to consult with legal
professionals or relevant authorities to understand the specific rules and regulations
applicable in their jurisdiction.

October / November 2022
MRL3701
Insolvency Law
100 Marks
4 Hours

Second examiner: Mrs Z Mabe

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Instructions:

THIS PAPER CONSISTS OF 10 PAGES.

2. It consists of three questions. Answer ALL the questions.
3. The duration of the examination is 4 hours. In addition to the duration of the examination
indicated on the timetable, you are given 30 minutes to FINALISE the uploading of
your exam file. Your take-home exam answer sheet must be submitted via myExams on 27
October before 16:45 (South African Standard Time).
examination.
5. This examination is proctored (invigilated). If you DO NOT use the invigilator app, your mark will
be withheld.
5.1 You must activate the invigilator app between 12:00 and 12:45 (South African Standard Time).
5.2 If you experience any difficulties with the invigilator app, please send a message to the following
WhatsApp number for assistance before 12:45: +27 73 505 8273.

6. Your answer file to this take-home examination must be submitted online on the myExams
platform.
6.1 When ready to submit, open the Take-Home (Assignment) assessment again and click on
the Add Submission button. Note: You only get 15 minutes after the due time to submit
your script on the Invigilator App and 30 minutes on the myExams portal.

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6.2 Note the file requirements such as:

a. File size limit.
b. Number of files that can be submitted.
c. File formats allowed.
6.3 Check the acknowledgement checkbox and upload your answers document and then click
on the Save changes button.
6.4. Review your submission information regarding the status and click on your submission
file link to check if it's correct.

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6.5. If you need to resubmit a file, you can click on the Edit Submission button. Note: You will
need to delete any existing files.
6.6. Use proper PDF conversion software to create the final file for upload. Free PDF conversion
software is available on the Internet.
6.7 Add your student number and the module code in the file name. That will assist you to select
the correct document to upload during submission.

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6.8 You are advised to preview your submission (answer script) to ensure legibility and that
the correct answer script file has been uploaded.
accepted.
9. Whether your answers are typed or handwritten, your submission on the myExams platform must
be made in the form of one PDF document not exceeding 50 MB in size.
9.1 The exam answer file that you submit MUST NOT be password protected OR uploaded as a
“read only” file.
9.2 Your examination answer file WILL NOT be marked if:
9.2.1 you send your examination answer file via email;
9.2.2 you submit the incorrect examination answer file;
9.2.3 you submit a password-protected document;
9.2.4 you submit your examination answer file late.
9.3 The mark awarded for an incomplete examination answer file submission will be your final
exam.
10 If your answers are typed, ensure that the following requirements are adhered to.
10.1 The text must be typed in Arial font, size 12.
10.2 Single line spacing within the paragraph, and double line spacing after the paragraph.
South African English and not American English should be used. For example, the correct spelling is
“Labour” and not “Labor”.
All quotes that are two lines long (or less), must form part of the main text, be written in italics, and be
bracketed by “quotation marks”. Where a quotation is longer than two lines, it must be typed in a

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separate paragraph in italics in size 11 font and must be indented by 1 cm. No quotation marks are
required when the quotations stand alone. Use quotations very sparingly. In this take-home exam, a
maximum of 5% of the text may be quoted.
11. When answering the take-home exam questions, remember that an open-book exam is a test at
a higher level than the usual type of exam, where memory is tested as much as insight. In an
open-book exam, you need not memorise any information. You are expected to prove that you
13. The arguments that you make must be logical, well-structured and substantiated by all the relevant
legal principles. You are given 4 hours to complete the take-home exam. Use the time given
wisely.
14. Ensure that you give reasons for each answer. Substantiate your answers by referring to ALL the
relevant material, e.g. sections from relevant legislation and/or court cases in the text.
16. A number of students lose marks because they do not approach problem-type questions correctly.
your conclusion.

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17. By ticking the Honor Pledge, you confirm that you have read (i) the University’s Policy on
Copyright Infringement and Plagiarism and the Student Disciplinary Code, which are both
18. Students suspected of dishonest conduct during the examination will be subjected to disciplinary
processes. UNISA has zero tolerance for plagiarism and/or any other forms of academic
dishonesty.
PLEASE NOTE:
If you experience challenges with the Invigilator app, please send a WhatsApp message to the
technical helpdesk on 073 505 8273. Do not contact the lecturers.
For all other exam-related challenges, you may contact the SCSC on 080 000 1870 or e-mail

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Question 1
1.1 Explain the concept "concursus creditorum" as well as what it presupposes. (5)
1.2 ABC Ltd is a British company that owns property which is lying in a warehouse in Cape
Town harbour. ABC Ltd does not have a place of business in South Africa. Will the
Western Cape High Court, Cape Town, have jurisdiction to sequestrate ABC Ltd.’s
estate? (5)
1.3 Fred approaches you for advice. He informs you that Jenna owes him R24 000 for
cleaning services rendered by his company. Fred explains to you that despite various
attempts to get Jenna to pay her debts over several months, she has yet to make any
payment. Fred is especially upset because he has heard a rumour that Jenna has a
sister living in the United States of America, and so as to avoid creditors‘ claims on her
outstanding debts, she wants to send some of her property to her sister in Las Vegas to
keep safe on her behalf.
Fred wants to know from you whether you can assist him to apply for the compulsory
sequestration of Jenna‘s estate. Refer to the relevant act of insolvency, including a
reference to the relevant legislation. (10)
1.4 Discuss Amod v Khan 1947 (2) SA 432 (N). (10)
1.6 Benny works as a CEO at BIG Pty (Ltd). Benny is married to Maggy in community
of property, and they have been married for seven years. The couple does not own
a house but rent a very expensive apartment in Sandton for R20, 000 a month. As
Benny has a taste for expensive things, nine months ago he purchased a 2021

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Toyota SUV for R 3, 000 000 financed by Rand Bank, which duly registered security
over the car. In terms of the loan agreement, Benny is expected to pay R43, 000
every month for five years. However, Benny missed two months of his payment to
the bank. Benny has also not paid rent for the last three months. Realising his
financial difficulties, Benny resorts to launching an application to voluntarily
surrender his estate. Mr Mpho, the trustee of Benny’s insolvent estate, believes it
would be in the best interest of creditors to repudiate the contract with Rand Bank.
Discuss the legal implications should Mr Mpho repudiate this contract. In your
answer, reflect on the trustee’s position in relation to uncompleted contracts, and the
consequences thereof. (10)
Question 2
2.1 Regarding meetings of creditors, and with reference to a “General Meeting” discuss
when the meeting may be convened, what the purpose of the meeting is, and how it
must be convened. (5)
2.2 With reference to voidable dispositions, discuss Pretorius‘ Trustee v Van Blommenstein
1949 (1) SA 267 (O). (10)
2.4 Provide reasons why an insolvent person is prohibited from holding certain offices. (5)

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Question 3
3.1 Lerato owns a solar installation and maintenance business. During the COVID-19
pandemic lockdown period, her business suffered financially. As a result, her estate has
been provisionally sequestrated. Lerato’s trustee informs her that she may enter some
form of arrangement with her creditors to stop the sequestration process from running
its full course. Advise Lerato on the two forms of arrangements that she may enter into
with her creditors. In your answer explain the differences between the two procedures.
(10)
3.2 Critically discuss the legal principles set forth in Rand Air (Pty) Ltd v Ray Bester
Investments (Pty) Ltd 1985 (2) SA 345 (W) regarding the need to establish a “just and
equitable” ground for the winding up of a company. (10)
3.3 Explain briefly when a company is deemed to be unable to pay its debts. (5)
TOTAL MARKS: [100]
©
UNISA 2022

0CTOBER/ NOV 2022

QUESTION 1
1.1 Explain the concept "concursus creditorum" as well as what it presupposes. (5)
> Well 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.
> The term “concursus creditorum” means that upon the granting of a sequestration order (or
provisional order) “coming together of creditors” is established, and the interests of creditors
as a group enjoy preference over the interests of individual interests. The debtor is divested of
his estate and cannot burden it with any further debts.
> A creditor’s rights to recover his claim in full by judicial proceedings is replaced by the right,
on proving a claim against the insolvent estate, to share with all other proved creditors in the
proceeds of the estate assets. Apart from what is permitted by the Insolvency Act, nothing may
be done which would have the effect of diminishing the estate assets or prejudicing the rights
of creditors. Walker v Syfret NO 1911 AD 141
1.2 ABC Ltd is a British company that owns property which is lying in a warehouse in
Cape Town harbour. ABC Ltd does not have a place of business in South Africa.
Will the Western Cape High Court, Cape Town, have jurisdiction to sequestrate
ABC Ltd.’s estate? (5)
> well as this company cannot be wound up under the Companies Act as it has no place of
business in South Africa it is therefore a “debtor” for the purposes of the Insolvency Act (section
2 "debtor") and its estate may therefore be sequestrated by a High Court in South Africa.
> Max Ltd owns property situated in the jurisdiction of the Cape Provincial Division of the High
Court and so the Cape court will have jurisdiction to sequestrate the company’s estate (s
ection149(1)(a)).
1.3 Fred approaches you for advice. He informs you that Jenna owes him R24 000 for
cleaning services rendered by his company. Fred explains to you that despite
various attempts to get Jenna to pay her debts over several months, she has yet
to make any payment. Fred is especially upset because he has heard a rumour
that Jenna has a sister living in the United States of America, and so as to avoid
creditors‘claims on her outstanding debts, she wants to send some of her property
to her sister in Las Vegas to keep safe on her behalf.
Fred wants to know from you whether you can assist him to apply for the compulsory
sequestration of Jenna‘s estate. Refer to the relevant act of insolvency, including
a reference to the relevant legislation. (10)

In answering Fred, I would refer to Section 9(1) it allows proceedings for the compulsory
sequestration of a debtor’s estate. Court must be satisfied that:
 The applicant has established a claim which entitles him, in terms of s9(1) to apply for
sequestration of the debtor's estate.
 the debtor has committed an act of insolvency or is insolvent
 there is reason to believe that it will be to the advantage of creditors of the debtor if his
estate is sequestrated (s12(1)) Onus of satisfying court on these three matters rests
throughout on the sequestrating creditor Fred.
Considering the facts in the case,
Fred has a valid claim in terms of the services he provided to his brother. This satisfies the
first requirement. In terms of section 8(c), a debtor commits an act of insolvency if he
makes, or attempts to make, a disposition of any of his property which has or would have
the effect of prejudicing his creditors or of preferring one creditor above another.
Jenna committed act of insolvency when he moved from Johannesburg to Cape town. Only
the effect of the disposition need be considered, and it does not matter if the debtor acted
on purpose or recklessly as his intention is irrelevant. 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 the creditors. The onus of establishing an advantage remains on the
sequestrating creditor even if the debtor committed an act of insolvency.
 Therefore, I assist him to apply for the compulsory sequestration of Benson’s estate
1.4 Discuss Amod v Khan 1947 (2) SA 432 (N). (10)
In this case, the debtor had a claim against the applicant’s son which was larger than the claim
of the applicant against the debtor. The sequestration of the debtor’s estate would have meant
that he himself (the debtor) would no longer have been able to enforce his claim against the
son. In the circumstances, sequestration would not have been to the advantage of the
creditors (of the debtor) as a group.
The applicant’s correct remedy was to take out a warrant for the execution of his judgment
against the debtor, and then have the debtor’s claim against the applicant’s son attached in
payment of the judgment debt. The court went further in giving reasons for its judgment. Even
if it were assumed that sequestration would have been to the advantage ofthe creditors, it was
clear that the applicant had brought the application with the exclusive aim of preventing the
debtor from enforcing his claim against the applicant’s son.
That amounted to an abuse of the court process, and for that reason the court should in any
event exercise its discretion against the applicant
Section 27 deals with ante nuptial contracts (ANC).
 The provisions stipulate the position when women receive benefits under an antenuptial
contract, and in insolvency law. Section 27(1) provides:

No immediate benefit under a duly registered antenuptial contract given in good faith by a man
to his wife or any child to be born of the marriage shall be set aside as a disposition without
value, unless that man's estate was sequestrated within two years of the registration of that
antenuptial contract The reference “wife” may render the section constitutionally invalid
because of the equality clause in the Bill of Rights In order for section 27 to take effect, the
following requirement have to be met:
>The disposition must be an “immediate benefit”.
> the disposition must have been given in good faith; and lOMoAR cPSD|15070327 >
the ANC must have been duly registered at least two years before sequestration.
Well accordingly, the protection of the benefits is restricted to married women and children
born in wedlock. Therefore, benefits and gifts received by other groups of people may be set
aside. It is apparent that this conflicts with section 9(3) of the Constitution as the provision
discriminates on these bases:
> Marital status, the benefit to the wife will be protected only if the man's estate is sequestrated
and not when the wife's estate is sequestrated. Spouses are not treated equally. > Sexual
orientation, same-sex partners in a Civil Union are excluded.
> Birth, adopted child, children born out of wedlock and children born by way of artificial
insemination are also not considered
1.6 Benny works as a CEO at BIG Pty (Ltd). Benny is married to Maggy in community of
property, and they have been married for seven years. The couple does not own a
house but rent a very expensive apartment in Sandton for R20, 000 a month. As
Benny has a taste for expensive things, nine months ago he purchased a 2021
Toyota SUV for R 3, 000 000 financed by Rand Bank, which duly registered security
over the car. In terms of the loan agreement, Benny is expected to pay R43, 000
every month for five years. However, Benny missed two months of his payment to
the bank. Benny has also not paid rent for the last three months. Realising his
financial difficulties, Benny resorts to launching an application to voluntarily
surrender his estate. Mr Mpho, the trustee of Benny’s insolvent estate, believes it
would be in the best interest of creditors to repudiate the contract with Rand Bank.
Discuss the legal implications should Mr Mpho repudiate this contract. In your answer,
reflect on the trustee’s position in relation to uncompleted contracts, and the

consequences thereof. (10)
(1) The trustee may elect to perform in terms of the contract or not and the only power he
has is to exclude the right of the other party to invoke the remedy of specific performance.
Once the trustee has elected to repudiate or continue the contract, he cannot change his mind.

If he fails to reach a decision within a reasonable amount of time, it is assumed he does not
intend to perform in terms of the contract.
(2) The trustee is given this power so that he may act in the interest of the concursus
creditorum. Repudiation is a breach of contract in that the repudiating party indicates by words
or conduct that he does not intend to perform his obligations under the contract. Repudiation
the opposite party, in this case the Rand Bank, to the contract the right to claim the
appropriate remedies for breach of contract.
(3) The consequences of repudiating a contract are that if the trustee elects to repudiate
the contract, the opposite party is precluded from obtaining an order of specific performance,
even if he has performed his own obligations in full. However, he may exercise the other
remedies for breach of contract. In this regard, the trustee’s act of repudiation is visited with
the same consequence as an unlawful repudiation by a solvent party. If the opposite party, in
this regard Rand Bank, chooses to disregard the repudiation and keep the contract alive, he
may prove a concurrent claim for damages in lieu of performance. He then remains liable for
and must render, his own counter performance.
Question 2
2.1 Regarding meetings of creditors, and with reference to a “General Meeting” discuss
when the meeting may be convened, what the purpose of the meeting is, and how
it must be convened. (5)
The trustee may at any time convene a meeting of creditors called a general meeting for the
purpose of giving him instructions concerning any matter relating to the administration of the
estate (s 41), for instance, where the directions given at the second meeting do not cover the
matter in question.
He is obliged to call a general meeting if required to do so by the Master or by creditors
representing one-fourth of the value of all claims proved against the estate (ibid). A meeting
called for the purpose of considering an offer of composition is a general meeting (Mia v The
Master & others 1940 TPD 86; Ilic v Parginos 1985 (1) SA 795 (A) 803). The trustee is obliged
to call this meeting when he informs creditors of the offer of composition (s 119(5)).
2.2 With reference to voidable dispositions, discuss Pretorius‘ Trustee v Van
Blommenstein 1949 (1) SA 267 (O). (10)
Well in this case the trustee, the insolvent bought a lorry and, sometime later, pledged it to
secure payment of the price. He concluded the pledge because the seller had sued for the
price and was only prepared to give an extension of time for payment if he received real
security. The court held that, although it would not generally be in the ordinary course of
business for a debtor to give a pledge for a debt which he had incurred earlier, here the
insolvent had had little choice and had acted as an ordinary man of business would have
done.

>The transaction diminished the debtor's assets

>The person who received from the debtor did not receive his own property
>There was an intention to defraud; >The
fraud took effect.
 If the disposition is made for countervalue, the requirements for the actio Pauliana are
stricter than those for a disposition without value. It must be proved that the insolvent
had the intention to defraud the creditors and that the party who benefited from the
transaction knew of this intention and was a party to the fraud.
2.4 Provide reasons why an insolvent person is prohibited from holding certain offices.
(5)
> An insolvent is prohibited from holding some offices if there is a possibility of prejudice to
the public interest, if a great amount of trust and responsibility is required, or if the possibility of
dishonest business practices exists.
> The common denominators in these offices are honesty and trust. Sometimes there is an
accumulation of circumstances over which the debtor had no control which led to his
insolvency. But very high expectations are placed on members of the National Assembly, and
it is therefore reasonable to prohibit a person who is insolvent from serving as a member.
Question 3
3.1 Lerato owns a solar installation and maintenance business. During the COVID-19
pandemic lockdown period, her business suffered financially. As a result, her
estate has been provisionally sequestrated. Lerato’s trustee informs her that she
may enter some form of arrangement with her creditors to stop the sequestration
process from running its full course. Advise Lerato on the two forms of
arrangements that she may enter into with her creditors. In your answer explain
the differences between the two procedures. (10)
(A) common law compromise, If the disposition is made for countervalue, the requirements
for common law also known as actio Pauliana are stricter than those for a disposition without
value. It must be proved that the insolvent had the intention to defraud the creditors and that
the party who benefited from the transaction knew of this intention and was a party to the fraud
(B) she would have to meet the easier requirements for entering a composition with his
creditors under section 119 of the Insolvency Act:
(1) Where an offer of composition provides for the giving of security, the nature of the
security should be specified fully and, if the security is to consist of a surety bond or
guarantee, every surety should be named.

(2) An offer of composition may not be accepted if it contains a condition entitling one
creditor to obtain as against another creditor a benefit to which the former would not have
been entitled upon the distribution of the estate in the normal way.
(3) A condition which makes an offer of composition subject to the rehabilitation of the
insolvent is of no effect.
>There are two basic differences between the two forms of composition. The first difference
has to do with the legal basis of the two forms of composition: the one is based on the law of
contract, but the other is statutory. The second difference concerns the requirement for
acceptance: the one form of composition requires the written consent of all the concurrent
creditors, but the other is based on a statutory mechanism by which the majority of creditors
binds the minority
Winding-up on the ground that it appears just and equitable is an independent ground which is
not limited by the other grounds, but at the same time it is not an unlimited or “catch-all”
ground. In Rand Air (Pty) Ltd v Ray Bester Investments 1985 (2) SA 345 (W), an attempt to
rely on this ground as an alternative to the ground that the company was unable to pay its
debts proved unsuccessful. There is no closed group of situations in which it will be just and
equitable to wind up a company, and the courts accordingly still have a discretion to identify
new situations.
But some categories have already crystallised in case law, and, as also appears from Rand Air
(Pty) Ltd v Ray Bester Investments, the courts are slow to extend them. In this case, the court
set out the following categories:
(a) If the main object for which the company was formed can no longer be attained. In such
a case, it is said that the company’s substratum has disappeared. This happened in In re
Rhenosterkop Copper Co 1908 CTR 931, because the land on which the company was to
conduct mining operations contained no minerals
(b) If the company’s objects are illegal, or if the company was formed to defraud the
persons invited to subscribe for its shares
(c) If there is a justifiable lack of confidence in the way in which the directors are managing
the company’s affairs. This situation arose in Moosa NO v Mavjee Bhawan (Pty) Ltd and
another 1967 (3) SA 131 (T), where a director had misled members about the advisability of a
transaction because he wished to make a profit at the company’s cost
(d) If there is a deadlock in the management of the company: the voting power in the board
of directors and the general meeting is divided, and winding-up is the only solution

(e) If the company is a quasi-partnership and grounds exist on which a partnership could
be dissolved. This situation is encountered where the personal relationship between the
members is based on good faith.
(f) If the minority shareholders are oppressed by the controlling shareholders. Winding-up
will be just and equitable only if the oppression cannot be removed by another suitable
remedy.
In terms of section 345 of the Companies Act, a company is deemed unable to pay its debts if
(a) a creditor having a claim of at least R100 which is already due leaves a demand at the
company’s registered office and the company for three weeks after that has failed to pay the
claim, to give security for it, or to compromise it to the satisfaction of the creditor, or
(b) a warrant of execution or other process issued on a judgment against the company has
been returned by the sheriff with an endorsement that he did not find disposable property
sufficient to satisfy the judgment, or that the disposable property which he found did not,
upon sale, satisfy the process, or
(c) it is proved to the satisfaction of the court that the company is unable to pay its debts.
THE END!!!

May / June 2022
MRL3701
Insolvency Law
100 Marks
4 Hours


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Instructions:

THIS PAPER CONSISTS OF NINE (9) PAGES.

2. It consists of three questions. Answer ALL the questions.
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myExams on 22 June before 19:00 (South African Standard Time).
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exam.

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10 If your answers are typed, ensure that the following requirements are adhered to.
10.1 The text must be typed in Arial font, size 12.
10.2 Single line spacing within the paragraph, and double line spacing after the paragraph.
South African English and not American English should be used. For example, the correct spelling is
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All quotes that are two lines long (or less), must form part of the main text, be written in italics, and be
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open-book exam, you need not memorise any information. You are expected to prove that you

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13. The arguments that you make must be logical, well-structured and substantiated by all the relevant
legal principles. You are given 4 hours to complete the take-home exam. Use the time given
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14. Ensure that you give reasons for each answer. Substantiate your answers by referring to ALL the
relevant material, e.g. sections from relevant legislation and/or court cases in the text.
16. A number of students lose marks because they do not approach problem-type questions correctly.
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Question 1
1.1 Identify the problem / issue that was faced by the court in Magnum Financial Holdings
(Pty) Ltd (in liquidation) v Summerly and another NNO 1984 (1) SA 160 (W) and give
reasons why the court in this case was satisfied that the applicants had made out a case
for the relief sought. (5)
1.2 Dumisani approaches you for advice. He informs you that his brother, Benson, owes him
R24 000 for gardening services rendered by his company. Dumisani explains to you that
despite various attempts to get Benson to pay his debts, he has yet to make any
payment. Dumisani is especially upset because he has heard a rumour that Benson and
his wife have apparently relocated their home from Johannesburg to Cape Town
because his wife is ill and needs medical treatment at a care facility in Stellenbosch.
Dumisani wants to know from you whether you can assist him to apply for the complusory
sequestration of Benson’s estate, because his brother has fled from his home and
therefore his responsibilities. Refer to the relevant act of insolvency, including a
reference to the relevant legislation. (10)
1.3 On 16 August 2018, Absa Bank made an application to the High Court for the
sequestration of Mr Sting’s estate. Absa Bank alleged that Mr Sting owed it over R240
million, plus interest. A candidate attorney, employed by the attorneys representing Absa
Bank, furnished a copy of the notice of motion and the founding affidavit to Mr Sting. The
candidate attorney enquired from Mr Sting whether they had a domestic employee. She
was informed that there was a domestic worker, Ms Lucy, but it was not disclosed that
there were two other domestic workers. The candidate attorney then left a copy of the
petition on the dining table for the identified domestic worker, Ms Lucy, without directing
that Mr Sting bring it to the attention of the domestic worker.
Concerning the above facts explain whether domestic employees are entitled to be
informed of the sequestration of the estate of their employer. In your answer refer to
relevant case law and the relevant provision in the Insolvency Act 24 of 1936. (10)

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1.4 Critically discuss the case of Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC)
with particular reference to the provisions of the Alienation of Land Act 68 of 1981, and
also then include the amendments made to the Alienation of Land Act thereafter. (10)
1.5 The deceased, Mr Legend, who died insolvent, had a policy on his life that had been in
existence for a period longer than three years. A few days before committing suicide he
nominated his wife and son as beneficiaries of the policy.
With reference to legislation and case law, critically analyse the amendments to section
63 of the Long-Term Insurance Act 52 of 1998 in respect of the use of life insurance
policies to defraud the creditors of a deceased insolvent estate. (15)

Question 2
2.1 Regarding meetings of creditors, a “Special Meeting” may be called for one of two
purposes. Discuss each of these purposes. (10)
2.2 With reference to impeachable dispositions, discuss the difference between the trustee’s
powers under section 30 and section 29 of the Insolvency Act. (10)
2.3 Indicate whether the following bonds are “special notarial bonds” or “general notarial
bonds”:
2.3.1 A bond over six lorries owned by the debtor. The details in the relevant bond
include the registration numbers, types of vehicles, colours, chassis numbers, and
engine numbers. (3)
2.3.2 A bond over all the movables owned by the debtor. (2)
Question 3
3.1 Go-Pro Trucking Co (Pty) Ltd owes Lerato R10 000 for some services she rendered to
the company. When Go-Pro Trucking failed to pay her at the end of March 2021 as
agreed, Lerato left a letter of demand for payment at Go-Pro Trucking’s registered office

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in Midrand. After three weeks, the company has not paid Lerato or contacted her
regarding the demand for payment.
Advice Lerato on whether the court can wind up Go-Pro Trucking and if the court can
refuse to grant the order since it seems Go-Pro Trucking’s assets exceed its liabilities.
(10)
3.2 Critically discuss the important issues the court considered regarding the abuse of the
sequestration process in Ex Parte Snooke 2014 (5) SA 426 (FB). (10)
TOTAL: [100]
©
UNISA 2022

NAMES: NKADIMENG NANCY
SURNAME: LEPOTA
STUDENT NUMBER:
69239118
MODULE CODE: MRL3701
DATE: 22 JUNE 2022
QUESTION 1
1.1 In the case of Magnum Financial Holdings v Summerly and Another NNO, the
issue that was faced before the court was whether a trust could, at law, be
sequestrated.
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The court was satisfied that the applicants had made out a case for the relief
sought because:
 A trust qualifies as a debtor under its definition
 Enough service has been rendered of the papers on the trustee of the
trust.
 According to section 8(g) of the insolvency act, the act of insolvency
has been committed and the trust estate was indeed insolvent
 As one of the requirements it was to the advantage og the trust
creditors that its estate should be sequestrated.
1.2
1.3
Mr. Posthumus assured Ms. Sarrahwitz that the house would be transferred
into her name, but he also told her to wait for a call from his attorney, Ms.
Megan Fisher, to help with the transfer—a call that never came. After four
years, Ms. Sarrahwitz has fully paid for and occupied the home owned by Mr.
Posthumus' estate, which was sequestrated. Due to the fact that Ms.
Sarrahwitz had not transferred ownership of the property at the time of
sequestration, it constituted part of the insolvent estate under common law.
The case has three legal questions which are
 The legal question is whether it is constitutionally permissible for
legislation to favour some particularly vulnerable instalment buyers at
the expense of equally vulnerable buyers who pay all at once or pay
within a year.
 if the Equality Clause of the Bill of Rights permits such differentiation
and if it is justified by a rational relationship to a valid governmental
goal?
 If a court may of its own motion raise the defence of prescription?
RATIO
Before the introduction of the protective provisions presently solely enjoyed by
instalment purchasers, the destiny of purchasers in both classes was entirely
at the trustee's discretion. The approach we must take as we read Chapter II
and sections 21 and 22 of the Land Act justifies allowing these constitutional
arguments to be addressed at this time. That approach is laid down in section
39(2) of the Constitution which enjoins us to have regard to the Bill of Rights
as follows: “When interpreting any legislation, and when developing the
common law or customary law, every court, tribunal or forum must promote
the spirit, purport and objects of the Bill of Rights.”
The Land Act, Chapter II. Therefore, the header must be changed to remove
the words "ON INSTALMENTS." To cover buyers who pay the purchase price
in a single payment or in multiple instalments over a year, subsection (2) of
section 4 of the Land Act needs to be added. According to the court, the
common law is inconsistent with several of the aforementioned constitutional
rights, and as a result, it is unconstitutional to the extent that it excludes
someone in her situation from the group of vulnerable buyers of residential

property who are allowed to transfer despite the intervening insolvency of the
seller. Ms. Sarrahwitz's risk of losing her home and being evicted is not due to
her own volition or acts, but rather to his debt. She made reasonable efforts to
ensure that the transfer went through.
It makes sense that "any measure which permits a person to be deprived of
existing access to adequate housing limits the rights protected in section 26"
in light of the alarmingly high rates of homelessness, the near-impossibility of
home loans for the poor, and the significance of the right to access to
adequate housing, section 26(1)
1.4 This question deals with section 63(1) of the Long-term Insurance Act 52 of
1998 as stated, which exempts some insurance benefits from a debtor’s
insolvent estate. The policy benefits provided, to the insolvent under certain
specified insurance policies that have been put into place or rather in force for
at least three years and in which the insolvent or his spouse is the life insured,
are not included from the insolvent estate as stated in section 63(1). The
insolvent estate of the debtor also excludes any assets that the insolvent
obtained solely with these policy benefits within five years of the date on
which they were provided as provided in section 63(2). Such policy benefits or
assets are, however, excluded to an amount of only R50 000 as provided by
section 63(2)(b).
Question 2
2.1 A special meeting may be organised and held for proving claims or for
interrogating an insolvent.
A special meeting for proving claims must be established by the trustee if so is
requested by an interested person, provided that that person cover all the
associated costs to be incurred in connection with that special meeting.
The trustee may arrange a special meeting to question the insolvent if asked
to do so by a creditor who has established a claim against the estate.
However, calling such a special meeting calls for the Master's approval. The
Government Gazette must also receive notice of this meeting from the
trustee, and at such interrogation the provisions of section 65 shall mutatis
mutandis apply.
2.2 Section 29, the trustee has to establish it’s a voidable preference by showing
the disposition had the effect of preferring one creditor above the others, and
in section 30 the trustee must prove the debtor actually intended to prefer one
creditor above the others. The disposition could be annulled as a voidable
preference under section 29 if the trustee could show that the debtor had
more liabilities than assets immediately after the disposition. Firstly, the
regular course of business, which is based on an objective criteria and used
to determine whether the disposition was made in the ordinary course of
business, is an exception to section 29. Also the insolvent will not be
considered to have intended to prefer if it can be proven that, at the time of

the disposition, he did not anticipate or envision sequestration. This is the
second exemption. Whereas with section 30 the test here is subjective, the
test is to determine whether the insolvent had the purpose to prefer is if his
overriding intention in making the disposition was to disrupt the fair distribution
of assets upon insolvency. Therefore, the issue is whether the insolvent
intended to prioritize one creditor above another and whether this was his
major objective. These are the important considerations: first, if the debtor
was in a position to make a free decision at the time of the disposition (if
insolvent made so under duress from the creditor or to avoid prosecution).
The second consideration is whether there is any connection between the
insolvent and the creditor. The third consideration is if the insolvent had
insolvency in mind when making the disposition.
2.3 .1 special notarial bonds

2.3.2 general notarial bonds
Question 3
3.1 The court may wind up a company if it is unable to pay its debts as described
in section 345 (s 344(f) of the Companies Act). Go-Pro Trucking Co (Pty) Ltd
deemed to have failed to pay its debts under section 345 because Lerato,
who is a creditor for a due debt of more than R10 000, left a demand for
payment at the company’s registered office and the company then for three
weeks neglected to pay, protect, or negotiate the claim to Lerato’s satisfaction
(s 345(1)(a)). In light of this, the court's ability to reject a winding-up order is
severely constrained, even though Go-Pro Trucking Co (Pty) Ltd's assets are
worth more than its liabilities. In ABSA Bank Ltd v Rhebokskloof (Pty) Ltd and
others 1993 (4) SA 436 (C), Although the business was financially stable in
other words solvent, the farm's potential was limited (ie, the farm could not
promptly be sold for a purchase price). The fact that the company was solvent
(because its assets far exceeded its debts) did not affect the right of its
creditor, ABSA, to a winding-up order.
3.2
3.3 In terms of section 345 of the Companies Act, a company is deemed unable
to pay its debts if
(a) a creditor with a claim for at least R100 that is past due makes a
demand at the business's registered office, and the company fails to
pay the demand, offer protection for it, or promptly settle it for three
weeks after that
(b) the sheriff returned an execution warrant or other process issued
against the business with an endorsement stating that he did not
discover disposable property sufficient to satisfy the judgment or that
the disposable property he did find did not, upon sale, satisfy the
process.
(c) it is proved to the satisfaction of the court that the company is unable to
pay its debts
Powered by TCPDF (www.tcpdf.org)
January / February 2022
MRL3701
Insolvency Law
100 Marks
24 Hours

INSTRUCTIONS FOR A PORTFOLIO OR TAKE-HOME EXAM ON MYEXAMS
This paper consists of 9 pages.
Instructions:
Be reminded to tick the Honour Pledge (Honesty Declaration) before you submit.
Read the instructions on the platform and specific submission tool carefully.

3. The duration of the examination is 24 hours. Your portfolio must be submitted via myUnisa
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5. This examination is not proctored (or invigilated).
6. SUBMISSION OF YOUR EXAMINATION ANSWER FILE
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6.1 Access myExams at https://myexams.ac.za/portal and login using your student number and
myUnisa password.

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on the title of the assessment in the list. A new page will open.
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must be made in the form of one PDF document.
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9.2.2 you submit the incorrect examination answer file.
9.2.3 you submit your exam answer file on an unofficial examination platform (including the
invigilator cellphone application).
exam.

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OTHER SOURCE).
relevant legal principles. You are given 24 hours (not 2 hours) to complete the take-home
exam. Use the time given wisely.
used.
13. By ticking the Honour Pledge, you confirm that you have read (i) the University’s Policy on
13.1 Students suspected of dishonest conduct during the examination will be subjected to
PLEASE NOTE:

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please apply online for an aegrotat exam within 3 days of the examination session. Include supporting
documentation with your application. Students experiencing technical challenges may contact the
SCSC on 080 000 1870 or email Examenquiries@unisa.ac.za or refer to Get-Help for the list of
additional contact numbers.

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Question 1
1.1 Discuss Epstein v Epstein 1987 (4) SA 606 (C). (10)
1.2 Martin approaches you for advice. He informs you that his brother, Eric, owes him
R24,000 for pool cleaning services rendered by his company. Martin explains to you that
despite various attempts to get Eric to pay his debts, he has yet to make any payment.
Martin is especially upset because he has heard a rumour that Eric owes money to
several people, amongst them a mutual best friend, Kenneth. Kenneth informed Martin
that Eric wrote him a letter stating that he is unable to pay his debts to him (Kenneth)
and asked in the letter whether they could make arrangements to pay him back in
instalments. Martin now wants to know from you whether you can assist him to apply for
the compulsory sequestration of Eric‘s estate. Explain the conduct above and refer to
relevant legislation. (10)
1.3 David works as a Human Resource manager at KIG Pty (Ltd). David is married to Mpho
in community of property and have been married for seven years. The couple does not
own a house but rent a very expensive apartment in Hyde park for R20 000.00 a month.
As David has a taste for expensive things, eight months ago he purchased a 2020 Lexus
SUV for R 2 000 000. 00 financed by First Bank which duly registered security over the
car. In terms of the loan agreement, David is expected to pay R43 000. 00 every month
for five years, however David missed two months of his payment to the bank. David has
also not paid rent for the last three months. Realising his financial difficulties, David
resorts to launching an application to voluntarily surrender his estate. Mr Thipe, the
trustee of David insolvent estate believes it would be in the best interest of creditors to
repudiate the contract with First Bank. Discuss the legal implications should Mr Thipe
repudiate this contract. In your answer, reflect on the trustee position in relation to
uncompleted contracts, and the consequences thereof. (10)

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1.4 Section 27 of the Insolvency Act 24 of 1936 prevents a settlement of property in an

antenuptial contract by a husband on his wife or any child to be born of the marriage
from being set aside as a disposition without value on the husband’s insolvency, if certain
requirements are met. Discuss how section 27 may be discriminatory and may fail
constitutional scrutiny. (10)
1.5 Regarding meetings of creditors, discuss the main differences between the first and
second meeting. (10)
Question 2
2.1 Discuss the instances when a person is absolutely disqualified from being a trustee. (5)
2.2 Regarding Hendriks v Swanepoel 1962 (4) SA 338 (A), discuss whether the specific
transaction in that case was in the ordinary course of business for purposes of section
29 of the Insolvency Act 24 of 1936. (10)
2.3 Leonard approaches you for advice. He informs you that his tenant has not been paying
his rent for the past 7 months. He further informs you that he is still living on the property,
with all his furniture etc., and is refusing to move, since he was recently sequestrated.
By referring to secured creditors and their claims, advise Leonard on his options. (10)

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Question 3
3.1 Explain why an insolvent applying for a declaratory order must notify the creditors of his
intention to do so. (5)
3.3 Explain whether the director of a company may apply for the winding-up of that
company? (5)
3.4 With reference to Close Corporations, explain how many members the Close
Corporation must consist of. In your answer you must refer to whether juristic persons
may be appointed as members. (5)
TOTAL: [100 MARKS]
©
UNISA 2021

STUDENT NO: 12267279

NAME : BOSOGA LINA
MODULE : MRL3701
SUPPLEMENTARY EXAM
DUE DATE : 24 February 2022
QUESTION 1
1.1Epstein v Epstein 1987 (4) SA 606 (C)

The applicant in an application for provisional sequestration order was
respondent’s mother, whom he owed R6000.00 and to whom he wrote
a letter notifying her of his inability to repay her loan, thus committing
an act of insolvency .Respondent’s father in law paid an amount of
R2500.00 into trust account of applicant’s attorney’s distribution
among respondent’s creditors after the sequestration costs had been
met .Aim was to prevent respondent’s imprisonment .Sequestration
costs being estimated at R1500.00 ,a sum of R1000.00 would then
remain for distribution .This is an example of friendly sequestration
.Friendly sequestrations are not precluded from a provisional
sequestration order being granted but courts should scrutinize such
applications with particular care in order to protect the interests of
creditors .Application for a provisional sequestration order was refused
.In a friendly sequestration , the debtor avoids complying with
preliminary formalities for an application of voluntary surrender .
Accordingly , creditors other than the friendly creditor don’t get
advance notice of the application nor can they take notice of debtor’s
financial position , as there is no statement of affairs that lies for
https://www.coursehero.com/file/136069406/MRL3701-INSOLVENCY-LAW-1pdf/

inspection . For these reasons there is a risk that a sequestration order

may be made in circumstances where it would in fact not be in the
interests of the group of creditors as a whole . Although the first two
requirements of granting a provisional sequestration order were
satisfied ,the third requirement relating to advantage to creditors
posed a problem . The concurrent creditors in this case wouldn’t have
received anything out of the estate , because the Receiver to Revenue
had a preferent claim with respect to arrear income tax , which would
in any event have swallowed up everything that might have remained
after payment of the costs of sequestration .
1.2 I would advise him of the requirements for a compulsory
sequestration application . The court may grant the application for
sequestration of the debtor’s estate if its satisfied of the following ;the
applicant has established a claim , which entitles him according to
section 9 (1) to apply for the sequestrationof the debtor’s estate , the
debtor has committed an act of insolvency and also there is reason to
believe that it will be of advantage of creditors .
Requirements
a. Applicant establishes claim
b. Estate is in fact insolvent
Reason to believe sequestration will be of advantage to creditors
Applicant entitled to apply in terms of section 9 (1)
-A creditor who has a liquidated claim against the debtor for not less
than R100
- 2 or more creditors who have a liquidated claim of not less than R200
Section 9 (2) provides that a liquidated claim which has accrued but
isn’t yet due by the time the application is heard must be regarded as

liquidated for these purposes . After the debtor’s estate has been
provisionally sequestrated , the debtor can’t make payment to the
sequestrating creditor to extinguish the debt or lower it under R100 ,
but a third party can make payment on the debtor’s behalf . A creditor
can’t refuse full payment full payment by the third party but may reject
part payment . Where the creditor’s payment is eliminated , another
creditor may intervene and apply for a further provisional order to be
granted . Since all the requirements are met , I believe Martin may
apply for compulsory sequestration since his brother is indeed insolvent
and did not inform him.
1.3 Trustee may elect to perform in terms of the contract or not and
the only power he has is to exclude the right of the other party to
invoke the remedy of specific performance . Once the trustee has
elected to repudiate or continue the contract , he cannot change his
mind . If he fails to reach a decision within a reasonable amount of time
, it is assumed he does not intend to perform in terms of the contract .
The trustee is given this power so that he may act in the interest of the
concursus creditorum . Repudiation is a breach of contract in that the
repudiating party indicates by words or conduct that he does not
intend to perform his obligations under the contract . Repudiation the
opposite party , in this case the First Bank , to the contract the right to
claim the appropriate remedies for breach of contract . The
consequences of repudiating a contract are that if the trustee elects to
repudiate the contract , the opposite party is precluded from obtaining
an order of specific performance , even if he has performed his own
obligations in full . However , he may exercise the other remedies for
breach of contract . In this regard , the trustee’s act of repudiation is
visited with the same consequence as an unlawful repudiation by a
solvent party . If the opposite party , in this regard First Bank, chooses
to disregard the repudiation and keep the contract alive , he may prove

a concurrent claim for damages in lieu of performance . He then

remains liable for and must render , his own counter performance.
1.4 Section 27 provides that only a benefit given by a man to his wife in
an ANC will be saved from being set aside as a voidable dispositionin
the event of his insolvency . In this regard , section 27 discriminates
against both spouses in different respects . Section 27 protects
dispositions only where a man is sequestrated . In this respect , the
wife’s equal rights in a marriage are violated . At the same time , only
the wife can keep benefits given in an ANC . This violates the man’s
equal rights in a marriage . This clearly distinguishes between the
benefits enjoyed by parties in their marriage . This goes against one of
the pivotal features of the prohibition of unfair discrimination on the
ground of marital status ; that all parties to a marriage enjoy equal
rights . Section 27 is considered as a violation of the equality clause in
the constitution . The constitution prohibits against unfair
discrimination between people and invalidates behavior that
disadvantages them in a serious harmful way . Therefore section 27 is
discriminatory and fail the constitutional scrutiny with regards to
equality amongst people .
1.5 Differences between first and second meeting
The first meeting is convened by the master , the second meeting is
convened by the trustee . Second difference is that at the first meeting ,
the creditors elect a trustee whereas at the second meeting they
receive his report and give him directions for the administration of the
estate . The notice differs as well , the notice of the first meeting is only
put in the government gazette in not less than 10 days prior to the
occurrence of the meeting whereas the notice of the second meeting is
put in the gazette and 1 or more newspapers circulating in the district

which the insolvent resides or as a principal place of business in

Afrikaans or English.
QUESTION 2
2.1 A person is absolutely disqualified from being a trustee if she\he is ;

an insolvent , a minor or other person under legal disability ,a person
who resides outside of South Africa , a former trustee disqualified
under section 72 ,a company ,close corporation , or other corporate
body and also a person who has been convicted of theft , fraud ,
forgery , perjury and who has been sentenced to a term of
imprisonment without an option of a fine or to a fine exceeding
R2000.00
2.2 Hendriks v Swanepoel 1962 ( 4) SA 338 (A)
The defendant Swanepoel , has sold 800 sheep to Viviers and granted
several extensions for payment to him . Finally they agreed that
Swanepoel will buy 726 of the sheep back at the same price Viviers
bought them for despite the fact that they were in a much poorer
condition . Viviers gave Swanepoel a postdated cheque for the shortfall
but he died within the next month and his estate was sequestrated .
The trustee of the insolvent estate applied for the agreement to be set
aside as voidable preference . The trial court found in favour of the
defendant and the trustee appealed . The appeal succeeded as it was
not in the ordinary course of business . An objective test must be used
to determine whether the transaction took place in the ordinary course
of business and no regard must be given to the fact that insolvent’s
liabilities exceeded his assets or an intention to prefer . In considering

the transaction in the surrounding circumstances , a Court should at

whether the transaction is one which two solvent business persons
would conclude . The transaction was found to be disadvantageous to
Swanepoel and , viewed from the viewpoint of a solvent business
person ,the transaction was not done in the ordinary course of
business.
2.3 A secured creditor holds security for his claims in the form of special
mortgage , landlord hypothec , pledge or right of retention . I would
advise him to use his right of landlord’s legal hypothec . A landlord who
is owed rent has a hypothec over movable property brought on to
leased premises for the use by his tenant . On insolvency , the landlord
has a secured claim in respect of all movable assets owned by the
insolvent which are covered by the hypothec in terms of section 85 (2) .
A secured creditor is entitled to be paid out of proceeds of the property
under security after payment of certain expenses and any secured claim
which ranks before his . if proceeds of the encumbered property are
insufficient to cover his claim , he then has a concurrent claim for the
balance .
QUESTION 3
3.1 The purpose of the notice is to alert all creditors of the intended
application in case should they wish to oppose it .
3.2 Rand Air (pty) Ltd v Ray Bester Investments (pty) Ltd 1985 (2) SA
345 (W)

In application for the winding up of the respondent company ,

difficulties arose regarding the validity of the grounds for liquidation on
which the applicant relies . The respondent is alleged to be indebted to
the applicant in respect of the hire by the respondent of certain plant
and equipment . Applicant alleged that respondent was unable to pay
its debt in terms of section 344 (h) read with section 345 (1) (a) of the
companies Act . Application was refused and the attempt to rely on
ground of just and equitable as an alternative to ground that company
was unable to pay its debts proved unsuccessful . The inability to pay
referred to in section 345 (1) (a) is the one if , after a demand having
been served on the company by leaving the same as its registered
office , requiring it to pay the sum so due , it fails for 3 weeks thereafter
to pay , secure or compound for it to the reasonable satisfaction of
creditor . A summons isn’t a demand as contemplated in section 345 (1)
(a) as it is a document in which the sheriff is ordered to convey certain
information to the debtor and not a demand to pay addressed to
debtor himself . If the applicant’s real reason for the application is the
company’s inability to pay its debts he should rely on that ground . He
may not allege that it will be to the advantage of the creditors if the
company’s affairs are investigated by a liquidator and that it will
therefore be just and equitable to wind up the company
3.3 The director of the company may apply for the winding up of the
company as it is stated that the parties who may apply for the winding
up of the company are the company , one or more creditors,one or
more of its members the master and a provisional or final judicial
manager


October / November 2021
MRL3701
Insolvency Law
100 Marks
24 Hours

INSTRUCTIONS FOR A PORTFOLIO OR TAKE-HOME EXAM ON MYEXAMS
This paper consists of 9 pages.
Instructions:
Be reminded to tick the Honour Pledge (Honesty Declaration) before you submit.
Read the instructions on the platform and specific submission tool carefully.

This paper consists of nine (9) pages.
3. The duration of the examination is 24 hours. Your portfolio must be submitted via myUnisa
on 8 October 2021 on or before 18:00 (South African Standard Time).
the examination.
5. This examination is not proctored (or invigilated).
6. SUBMISSION OF YOUR EXAMINATION ANSWER FILE
Your answer to this portfolio or take-home examination must be submitted online on the myExams
platform.

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6.1 Access myExams at https://myexams.ac.za/portal and login using your student number and
myUnisa password.
6.2 Go to your specific examination site through the site tabs on the horizontal navigation bar.
Also check your Sites link in the top right-hand corner if you do not find the site on the
horizontal navigation bar.
6.3 Once the site has loaded, select the eAssessment tool from the left-navigation menu
6.4 The list of all available assessments in the site will be displayed.
on the title of the assessment in the list. A new page will open.
6.6 Submit your examination answer file.
You are allowed to attach ONE PDF file.
Under Attachments, click the Choose File button to browse for a file on your device.

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Once you have attached your answer file, the name of the file, as well as the file size and
upload time stamp will be displayed under Attachments.
Tip: You may click Remove to remove the attachment if you selected the wrong file.
Tip: Select the honour pledge. Students MUST check the honour pledge before submission
if it appears on the screen. A student will not be able to submit the assessment if he/she did
not check the honour pledge.
When you are ready and satisfied that you have correct answer file, click the Submit button
to complete your assessment submission.
Tip: If you are not yet ready to submit, you may click Preview to preview the submission, or
Save Draft to save your submission and submit it later. Click Cancel to exit the assessment
without saving or submitting.
You are advised to preview your submission to ensure that it is legible and that the correct
answer file has been uploaded.
Time permitting, you will be allowed to resubmit your exam file twice.
6.7 Submission confirmation

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Once you have submitted your assessment, you will receive a confirmation message on the
screen. Make a screen copy for your records. In addition, if you have opted to receive email
notifications, you will also receive an email confirmation of your submission.
7. The cover page to your portfolio exam must include your name, student number and the
module code.
8. It is preferred that your portfolio exam is typed. However, handwritten submissions will also
be accepted. If the portfolio exam is typed, the maximum length is 12 pages (which includes
the cover page and the bibliography). If the portfolio exam is handwritten, the maximum
length is 16 pages (which includes the cover page and the bibliography).
must be made in the form of one PDF document.
only” file.

9.2.2 you submit the incorrect examination answer file.
9.2.3 you submit your exam answer file on an unofficial examination platform (including the
invigilator cellphone application).
exam.

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OTHER SOURCE).
relevant legal principles. You are given 24 hours (not 2 hours) to complete the take-home
exam. Use the time given wisely.

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used.
13. By ticking the Honour Pledge, you confirm that you have read (i) the University’s Policy on
values and plagiarism that is found at https://www.unisa.ac.za/sites/myunisa/default/Study -@-
13.1 Students suspected of dishonest conduct during the examination will be subjected to
PLEASE NOTE:
please apply online for an aegrotat exam within 3 days of the examination session. Include supporting
documentation with your application. Students experiencing technical challenges may contact the
SCSC on 080 000 1870 or email Examenquiries@unisa.ac.za or refer to Get-Help for the list of
additional contact numbers.

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Question 1
1.1 Briefly explain what is meant by the concept of “concursus creditorum”. (5)
(Your answer must not exceed half a page or 120 words)
1.2 Explain why the court in Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013
(1) SA 49 (KZP) held that creditors are more vulnerable in voluntary surrender
applications than in compulsory sequestration which then gives rise to the requirement
of a higher level of disclosure. (10)
(Your answer must not exceed one page or 250 words)
1.3 Dumisani approaches you for advice. He informs you that his brother, Benson, owes him
R24 000 for gardening services rendered by his company. Dumisani explains to you that
despite various attempts to get Benson to pay his debts, he has yet to make any
payment. Dumisani is especially upset because he has heard a rumor that Benson and
his wife has apparently now relocated their home from Johannesburg to Cape Town
because his wife is ill and needs medical treatment at a care facility in Stellenbosch.
Dumisani wants to know from you whether you can assist him to apply for the complusory
sequestration of Benson’s estate, because his brother has fled from his home and
therefore his responsibilites. Refer to the relevant act of insolvency, including a reference
to the relevant legislation. (10)
1.5 Regarding meetings of creditors, discuss the main differences between the first and
second meeting. (10)

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1.6 At a meeting of creditors, four creditors proved claims against the insolvent estate of
Joseph. Lerato has a claim of R20 000, Albert a claim of R5 000, Susanna a claim of
R40 000, and Ronald a claim of R5 000. Lerato nominates Jenny as a trustee, and
Susanna nominates Joy. Lerato, Albert and Ronald vote for Jenny, and Susanna votes
for Joy. Who will be appointed as trustee? (5)
Question 2
2.1 Discuss the instances when the Master may refuse to appoint a trustee. (5)
2.2 With reference to section 29 of the Insolvency Act 24 of 1936, state which form of
impeachable disposition this refers to. In your answer, also discuss whether there is an
exception to section 29, and if so, what it is, and which test would be applied to determine
if it would apply. (5)
2.3 With reference to impeachable dispositions, discuss the difference between the trustee’s
powers under section 30 and section 29 of the Insolvency Act 24 of 1936. (10)
2.4 Explain the requirements for the common law application for a disposition if value has
been received? (5)

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MRL3701
Oct/Nov 2021
Question 3
3.1 Sue-Ann is a friend of yours. She informs you that she was sequestrated in 2009. She
now wishes to purchase a car, but the car dealership said that they will first do a
reference check. She says to you that she is worried that she will not be approved for
the loan, due to the fact that she is considered an insolvent. Explain to Sue-Ann whether
or not she has been rehabilitated. (5)
3.2 Critically discuss the important issues the court considered regarding the abuse of the
sequestration process in Ex Parte Snooke 2014 (5) SA 426 (FB). (10)
3.3 Discuss Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386
Ltd 2012 (2) SA 423 (WCC) in respect of the question whether business rescue
proceedings may be used to secure a better return for creditors or shareholders where
there is no clear prospect of the company continuing to operate on a solvent basis or
being restored to solvency. (10)
TOTAL: [100]
©
UNISA 2021

QUESTION 1
1.1 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. The term “concursus
creditorum” means that upon the granting of a sequestration order (or provisional order) “coming
together of creditors” is established, and the interests of creditors as a group enjoy preference
over the interests of individual interests. The debtor is divested of his estate and cannot burden
it with any further debts. A creditor’s rights to recover his claim in full by judicial proceedings is
replaced by the right, on proving a claim against the insolvent estate, to share with all other
proved creditors in the proceeds of the estate assets. Apart from what is permitted by the
Insolvency Act, nothing may be done which would have the effect of diminishing the estate
assets or prejudicing the rights of creditors. Walker v Syfret NO 1911 AD 141.
1.2 In the matter of Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013 (1) SA 49 (KZP)
an application was brought on an ex parte basis for an order sequestrating the estate of the
applicant by way of voluntary surrender in terms of the provisions of sections 3 to 6 of the
Insolvency Act, Act 24 of 1936. It was confirmed by the court that voluntary surrender
applications must comply with the provisions in section 6(1) of the Insolvency Act, 1936, being
that the court must be satisfied that the estate of the debtor in question is insolvent and if so,
that such debtor owns realisable property of a sufficient value to defray all costs of the
sequestration. The court must also be satisfied that it will be to the advantage of creditors of the
debtor if the debtor’s estate is sequestrated before it may accept the surrender of the debtor’s
estate and make an order sequestrating that estate1.
In voluntary surrender, the court will accept the voluntary surrender of a debtor’s estate only if it
is satisfied that sequestration will be to the advantage of creditors (s 6(1)). Whereas in an
application for compulsory sequestration, the creditor has to show merely that there is reason to
believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated (s
12(1)). The onus, in other words, is more strenuous in voluntary surrender than in compulsory
sequestration. The reason for this is that the debtor can normally be expected to provide a
detailed account of his own financial position, whereas a sequestrating creditor would generally
1
Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013 (1) SA 49 (KZP) (hereinafter referred to as “Ex
Parte Arntzen”) at paragraph 2.

not have access to this information. Another reason is to reduce the 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.
1.3 Section 9(1) allows proceedings for the compulsory sequestration of a debtor’s estate.
Court must be satisfied that:
i. The applicant has established a claim which entitles him, in terms of s9(1) to apply for
sequestration of the debtor's estate.
ii. the debtor has committed an act of insolvency or is insolvent
iii. there is reason to believe that it will be to the advantage of creditors of the debtor if his
estate is sequestrated (s12(1))
Onus of satisfying court on these three matters rests throughout on the sequestrating creditor
Dumisani.
Considering the facts in the case, Dumisani has a valid claim in terms of the services he provided
to his brother. This satisfies the first requirement.
In terms of section 8(c), a debtor commits an act of insolvency if he makes, or attempts to make,
a disposition of any of his property which has or would have the effect of prejudicing his creditors
or of preferring one creditor above another. Benson commited act of insolvency when he moved
from Johannesburg to Cape town. Only the effect of the disposition need be considered and it
does not matter if the debtor acted on purpose or recklessly as his intention is irrelevant.
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 the creditors. The onus of establishing an advantage
remains on the sequestrating creditor even if the debtor committed an act of insolvency.
Therefore I assist him to apply for the complusory sequestration of Benson’s estate.
1.4 section 27 of the Insolvency Act violates section 9(3) of the Constitution on the grounds of
sexual orientation, marital status and birth. The prohibition of unfair discrimination on the ground

of sexual orientation protects those who are attracted to members of the same sex 2. It prohibits
the granting of benefits to married people that are not granted to same-sex life partners.
The right to equality in section 9 of the Constitution seeks to provide equal benefits before the
law to persons in the same or similar positions by prohibiting unfair discrimination. Section 9(3)
prohibits unfair discrimination on anyone on the grounds of marital status, sexual orientation and
birth, among others. This makes section 27 of the Insolvency Act vulnerable to constitutional
review under section 9(3) of the Constitution on the grounds of marital status, sexual orientation
and birth because it unfairly distinguishes between benefits given to husbands and wives, civil
unions partners, children born outside of wedlock and children adopted by civil union partners.
1.5 The first difference is that the first meeting is convened by the Master and the second meeting
is convened by the trustee. The second difference is that at the purpose of the first meeting is
to enable creditors to prove claims and elect a trustee, but at the second meeting the creditors
receive the trustee’s report and the creditors give the trustee directions for the administration of
the estate. Thirdly, the notice of the first meeting is in Gazette not less than 10 days prior to
meeting while the second meeting the notice is in Gazette and 1 or more newspapers circulating
in the district in which the insolvent resides or has principal place of business in Afrikaans and
English. The first meeting is convened by the Master while the second meeting is convened by
the trustees.
1.6 In terms of Section 54 of the Insolvency Act 24 of 1936, the person who obtains a majority of
votes in both number and value must be elected sole trustee. In this instance, joy will have a
majority in value, and Jenny a majority in number. Provided one person is not disqualified from
being a trustee, both will be appointed as trustees.
Since one obtains a majority in value and another person majority in number, both must be
elected sole trustee. However, if either party declines a joint trusteeship, the other must be
elected sole trustee. Should one person obtain a majority of votes in number and no other person
obtain a majority in value, or vice versa, the party who obtains the majority must be elected as
sole trustee.
2
See National Coalition for Gay and Lesbian Equality v Minister of Justice 1999 1 SA 6 (CC) (hereafter National
Coalition) para 20; Meskin Insolvency Law para 4.8.2.1; Currie and De Waal Bill of Rights Handbook 228.

QUESTION 2
2.1. MRL3702 Discuss the instances when the Master may refuse to appoint a
trustee
Section 57(6) of Insolvency Act 24 of 1936 clothes the Master with the power to set
aside the appointment of a trustee who was not properly elected or is disqualified In
terms of s553 from being appointed. The Master may refuse to confirm the election of
a person elected as trustee if:
 he was not properly elected;

 he is disqualified from being a trustee;
 he has failed to give the required security; or if,
 In the opinion of the Master, he should not be appointed as a trustee to
the estate in question.
 If the creditors have elected a trustee unlawfully, the Master is
obliged not to confirm the election and to convene a new meeting
to elect another trustee.
In Sabie Mediese Sentrum v Master4, the court held that if the trustee was
unlawfully appointed, If the creditors have elected a trustee unlawfully, the
Master is obliged not to confirm the election and to convene a new meeting to
elect another trustee. If the Master declines to confirm, he must notify the party in
writing and state the reasons for declining.
2.2. With reference to section 29 of the Insolvency Act 24 of 1936, state which
form of impeachable disposition this refers to. In your answer, also discuss
whether there is an exception to section 29, and if so, what it is, and which test
would be applied to determine if it would apply.
In terms of section 29 of the Insolvency Act 24 of 1936, disposition which prefers one
creditor above another therefore it is a voidable preference.
3
Insolvency Act 24 of 1936
4
Sabie Mediese Sentrum v Die Meester. 1977 (4) SA 389 (T)

The exception is when it was done in the “ordinary course of business”. In the case
of voidable preferences, if it can be shown that the disposition was made in the
ordinary course of the business of the insolvent and it was not intended to prefer one
creditor over the others, the disposition will not be set aside.17 The creditor in whose
favour the disposition was made thus has this defence, which allows him to keep the
disposition if he is successful.
An objective test is used to determine whether or not the disposition was made in the
ordinary course of business.
2.3. With reference to impeachable dispositions, discuss the difference

between the trustee’s powers under section 30 and section 29 of the
Insolvency Act 24 of 1936
Trustee’s powers under s 30 (undue preference) differ significantly from his powers
in terms of s 29 (voidable preference)
Differences between trustee’s powers under Sections 29 and 30
Section 30 Section 29
1. Can be set aside irrespective of 1. It can only be set aside if it was
when, before sequestration it was made not more than 6 months before
made. sequestration/insolvent’s death.
2. Debtor to actually be insolvent 2. Debtor can be solvent when he
when he makes it. makes it, as long as he goes
insolvent immediately thereafter.
3. The trustee must prove the debtor 3. Trustee to establish it’s a voidable
actually intended to prefer one preference by showing the disposition
creditor above the others. had the effect of preferring one
creditor above the others.
4. No defence 4. Has defences.

2.4 Explain the requirements for the common law application for a disposition
if value has been received?
If the disposition is made for countervalue, the requirements for the actio Pauliana
are stricter than those for a disposition without value.
4. The fraud took effect and
5. that the party who benefited from the transaction knew of this intention and was a
party to the fraud.
QUESTION 3
3.1. Sue-Ann is a friend of yours. She informs you that she was sequestrated
in 2009. She now wishes to purchase a car, but the car dealership said that
they will first do a reference check. She says to you that she is worried that
she will not be approved for the loan, due to the fact that she is considered an
insolvent. Explain to Sue-Ann whether or not she has been rehabilitated.
Automatic rehabilitation is provided for in terms of Section 127A of the Insolvency

Act 34 of 1936. An insolvent is deemed to be automatically rehabilitated after the
expiry of 10 years from the date of the provisional sequestration order unless the
court upon an application of an interested person orders otherwise.
A ten-year period have passed between now and 2009, therefore, Sue Ann has been
rehabilitated.

3.2. Critically discuss the important issues the court considered regarding the
abuse of the sequestration process in Ex Parte Snooke 2014 (5) SA 426 (FB).
The matter of Ex Parte Snooke 2014 (5) SA 426 (FB) relates to an application for
rehabilitation on an ex parte basis on the grounds that no claims were lodged against
the insolvent estate in terms of section 124(3) of the Insolvency Act, Act 24 of 1936.
no claims5.
The excessive legal fees charged was also criticised by Daffue J, and he stated that
the legal practitioner was guilty of overreaching in spite of the bill of costs being
taxed and approved6.
sequestrations seldom benefitted the creditors. The Applicant was granted relief that
would in fact not have been granted had the true facts been revealed to the court7.
3.3 Discuss Southern Palace Investments 265 (Pty) Ltd v Midnight Storm
Investments 386 Ltd 2012 (2) SA 423 (WCC) in respect of the question whether
business rescue proceedings may be used to secure a better return for
creditors or shareholders where there is no clear prospect of the company
continuing to operate on a solvent basis or being restored to solvency.
In the matter of Southern Palace Investments 265 (Pty) Ltd v Midnight Storm
Investments 386 Ltd 2012 (2) SA 423 (WCC), Eloff AJ was left unimpressed with
This aspect of the case deals with the meaning of “rescuing the company” in
business rescue. Rescuing the company in this context means achieving the goals
5
Ex Parte Snooke 2014 (5) SA 426 (FB) (hereinafter referred to a “Ex Parte Snooke”) at paragraph 7.
6
Ex Parte Snooke at paragraph 22.
7
Ex Parte Snooke at paragraphs 13 and 22.

set out in the definition of “business rescue”. These goals are to facilitate the
rehabilitation of a company or corporation in financial distress through-
 the temporary supervision of the company and the management of its affairs,
business and property;
 a temporary moratorium on the rights of claimants against the company or in
respect of property in its possession; and
 the development and implementation of a plan to rescue the company and by
restructuring its affairs, business, property, debt and other liabilities, and
equity in a manner that maximizes the likelihood of it continuing in existence
on a solvent basis or; if this is not possible, that results in a better return for
the company’s creditors or shareholders than would result from the immediate
liquidation of the company.
In this case Zoneska Investments (ZI) applied to court for the winding-up of Midnight
Storm (MS) because it could not pay its debts. Southern Palace (SP) then applied to
court for MS to be placed in business rescue proceedings. In respect of whether
business rescue proceedings may be used to secure a better return for creditors-
 the court held that, it regarded that goal as an independent alternative goal
that may be pursued for its own sake.
 it further held that if that goal was simply to secure a better return for
creditors, it must be made clear what resources will be made available to the
company and on which terms because, in the absence of such information, it
would be mere speculation to say that creditors will be better off than they
would have been with immediate liquidation.
In the present case the second alternative goal, to implement a business rescue plan
that would yield a better return for the creditors and shareholders than would result
from immediate liquidation, was not sought. The court exercised its discretion and
rejected the application for business rescue, and placed MS in provisional
liquidation.

MRL3701
Insolvency Law
100 Marks
24 Hours
CONFIDENTIAL
PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE
ANSWERING THE EXAMINATION QUESTIONS.
2. It consists of 3 questions. Question 1 totals 50 marks. Question 2 totals 25 marks and

question 3 totals 25 marks.
3. The duration of the examination is 24 hours. Your answers must be submitted via myUnisa
on or before 14h30 on 1 December 2020.
the examination. While the examination is in progress, you are not allowed to consult another
person in order to assist you to answer any of the questions contained in this question paper.
While the examination is in progress, you may not assist another student in answering any
of the questions contained in this question paper.
5. When answering the take-home exam questions, remember that an open-book exam is a
test at a higher level than the usual type of exam, where memory is tested as much as insight.
In an open-book exam, you need not memorise any information. You are expected to prove
that you can use information, rather than merely repeat it. In brief, what is being tested is
factual knowledge, understanding and the correct application thereof, not memory skills. For
this reason, you do not earn marks by merely detailing a list of all the information that you
think might be relevant to a particular question. This gives no indication that you know what
statutory or other provisions are applicable in a specific context. You are expected to identify
precisely what information applies, and then explain why you think so. Also, because you
have the guide available when answering questions, we do not give marks for direct
quotations from the guide. You are therefore assessed on your level of understanding of the
legal principles by looking at how well you applied the principles to the questions. PLEASE
DO NOT CUT AND PASTE ANSWERS FROM THE STUDY GUIDE (OR ANY OTHER
SOURCE).
6. Your answer to this take-home examination must be submitted online on myUnisa.
6.1 Access myUnisa at https://my.unisa.ac.za/portal and login using your student number and
myUnisa password.
6.2 Click on the “myAdmin” tab in the top navigation.
6.3 In the “Assessments” submenu, click on the “Assessment Info” tool in the drop-down list
 A list of all available assessments will display
 Locate the section for UNISA summative assessments at the bottom of the list
 Find the corresponding assessment number for your module

CONFIDENTIAL
2 of 5
MRL3701
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your answers according to the exam questions numbers.
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PLEASE NOTE:
If you experience technical problems, of any kind, on the day of the examination and your
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automatically deferred to the May/June 2021 examination. No other type of submission of your
examination answers will be accepted.

CONFIDENTIAL
3 of 5
MRL3701
Question 1
1.1 ABC Ltd is a British company that owns property which is lying in a warehouse in Cape
Town harbour. ABC Ltd does not have a place of business in South Africa.
(a) Briefly explain whether the Western Cape High Court, Cape Town has
jurisdiction to liquidate ABC Ltd. (2)
(b) Will the Western Cape High Court, Cape Town have jurisdiction to
sequestrate ABC Ltd.’s estate? (5)
1.2 With reference to Strutfast (Pty) Ltd v Uys 2017 (6) SA 491 (GJ):
(a) Indicate the parties’ matrimonial regime and the method of sequestration used
in the application. (2)
(b) What legal questions was the court faced with. (2)
(c) What was the ratio decidendi in the case? (4)
1.3 The "advantage to creditors" requirement is stricter in voluntary surrender applications

than in compulsory sequestration. With reference to Ex Parte Arntzen (Nedbank Ltd as
Intervening Creditor) 2013 (1) SA 49 (KZP), explain the facts and reasoning of the courts.
Remember to refer to relevant legislation in your case discussion. (10)
1.4 In Harksen v Lane 1998 (1) SA 300 (CC) section 21 of the Insolvency Act was challenged
in the Constitutional Court. In this case, Harksen argued that section 21 infringed her
rights in the equality guarantee in section 8 of the Interim Constitution and the property
guarantee contained in section 28 of the Interim Constitution (respectively sections 9
and 25 of the final 1996 Constitution). Provide the reasons why the Constitutional Court
found that section 21 did not infringe section 28 of the Interim Constitution. In your
answer, only discuss the court’s reasons regarding section 28 of the Interim
Constitution and not section 8. (8)
1.5 Discuss how the decision in Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC)
affected the provisions of the Alienation of Land Act 1981. (12)
1.6 State one similarity and two differences between the first meeting of creditors and the
second meeting of creditors. (5)

CONFIDENTIAL
4 of 5
MRL3701
Question 2
2.1 There are four creditors with proved claims against an insolvent estate. Themba has a
claim of R20 000, Benny a claim of R5 000, Caroline a claim of R40 000, and Donald a
claim of R5 000. Themba nominates Xolani as a trustee, and Caroline nominates Zanele.
Themba, Benny and Donald vote for Xolani, and Caroline votes for Zanele.
(a) Who will be appointed as trustee? (4)

(b) Would it make any difference to your answer above if it later appears that Xolani
will be emigrating to Australia in two months? (5)
2.2 Tumi and Themba got married out of community of property in an extravagant wedding
celebration. As a wedding gift, Themba bought Tumi a yellow Lamborghini. The gift is
duly recorded in the couple’s ante-nuptial contract, which is registered, and the
registration papers of the car reflect Tumi as the owner. Themba, who makes his money
from government tenders runs into financial problems and two years into his marriage
with Tumi, his estate is sequestrated. With reference to relevant statutory provisions,
advise Mr Koos, the trustee of Themba’s insolvent estate on his chances of recovering
the yellow Lamborghini from Tumi for the insolvent estate. (12)
2.3 Explain whether there is a difference between a preferent creditor and a secured creditor
and provide one example of a preferent claim. (4)
Question 3
3.1 Tenza owns a solar installation and maintenance business. During the covid-19
pandemic lockdown period, his business suffered financially. As a result, his estate has
been provisionally sequestrated. Tenza’s trustee informs him that he may enter into
some form of arrangement with his creditors to stop the sequestration process from
running its full course. Advise Tenza on the two forms of arrangements that he may enter
into with his creditors. In your answer explain the differences between the two
procedures. (10)
3.2 Critically discuss the important issues the court had to consider regarding the abuse of

CONFIDENTIAL
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MRL3701
3.3 In Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd
2012 (2) SA 423 (WCC), which details did Eloff AJ expect to be furnished in a business
rescue application in respect of a trading or prospective trading company? (5)
TOTAL: 100
UNISA 2020

Michelle Fisher
Student Nr.: 60996552
P.O. Box 9612
Eros
Windhoek
Namibia
9000
MRL3701 – Insolvency Law
October / November 2020 Examinations
QUESTION 1:
1.1 a) ABC Ltd does not have a place of business in South Africa and therefore a
South African Court will not have jurisdiction to wind-up the company.
b) Although the company may not be wound-up in terms of the Companies Act,
m
e r as
Act 61 of 1973, it is accepted as a ‘debtor’ in terms of the Insolvency Act,
co
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Act 24 of 1936, and therefore the estate of ABC Ltd may be sequestrated by
a South African court. The property owned by the company is situated in the
o.
rs e
area of jurisdiction of the Western Cape High Court, Cape Town and
ou urc
therefore the Western Cape High Court, Cape Town will have the
jurisdiction to sequestrate the company’s estate.
o
aC s
1.2 a) The respondents are married out of community of property and it is an

vi y re
application for the sequestration of two individuals.
b) Whether the respondents could be jointly sequestrated in the same

ed d
application and whether there was a complete identity of interests between

ar stu
the respondents or their estates.

sh is
c) The court held there was no rational for the application of sequestration to
Th
be launched against the two respondents in one application 1 and that the
applicant’s failure to distinguish between the affairs of the first and second
respondents was a demonstration as to why it is ill-advised practice to join
respondents in an application for sequestration 2.
1.3 In the matter of Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013 (1)
SA 49 (KZP) an application was brought on an ex parte basis for an order
sequestrating the estate of the applicant by way of voluntary surrender in terms of
1 Strutfast (Pty) Ltd v Uys 2017 (6) SA 491 (GJ) (hereinafter referred to as “Strutfast (Pty) Ltd v Uys”) at
paragraph 33.
2 Strutfast
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1
R13,625 per year?
the provisions of sections 3 to 6 of the Insolvency Act, Act 24 of 1936. It was

confirmed by the court that voluntary surrender applications must comply with the
provisions in section 6(1) of the Insolvency Act, 1936, being that the court must be
satisfied that the estate of the debtor in question is insolvent and if so, that such
debtor owns realisable property of a sufficient value to defray all costs of the
sequestration. Such costs will be payable out of the free residue of the debtor’s
estate. The court must also be satisfied that it will be to the advantage of creditors
of the debtor if the debtor’s estate is sequestrated before it may accept the
surrender of the debtor’s estate and make an order sequestrating that estate 3.
In the Ex Parte Arntzen matter the applicant’s estate being insolvent was not in
dispute, and it therefore left only two issues to be determined before the discretion
granted by section 6(1) of the Insolvency Act, 1936 could be exercised:
m
e r as
1. Whether the applicant owned realisable property sufficient to defray all costs of
co
the sequestration.
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2. Whether the sequestration of the applicant’s estate would be to the advantage
o.
of creditors4.
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The applicant bears the onus to satisfy the court on a balance of probabilities that
o
the two requirements have been met.

aC s
vi y re
The requirements for the granting of a voluntary order of sequestration was

compared by Gorven J with the requirements for a provisional sequestration order
under the proceedings for compulsory sequestration, and he stated that the test
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relating to advantage to creditors in voluntary sequestration proceedings is stricter

ar stu
than that for the provisional sequestration of a debtor’s estate under compulsory
proceedings by creditors. The proceedings for compulsory sequestration required
sh is
the court to be of the opinion that prima facie there is reason to believe that it will
Th
be to the advantage of creditors if the estate is sequestrated and during the final
sequestration of a debtor’s estate under compulsory sequestration it is only
required that the court to be satisfied that there is reason to believe that it will be to
the advantage of creditors if the estate is sequestrated. In section 6(1) of the
Insolvency Act, 1936 the court must be satisfied that it will be to the advantage of
creditors if the debtor’s estate is surrendered 5.
3 Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013 (1) SA 49 (KZP) (hereinafter referred to as
“Ex Parte Arntzen”) at paragraph 2.
4 Ex Parte Arntzen at paragraph 3.
5 Ex
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source was Arntzen
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R13,625 per year?
1.4 The Constitutional Court held that section 21 of the Insolvency Act, Act 24 of 1936
was not unconstitutional as it did not amount to expropriation of the solvent
spouse’s property without compensation. The temporary transfer of the solvent
spouse’s property is a provision to merely ensure that the insolvent estate is not
deprived of property to which it is entitled. The majority of the judges held that
section 21 contained adequate and sufficient provisions to ensure that innocent
solvent spouses can get their property back6.
1.5 The Alienation of Land Act, Act 68 of 1981, specifically Chapter II and section 27
thereof, provides the right to compel transfer of the land, provided certain
requirements are met, to the buyer on instalments.
In the matter of Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC) the
Constitutional Court decided that the Alienation of Land Act,1981 had to be
m
e r as
amended, as it did not provide protection to the vulnerable purchaser being left
co
homeless, even though the purchaser had paid the full purchase price within one
eH w
year of the contract. The Constitutional Court considered the origins and purpose
o.
rs e
of the Alienation of Land Act,1981, and it was found that it provided protection
ou urc
against a specific vulnerability faced by a purchaser in an instalment-sale and that
it dealt with the right to take transfer. As the vulnerability is not necessarily
o
homelessness, the judgement was found to be inconsistent with the Constitution of

aC s
vi y re
the Republic of South Africa, 19967.
The relevant provisions of the Alienation of Land Act,1981 should be read as

ed d
follows:
ar stu
(a) The words “including residential property paid for in full within one year of
the contract, by a vulnerable purchaser” should be included in the definition
sh is
of “contract” at the end of section 1(a).

Th
(b) The definitions in section 1 should be supplemented as follows:
“Vulnerable purchaser” means a purchaser who runs the risk of being

rendered homeless by a seller’s insolvency.
(c) The words “on instalments” in the title of chapter II of the Alienation of Land
Act, 1981 are severed, and section 4 reads as follows:
6 Harksen v Lane 1998 (1) SA 300 (CC).

7 Sarrahwitz
This study v MaritzbyNO
source was downloaded and Anotherfrom
100000799301222 2015 (4) SA 491
CourseHero.com on (CC) at paragraphs
09-29-2021 14:04:08 GMT33 and 34.
-05:00
3
R13,625 per year?
“(1) This Chapter shall not apply in respect of a contract in terms of which
the State, the Community Development Board established by section 2 of
the Community Development Act, Act 3 of 1966, the National Housing
Commission mentioned in section 5 of the Housing Act, Act 4 of 1966, or a
local authority is the seller.
(2) Sections 21(2) and 22 shall, however, apply, with the necessary
changes, to a deed of alienation in terms of which a vulnerable purchaser of
a residential property paid the full purchase price within one year of the
contract, before the seller’s insolvency.”
This order applies only to a seller’s insolvent estate that has not been finalised.
It was also agued that an alternative solution could have been developed in
m
accordance with the constitutional values and the common law provision that the
e r as
trustee of an insolvent estate has the discretion to cancel a sale agreement
co
eH w
pertaining to property sold but not yet transferred. The minority judgement
o.
provided the solution by relying on the Prevention of Illegal Eviction and Unlawful
rs e
ou urc
Occupation of Land Act, Act 19 of 19988.
1.6 The similarity between the first meeting of creditors and the second meeting of
o
creditors is that at both meetings creditors may prove their claims against the
aC s
vi y re
estate. The first difference is that the first meeting is convened by the Master and
the second meeting is convened by the trustee. The second difference is that at
the first meeting the creditors elect a trustee, but at the second meeting the
ed d
creditors receive the trustee’s report and the creditors give the trustee directions
ar stu
for the administration of the estate.

sh is
Th
QUESTION 2:
2.1 a) Both will be appointed as trustees, provided one person is not disqualified
from being a trustee, as Xolani has the majority in number of votes and
Zanele has the majority in value.
b) If Xolani emigrates to Australia, he/she will not be able to act as trustee and
only Zanele will be appointed. It is an absolute ground for disqualification to
act as trustee of an insolvent estate if the person resides abroad.
8 Sarrahwitz
This study v MaritzbyNO
source was downloaded and Anotherfrom
100000799301222 2015 (4) SA 491
CourseHero.com on (CC) at paragraph
09-29-2021 90.
14:04:08 GMT -05:00
4
R13,625 per year?
2.2 Mr. Koos, the trustee of Themba’s insolvent estate will not be able to recover the
yellow Lamborghini from Tumi for the insolvent estate, as an exception to section
26 of the Insolvency Act, Act 24 of 1936 is created in section 27 and provides that
the trustee will not be able to set the disposition aside because there was an
“immediate benefit” that was given in good faith by the insolvent husband to his
wife in a duly registered Antenuptial Contract which was registered at least two
years before the sequestration.
2.3 A secured creditor has a secured claim, which is paid out of the proceeds of a
specific encumbered asset (if those proceeds are insufficient, the unpaid balance is
paid as a concurrent claim from the free residue, unless the creditor has waived
the unsecured balance of his claim).
A preferent creditor has a preferent claim, which is paid out of the free residue (the
m
e r as
proceeds of the unencumbered assets) but enjoys preference over concurrent
co
claims (if only part of a claim enjoys preference, the balance is also treated as a
eH w
concurrent claim).
o.
rs e
ou urc
A special mortgage bond over specific movable property registered before 7 May
1993 somewhere other than Natal and a general bond over movable property are
o
examples of preferent claims.

aC s
vi y re
QUESTION 3:
ed d
3.1 Tenza will have to meet the strict requirements for entering into a compromise with
ar stu
his creditors under the common law, or he would have to meet simpler
requirements involved when entering into a compromise with his creditors in terms
sh is
of section 119 the Insolvency Act, Act 24 of 1936.

Th
Common law compromise is based on a contract that requires the approval of all
the creditors to be of any practical value. The creditors may be in a better position
as they will receive dividends earlier than during the sequestration and such
dividends may be much higher due to the saving of costs pertaining to the
sequestration. The advantage for the debtor is that he is released from his debts
without suffering the consequences of being sequestrated. After the provisional
sequestration order has been delivered, Tenza can enter into a written agreement
wit his creditors and the trustee can pay certain dividends to the creditors, on
5
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condition that Tenza is released from his debts and any provisional order of
sequestration is discharged.
A compromise in terms of section 119 of the Insolvency Act, 1936 (statutory

compromise) is a statutory mechanism under which the decision of the majority of
the creditors binds the dissenting minority. The debtor can suffer a disadvantage
due to the sequestration order not being granted and he remains an
unrehabilitated insolvent. However, the debtor can apply for early rehabilitation.
The first difference between the two forms of composition is based on their legal
basis, as one is based on the law of contract and the other is statutory. The second
difference is based on the requirements for acceptance, as one form requires the
written consent of all the concurrent creditors, and the other is based on the
statutory mechanism by which the majority of creditors binds the minority.
m
e r as
3.2 The matter of Ex Parte Snooke 2014 (5) SA 426 (FB) relates to an application for
co
eH w
rehabilitation on an ex parte basis on the grounds that no claims were lodged
o.
against the insolvent estate in terms of section 124(3) of the Insolvency Act, Act 24
rs e
ou urc
of 1936.
o
aC s
vi y re
no claims9.
ed d
The excessive legal fees charged was also criticised by Daffue J, and he stated
ar stu
that the legal practitioner was guilty of overreaching in spite of the bill of costs
being taxed and approved10.
sh is
Th

sequestrations seldom benefitted the creditors. The Applicant was granted relief
that would in fact not have been granted had the true facts been revealed to the
court11.
3.3 In the matter of Southern Palace Investments 265 (Pty) Ltd v Midnight Storm
Investments 386 Ltd 2012 (2) SA 423 (WCC), Eloff AJ was left unimpressed with
9 Ex Parte Snooke 2014 (5) SA 426 (FB) (hereinafter referred to a “Ex Parte Snooke”) at paragraph 7.
10 Ex Parte Snooke at paragraph 22.
11 source
This study Ex Parte Snooke by
was downloaded at 100000799301222
paragraphs 13from
and 22.
6
R13,625 per year?
the lack of detail provided in the application for business rescue as it did not give
him the impression that the respondent’s business would be restored to a
successful one and it gave him no business plan to consider 12. Eloff AJ therefore
held that the following details must be included in a business rescue application for
same to be considered:
- The likely costs of rendering the company able to commence with its
intended business, or to resume the conduct of its core business;
- the likely availability of the necessary cash resource in order to enable the
ailing company to meet its day-to-day expenditure, once its trading
operations commence or are resumed. If the company will be reliant on loan
capital or other facilities, one would expect to be given some concrete
indication of the extent thereof and the basis or terms upon which it will be
m
e r as
available;
co
eH w
- the availability of any other necessary resource, such as raw materials and
o.
human capital;
rs e
ou urc
- the reasons why it is suggested that the proposed business plan will have a
reasonable prospect of success13.
o
aC s
vi y re
ed d
ar stu
sh is
Th
12 Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd 2012 (2) SA 423
(WCC) (hereinafter referred to as “Southern Palace”).
13 source
This study Southern Palace at
was downloaded paragraphs 24.1
by 100000799301222 fromto 24.4 page 432.
7
R13,625 per year?
May/June 2020
MRL3701
Insolvency Law
100 Marks
24 Hours
CONFIDENTIAL
PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE
ANSWERING THE EXAMINATION QUESTIONS.
2. Question 1 consists of fill-in questions of 40 marks. Questions 2 consists of true or false

questions of 30 marks. Questions 3 consist of problem questions of 30 marks.
3. The duration of the examination is 24 hours. Your answers must be submitted via myUnisa
on or before 30 June 2020.
the examination. While the examination is in progress, you are not allowed to consult another
person in order to assist you to answer any of the questions contained in this question paper.
While the examination is in progress, you may not assist another student in answering any
of the questions contained in this question paper.
5. When answering the take-home exam questions, remember that an open-book exam is a
test at a higher level than the usual type of exam, where memory is tested as much as insight.
In an open-book exam, you need not memorise any information. You are expected to prove
that you can use information, rather than merely repeat it. In brief, what is being tested is
factual knowledge, understanding and the correct application thereof, not memory skills. For
this reason, you do not earn marks by merely detailing a list of all the information that you
think might be relevant to a particular question. This gives no indication that you know what
statutory or other provisions are applicable in a specific context. You are expected to identify
precisely what information applies, and then explain why you think so. Also, because you
have the guide available when answering questions, we do not give marks for direct
quotations from the guide. You are therefore assessed on your level of understanding of the
legal principles by looking at how well you applied the principles to the questions. PLEASE
DO NOT CUT AND PASTE ANSWERS FROM THE STUDY GUIDE (OR ANY OTHER
SOURCE).
6. Your answer to this take-home examination must be submitted online on myUnisa.
6.1 Access myUnisa at https://my.unisa.ac.za/portal and login using your student number and
myUnisa password.
6.2 Click on the “myAdmin” tab in the top navigation.
6.3 In the “Assessments” submenu, click on the “Assessment Info” tool in the drop-down list
A list of all available assessments will display
Locate the section for UNISA summative assessments at the bottom of the list
Find the corresponding assessment number for your module

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Click on the Submit link in the Action column and follow the steps described below.
Step 1: Load the answer file from your PC to myUnisa

Click on the Browse button next to File Name
In the Choose File dialog box, select the file you want to upload, and then click OK
Select the correct file format from the File Format drop-down list. Most modules only
allow PDF formatted files to be uploaded.
Click on the Continue button.
Step 2: Verify the file details for final submission of your answer file
Use this step to verify that you are uploading the correct answer file to the correct course
and assessment number.
Click on the Continue button to submit your answer file. If you do not click Continue, no
submission action will take place.
Large files will take longer to upload than smaller files. Please be patient after you’ve
clicked Continue.
If the wrong details, e.g. file name, appear on the screen, click Back to restart the file
upload process.
Step 3: Assessment submission report

This is your proof that your take-home answer file was submitted. It is advisable to print
this page or make a screen capture for record purposes. A copy of this page will also be
emailed to your myLife email account.
7. The cover page to your take-home exam must include your name, student number and the
module code.
8. Your answers can be typed or handwritten. You can either print the exam paper and fill-in
the answers or you can type or hand write your answers on a separate sheet of paper.
If you choose to answer on a separate sheet of paper, make sure that you number your
answers according to the exam questions numbers.
9. Whether your answers are typed or handwritten, your submission on myUnisa must be made
in the form of one PDF document.
10. Please read and complete the honesty declaration form. Your exam will not be marked if you
fail to read and complete the form.
PLEASE NOTE:
If you experience technical problems, of any kind, on the day of the examination and your
examination answers are not submitted by the cut-off time, you will be marked as absent and
automatically deferred to the October/November 2020. No other type of submission of your
examination answers will be accepted.

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Question 1
Fill in the missing words:
(a) The term "debtor" also embraces a person who is __________________ of managing
his own affairs. (2)
(b) Thabo’s application for voluntary surrender must contain an allegation that it will be to
the __________________ of creditors if his estate is sequestrated. (2)
(c) Christopher commits an act of insolvency by departing from his dwelling with the intent
by doing so to evade ___________________ of his debts. (2)
(d) An application for compulsory sequestration brought by a creditor who is not at arm’s
length is generally referred to as a "_______________" sequestration. (2)
(e) Section 24(1) of the Insolvency Act which deals with the effect of prohibited contracts on
third parties, places the ___________ upon a third party to prove that, at the time he
received the property in question, he was neither aware, nor had any reason to suspect,
that the debtor was insolvent. (2)
(f) An insolvent’s right to earn and recover income relates only to ___________________
income. (2)
(g) The solvent spouse must, within _______________ days of service, lodge with the
Master a statement of his/her affairs as at the date of sequestration, framed by the
necessary requirements and verified by affidavit. (2)
(h) With regard to a contract completed by an insolvent, a right to performance held by the
estate lapses if the other party in good faith, and _______________ knowledge of the
sequestration, performs to the insolvent. (2)
(i) Section 84(2) of the Insolvency Act, which deals with the returning of property sold in
terms of an "instalment agreement" to the seller, is intended to enable the trustee to
reclaim the property for the benefit of _____________________ creditors. (2)
(j) Regarding the meeting of creditors, the publication of any statement of affairs made at a
meeting is ____________________ to the same extent as the publication of a statement
made in a court of law. (2)

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(k) The Master may remove a trustee from office on the ground that the
_________________ of creditors has requested in writing that he be removed. (2)
(l) The object of section 26 of the Insolvency Act is simply to prevent a person in insolvent
circumstances from impoverishing his estate by giving away assets without receiving
any appreciable _______________ in return. (2)
(m) In deciding whether a disposition was made in the _______________ course of

business, an objective test is applied. (2)
(n) In Estate Wege v Strauss 1932 AD 76 it was decided that although a wagering debt
cannot be enforced in a court of law, it still creates a "natural ____________________".
(2)
(o) Compared to a common-law compromise, the main advantage of a statutory composition

is that it does not depend on the_____________________________ of all the creditors.
(2)
(p) An application for rehabilitation is brought by way of notice of _______________
supported by affidavit. (2)
(q) A sequestration of a partner’s estate, ipso iure, ______________ the partnership. (2)
(r) A creditors’ voluntary winding-up, unlike a members’ voluntary winding-up or voluntary

winding-up by the company, will be resorted to where the company is
__________________ to pay its debts. (2)
(s) Section 7(k) of the Companies Act 2008 provides for "the efficient rescue and recovery
of financially distressed companies, in a manner that _______________ the rights and
interests of all relevant stakeholders". (2)
(t) In voluntary business rescue, the board cannot pass a ____________________ if the
company is already the subject of liquidation proceedings. (2)

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[ ]
Question 2
Indicate whether the following statements are true or false and motivate the reason for
your answer.
1. Once an order of or a provisional order of sequestration is granted, a concursus
creditorum is established, and the interests of creditors as a group enjoy preference over
the interests of individual creditors. (2)
__________________________________________________________________________
__________________________________________________________________________
2. The "costs of sequestration" only include the costs of surrender. (2)

__________________________________________________________________________
__________________________________________________________________________
3. The removal of property with intent to prejudice or prefer is not one of the listed grounds
that may be deemed as "acts of insolvency" in terms of section 8 of the Insolvency Act
24 of 1936. (2)
__________________________________________________________________________
__________________________________________________________________________
4. The debtor may make a contract that purports to dispose of any property of his insolvent
estate. (2)
__________________________________________________________________________
__________________________________________________________________________
5. The courts have held that the after-acquired estate of an insolvent debtor may never
again be sequestrated. (2)
__________________________________________________________________________

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__________________________________________________________________________
6. Section 21 of the Insolvency Act applies to all spouses married in community of property.
(2)
__________________________________________________________________________
__________________________________________________________________________
7. As a general rule, sequestration suspends or puts to an end any contract which the
insolvent had concluded. (2)
__________________________________________________________________________
__________________________________________________________________________
8. An insolvent may be interrogated at a special meeting convened for that purpose,

provided the Master gives his consent. (2)
__________________________________________________________________________
__________________________________________________________________________
9. A disposition made in fraud of creditors may be set aside in terms of the common law.
(2)
__________________________________________________________________________
__________________________________________________________________________
10. If movable property has been delivered to a debtor under an instalment agreement, the
seller acquires ownership over the property, on sequestration. (2)
__________________________________________________________________________
__________________________________________________________________________
11. In Ex parte Snooke 2014 (5) SA 426 (FB), the judge criticised the excessive legal fees
charged but held that there was no abuse of the process of voluntary surrender. (2)
__________________________________________________________________________
__________________________________________________________________________

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12. An application to surrender a partnership estate must, as a rule, be brought by only one
partner. (2)
__________________________________________________________________________
__________________________________________________________________________
13. In the case of a voluntary winding-up of a company by the court, the court decides
whether the company will be placed in liquidation. (2)
__________________________________________________________________________
__________________________________________________________________________
14. The court having jurisdiction to wind-up a close corporation is the court where the
corporation’s registered office or main place of business is situated. (2)
__________________________________________________________________________
__________________________________________________________________________
15. Section 44 of the previous Insurance Act 27 of 1943 restricted married women and men
to a portion of the benefits of life insurance policies when their estate is sequestrated.
(2)
__________________________________________________________________________
__________________________________________________________________________
[ ]

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Question 3
(a) Give reasons why a sequestration order may not be granted if a debtor has only one
creditor or if there are not enough assets to cover the costs of sequestration. (3)
( )
(b) Tenza’s uncle and aunt, Mr and Mrs Badi, were married in community of property in 1991
and are now insolvent; explain, giving reasons for your answer, who may now apply for
the voluntary surrender of their estate. (3)

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( )
(c) The legislature has designed certain acts or omissions by a debtor as "acts of
insolvency". If a creditor can establish that the debtor has committed one or more of
these "acts of insolvency", he may seek an order sequestrating the debtor’s estate.
Name two of these "acts of insolvency". (2)
( )
(d) Indicate, giving reasons, whether the following property falls into the insolvent estate:
Property inherited by a spouse to a marriage in community of property if the will
contains a provision specifically excluding the property from any in community of
property. (2)
The insolvent’s wearing apparel and bedding. (2)

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( )
(e) In Harksen v Lane 1998 (1) SA 300 (CC) section 21 was challenged in the Constitutional
Court. In this case, Harksen argued that section 21 infringed her rights in the equality
guarantee in section 8 of Interim Constitution and the property guarantee contained in
section 28 of the Interim Constitution (respectively sections 9 and 25 of the final 1996
Constitution). Provide the reasons why the Constitutional Court found that section 21 did
not infringe section 28 of the Interim Constitutions. In your answer, only discuss the
court’s reasons regarding section 28 of the Interim Constitution and not section
8. (7)

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( )
(f) Why must a trustee who has been found guilty of offences such as theft and fraud be
removed from office? (2)
( )
(g) What must a plaintiff prove to succeed in bringing the actio Pauliana action? (4)

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( )
(h) Explain why an insolvent applying for a declaratory order must notify the creditors of his
( )
(i) Name three instances when an insolvent company may be wound up by a court.
(3)

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( )
[ ]
TOTAL: 100
UNISA 2020

2020 – MAY / JUNE EXAMINATION PAPER

Question 1
(a) The term "debtor" also embraces a person who is incapable of managing
his own affairs. (2)
(b) Thabo’s application for voluntary surrender must contain an allegation that it will be to
the advantage of creditors if his estate is sequestrated. (2)
(c) Christopher commits an act of insolvency by departing from his dwelling with the intent
by doing so to evade payments of his debts. (2)
(d) An application for compulsory sequestration brought by a creditor who is not at arm’s
length is generally referred to as a " friendly " sequestration. (2)
(e) Section 24(1) of the Insolvency Act which deals with the effect of prohibited contracts on
third parties, places the onus upon a third party to prove that, at the time he
received the property in question, he was neither aware, nor had any reason to suspect,
that the debtor was insolvent. (2)
(f) An insolvent’s right to earn and recover income relates only to lawful
income. (2)
(g) The solvent spouse must, within 7 days of service, lodge with the
Master a statement of his/her affairs as at the date of sequestration, framed by the
necessary requirements and verified by affidavit. (2)
(h) With regard to a contract completed by an insolvent, a right to performance held by the
estate lapses if the other party in good faith, and without knowledge of the
sequestration, performs to the insolvent. (2)
(i) Section 84(2) of the Insolvency Act, which deals with the returning of property sold in
terms of an "instalment agreement" to the seller, is intended to enable the trustee to
reclaim the property for the benefit of concurrent creditors. (2)
(j) Regarding the meeting of creditors, the publication of any statement of affairs made at a
meeting is priveleged to the same extent as the publication of a statement
made in a court of law. (2)

(k) The Master may remove a trustee from office on the ground that the
majority of creditors has requested in writing that he be removed. (2)
(l) The object of section 26 of the Insolvency Act is simply to prevent a person in insolvent
circumstances from impoverishing his estate by giving away assets without receiving
any appreciable advantage in return. (2)
(m) In deciding whether a disposition was made in the ordinary course of

business, an objective test is applied. (2)
(n) In Estate Wege v Strauss 1932 AD 76 it was decided that although a wagering debt
cannot be enforced in a court of law, it still creates a "natural obligation ".
(2)
(o) Compared to a common-law compromise, the main advantage of a statutory composition

is that it does not depend on the consent
(p) An application for rehabilitation is brought by way of notice of motion supported by

affidavit. (2)
(q) A sequestration of a partner’s estate, ipso iure, terminates the partnership.(2)
(r) A creditors’ voluntary winding-up, unlike a members’ voluntary winding-up or voluntary

winding-up by the company, will be resorted to where the company is
unable to pay its debts. (2)
(s) Section 7(k) of the Companies Act 2008 provides for "the efficient rescue and recovery
of financially distressed companies, in a manner that balances the rights and
interests of all relevant stakeholders". (2)
(t) In voluntary business rescue, the board cannot pass a resolution if the
company is already the subject of liquidation proceedings. (2)

Question 2
Indicate whether the following statements are true or false and motivate the reason for
your answer.
1. Once an order of or a provisional order of sequestration is granted, a concursus
creditorum is established, and the interests of creditors as a group enjoy preference over
the interests of individual creditors. (2)
True. This 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 prefera
2. The "costs of sequestration" only include the costs of surrender. (2)
False. It also includes all the general costs of administration.
that may be deemed as "acts of insolvency" in terms of section 8 of the Insolvency Act
24 of 1936. (2)
False. The intention of the debtor to prejudice his creditors or to give preference is important
and is one of the listed grounds
4. The debtor may make a contract that purports to dispose of any property of his insolvent
estate. (2)
False. The debtor may not make a contract which purports to dispose of any property of his
insolvent estate
5. The courts have held that the after-acquired estate of an insolvent debtor may never
again be sequestrated. (2)
False. This is due to sometimes the insolvent during the period of insolvency may acquire a
new estate and hold it with another title, the after-acquired estate can in turn be sequestrated.
6. Section 21 of the Insolvency Act applies to all spouses married in community of property.
(2)
False. The provision applies only to marriages out of community of property.
7. As a general rule, sequestration suspends or puts to an end any contract which the
insolvent had concluded. (2)
False. As a general rule, sequestration does not suspend or put an end to the contract.
8. An insolvent may be interrogated at a special meeting convened for that purpose,

provided the Master gives his consent. (2)
True. With the master’s consent, the trustee may and if so required convene a special meeting
for the purpose of interrogating the insolvent.
9. A disposition made in fraud of creditors may be set aside in terms of the common law.
(2)
True. These dispositions are set aside by means of the action Pauliana, in terms of the common
law.
seller acquires ownership over the property, on sequestration. (2)
True. This secures the claim for the balance outstanding under the contract.
11. In Ex parte Snooke 2014 (5) SA 426 (FB), the judge criticised the excessive legal fees
charged but held that there was no abuse of the process of voluntary surrender. (2)
False. The judge criticised the excessive legal fees charged and held that there was an abuse of
the process of voluntary surrender.
partner. (2)
False. As a rule it must be bought by all the partners or their agents.
13. In the case of a voluntary winding-up of a company by the court, the court decides
whether the company will be placed in liquidation. (2)
True. It is the court that decides if the company will be placed in liquidation, if it is a winding – up
by the court.
14. The court having jurisdiction to wind-up a close corporation is the court where the
corporation’s registered office or main place of business is situated. (2)
True. This could be either the High Court or magistrate’s court which has jurisdiction where the
corporation’s registered office or main place of business is situated.
15. Section 44 of the previous Insurance Act 27 of 1943 restricted married women and
Downloaded by: nkwanas54 | nkwanas54@gmail.com
men
Want to earn
to a portion of the benefits of life insurance policies when their estate is sequestrated.
(2)
False. The previous insurance Act 27 of 1943 restricted married woman only and not men to a
portion of the benefits of life insurance policies where the estate of the husband was
sequestrated.

Question 3
(a) Give reasons why a sequestration order may not be granted if a debtor has only one
creditor or if there are not enough assets to cover the costs of sequestration. (3)
There will be no conflicting interests between creditors which must be equitably resolved if there
is only one creditor. Further, if the debtor’s assets are not sufficient to cover the cost’s of
sequestration, there is no advantage to be derived from sequestration process to any creditors.
In the caseas depicted above, sequestration would merely amount to a waste of time and
money.
(b) Tenza’s uncle and aunt, Mr and Mrs Badi, were married in community of property in 1991
and are now insolvent; explain, giving reasons for your answer, who may now apply for
the voluntary surrender of their estate. (3)
Voluntary surrender may be sought or applied for by Mr and Mrs Badi, as they were married in
community of property in 1991 and are now insolvent.
(c) The legislature has designed certain acts or omissions by a debtor as "acts of
insolvency". If a creditor can establish that the debtor has committed one or more of
these "acts of insolvency", he may seek an order sequestrating the debtor’s estate.
Name two of these "acts of insolvency". (2)
1. The debtor gives notice in writing to any one of his creditor’s that he is unable to pay any
of his debts.
2. Removal of property with the intent to prejudice or prefer.
(d) Indicate, giving reasons, whether the following property falls into the insolvent estate:
• Property inherited by a spouse to a marriage in community of property if the will
contains a provision specifically excluding the property from any in community of
property. (2)
Yes. Property inherited by a spouse to a marriage in community of property forms part of the
insolvent estate even if the will does contain a provision, as sequestration of a joint estate makes
both spouses insolvent debtors.

• The insolvent’s wearing apparel and bedding. (2)
No . The insolvent may retain for his own use his wearing apparel and bedding as the creditors
may determine.
(e) In Harksen v Lane 1998 (1) SA 300 (CC) section 21 was challenged in the Constitutional
Court. In this case, Harksen argued that section 21 infringed her rights in the equality
guarantee in section 8 of Interim Constitution and the property guarantee contained in
section 28 of the Interim Constitution (respectively sections 9 and 25 of the final 1996
Constitution). Provide the reasons why the Constitutional Court found that section 21 did
not infringe section 28 of the Interim Constitutions. In your answer, only discuss the
court’s reasons regarding section 28 of the Interim Constitution and not section
8. (7)
In the judgement of the Court in Harksen v Lane 1998 (1) SA 300 (cc) was correct to find that
section 21 of the Insolvency Act did not infringe the constitutional provisions. As there was a
distinction between a deprivation of rights in property as set out by Section 28 (2) and an
expropriation and therefore the court ruled that the section did not amount to expropriation as
contended by the applicant. The temporary divestment of the solvent spouse was merely to
ensure that the insolvent estate was not deprived of property it was entitled to. Adequate
measures were also provided in Section 21 that innocent solvent spouses can get their property
back.

(f) Why must a trustee who has been found guilty of offences such as theft and fraud be
removed from office? (2)
Holding office as a trustee is a very important job and is incompatible with conduct such as theft
and fraud where an element of dishonesty is present, as the assets of the insolvent vests in the
trustee and he has to gather and preserve the assets of the insolvent debtor, realise them and
divide the proceeds among the Creditors according to the provisions of the Act. A dishonest
person cannot be in such a position of trust.
(g) What must a plaintiff prove to succeed in bringing the actio Pauliana action? (4)
4. The fraud took effect.
(h) Explain why an insolvent applying for a declaratory order must notify the creditors of his
This is done to ensure that the creditors and trustees by making no claim to the asset have
waivered whatever rights they might have to do it.
(i) Name three instances when an insolvent company may be wound up by a court.
(3)
1. Loss of Capital where 75 % of the issued share capital has been lost or become
useless for the business.
2. Inability to pay it’s creditors.
3. Dissolution of external company.













OCTOBER / NOVEMBER 2019 EXAMINATION PAPER AND ANSWERS
QUESTION 1 - FILL IN THE BLANKS
(a) The term "debtor" also embraces a partnership, even one whose members are all JURISTIC
persons (2)
(b) The free residue includes the balance of the proceeds of ENCUMBERED
property after discharge of the encumbrances (2)
(c) A"liquidated claim " is a MONEY claim (2)
(d) An application for compulsory sequestration brought by a creditor who Is not at

arm's length Is generally referred to as a " FRIENDLY “sequestration (2)
(e) An insolvent may not without the written consent of the trustee carry on, beemployed
in any capacity, or have any direct or indirect interest in the business of a TRADER
who is a general dealer or manufacturer (2)
(f) Dave Is a miner, and his right to a benefit or a GRATUITY or money paid to him as a
miner, does not form part of his insolvent estate (2)
(g) The solvent spouse must, within 7 days of service, lodge with the Master a
statement of his/her affairs as at the date of sequestration, framed by the necessary
requirements and verified by affidavit (2)
(h) With regard to a contract completed by an insolvent, a right to performance held by

the estate lapses If the other party in good faith, and WITHOUT knowledge of the
sequestration, performs to the insolvent (2)
(I) Section 84(1) of the Insolvency Act provides that, on the sequestration of the buyer's
estate, the seller automatically acquires a HYPOTHEC over the res vend1ta, whereby the
balance outstanding under the agreement 1s secured (2)
(j) A general meeting cannot be convened solely for the purpose of

“INTERROGATING witnesses” (2)
(k) If the Master declines to confirm a party's election or to appoint him as trustee, he
must notify theparty in WRITING and state the reasons for so declining (2)
(l) The object of section 26 is simply to prevent a person in insolvent circumstances from
impoverishing his estate by giving away assets without receiving any appreciable ADVANTAGE
in return
(m) If the other party to a collusive disposition is a CREDITOR, he forfeits any claim that he may
have had against the estate (2)
(n) Under section 29(1), the court may set aside a disposition which the insolvent made at
any time before sequestration If he made the d1spos1t1on with the intention of
preferring one of his creditors above another (2)
(o) Comparedtoacommon-lawcompromise, themain advantageofastatutorycomposition is thatit

does notdependonthe" PARTICIPATION” of all the creditors
(p) Examples of factors which may persuade the court to refuse an order of rehabilitation are
that the insolvent conducted his business in an improper and NEGLIGENT
manner
(q) A sequestration of apartner's estate, ipso ,ure, TERMINATES the partnership (2)
(r) " WINDING UP "means, essentially, the procedure by which a compan y' s assets are sold,
its debts are paid, and any money left over is divided amongst the shareholders
according totheir rights (2)
(s) Section 7(k) of the Companies Act 2008 provides for "the efficient rescue and recovery of
financially distressed companies, in a manner that BALANCES the rights and interests of
all relevant stakeholders" (2)
(t) Thereisalwaystherisk thatbusinessrescue eproceedingsmaybe ABUSED by a company with

noprospect of financial recovery to obtain a temporary relief from creditors (2)
Question 2
Indicate whether the following statements are true or false
a) An estate is usually conceived of as a collection of assets of a debtor for purposes of

sequestration - FALSE - IT’S A COLLECTION OF ASSETS AND LIABILITIES
b) The "costs of sequestration" only include the costs of surrender - FALSE
c) The insolvency Act does not deprive a debtor of his contractual capacity generally and accordingly
the retains a general competency to make binding agreements, but subject to certain restrictions
on the debtor’s capacity - TRUE
d) Property inherited by a spouse to amarriage in community of property forms part of the

insolvent estate, unless the will contained a provision that specifically excluded the property
from any community of property – FALSE

e) Section 21 of the Insolvency Act 24 of 1936 contemplates an existing relationship between

spouses If, prior to sequestration, the relationship between the spouses has been terminated,
then section 211s not applicable – TRUE
f) If a trustee elects to repudiate a contract, the opposite party can obtain an order of specific
performance If he has performed his own obligations in full - FALSE. THE OPPOSITE
PARTY IS PRECLUDED FROM OBTAINING AN ORDER OF SPECIFIC PERFORMANCE
g) The Insolvency Act 24 of 1936 provides that the work office of the trustee is the only venue
where the meetings of creditors must be held -FALSE. THE ACT MAKES NO PROVISION
REGARDING THE VENUE
h) Tosucceedin bringingtheact, ofPauliana(a disposition madeinfraudofcreditors), the plaintiff

must prove that there was an intention to defraud - TRUE
I) If movable property has been delivered to a debtor under an instalment agreement, the seller
acquires, ownership over theproperty, on sequestration – TRUE
j) An insolvent may apply for his rehabilitation after 12 months have elapsed from the
confirmation by the Master of the first account m the estate. If the insolvent's estate has
previously been sequestrated, period of three years from the date of confirmation of the
first account must elapse before he can apply for rehabilitation - TRUE
k) If the court sequestrates the estate of a partnership, It Is not bound to also sequestrate
the private estate of every member of the partnership – FALSE-IT IS BOUND
l) In Rand Air (pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345 0N) It was
decided among other things, that a summons Is actually a demand as contemplated by
section 345(1)(a) of the Companies Act - TRUE
m) A close corporation cannot beplaced inbusiness rescue. -FALSE - IT CAN
n) During the period of sequestration, only the Master may be compelled to appear to give
information that he considers desirable about the insolvent or his estate or the
administration of the estate or about any claim or demand against the estate F A L S E

QUESTION 3
A) Discuss Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly and another
NNO 1984 (1) SA 160 (W) with reference to the following:
(1) Give reasons why the court in Magnum Financial Holdings was satisfied that the applicants
had made out a case for the relief sought (the urgent grant of a provisional sequestration
order) (6)
There had been sufficient service of the papers on the trustee of the trust. (Note that this
was not a trustee in terms of the Insolvency Law, because the estate of the trust had not yet
been sequestrated. Instead, the trustee was the trustee in terms of the law of trusts, who
administered the trust property for the benefit of the trust beneficiaries.) The one
provisional liquidator of the applicant company had locus standi to apply for the provisional
sequestration of the trust estate. The applicant company had a claim against the trust for
about R1,6 million which was due and payable. An act of insolvency in terms of section 8(g)
of the Insolvency Act, 1936 had been committed, and the trust estate was also insolvent. It
was to the advantage of the trust’s creditors that its estate be sequestrated urgently.
Further, the necessary security bond had been duly lodged and also annexed to the court
papers
(2) Identify the problem faced by the court in Magnum Financial Holdings
The only problem before the court was whether a trust could, at law, be sequestrated
(b) Tenza’s uncle and aunt, Mr and Mrs Zondi, were married in community of property
in 1991 and are now insolvent, explain, giving reasons for your answer, who may
now apply for the voluntary surrender of their estate (3)
Mr. and Mrs. Zondi were married in community of property in 1991 and are now insolvent;
voluntary surrender may be sought by Mr. and Mrs. Zondi.
(c) Discuss Epstein v Epstein 1987 (4) SA 606 (C) (6)
This case refers to “friendly sequestration”

(1) The applicant was the respondent’s mother (see p 607 of the law
report).
(2) The respondent said that he was desperate because several
creditors had threatened to have him committed to prison by issuing
court process against him for the non-payment of his debts (see p
607 of the law report). The court summarised aspects of section 65
of the Magistrates’ Courts Act 32 of 1944. If a judgment debtor could
show that he genuinely could not pay his debts because he lacked
the means to do so, he would not be liable to imprisonment for
contempt of court or for failure to pay his debts. The court rejected
the argument that the respondent would inevitably be imprisoned if
his estate were not sequestrated. He would not be imprisoned if he
showed a genuine inability to pay his debts. Further, the risk of his
imprisonment was not an indication that the sequestration of his
estate would benefit his creditors (see pp 611-612 of the law report).
Note that the provisions of the Magistrates’ Courts Act in terms of
which a judgment debtor could be imprisoned if he failed to pay
his judgment debt have since been declared unconstitutional and
invalid by the Constitutional Court (see Hockly 7.3).
(3) The first two requirements for the granting of a provisional
order of
sequestration were satisfied. First, the applicant had filed papers which
prima facie established a liquidated claim entitling her to apply for the
sequestration of the respondent’s estate. Secondly, the respondent’s
letter to her was an act of insolvency under section 8(g) of the
Insolvency Act. The third requirement presented a problem to the
court: whether on the facts there was reason to believe that it would
be to the advantage of the creditors if the respondent’s estate were
sequestrated (see pp 608-609 of the law report).
(4) The court quoted Holmes J in R v Meer and Others 1957 (3) SA 614
(N), who laid down two ways of guarding against the abuse of
proceedings for sequestration. Firstly, the court should pay more
attention to the element of advantage to creditors, particularly if
the facts of the case suggest that it is a friendly sequestration based
on section 8(g). Secondly, the court should refuse to grant repeated
adjournments of the rule nisi, unless satisfied, on affidavit, that it
would be to the advantage of creditors (see p 611 of the law report).
(5) The respondent’s father-in-law had undertaken to pay into the trust
account of the applicant’s attorneys the sum of R2 500 for
distribution among the respondent’s creditors after the
sequestration costs had been met. The aim was to prevent the
respondent’s imprisonment. The sequestration costsbeing estimated
at R1 500, a sum of R1 000 would then remain for distribution (see p
608 of the law report). It was held that in a friendly sequestration
the court should be reluctant to approve a family member’s offer of
a small contribution as the “price” for the granting of a
sequestration order. That procedure conflicted with the principles
underlying the Act and the role which it assigned to the court. It
amounted to confronting the court with a not very wholesome
“carrot” to induce it to grant relief if it could not, and would not,
otherwise do so. The court should resist such inappropriate cajolery
(see pp 612-613 of the law report).

d) EXPLAIN WHY A CESSION OF INCOME WHICH THE INSOLVENT EARNS IS SIMPLY

NOT PERMITTED IN TERMS OF SECTION 23(6), BUT ANOTHER CONTRACT MAY BE
CONCLUDED WITH THE CONSENT OF THE TRUSTEE (2)
If the insolvent could simply cede his right to amounts earned by him, the master’s power to
make a determination in terms of section 23(5) would in effect be eliminated.
e) SECTION 27 OF THE INSOLVENCY ACT 24 OF 1936 PREVENTS A SETTLEMENT OF

PROPERTY IN AN ANTENUPTIAL CONTRACT BY A HUSBAND ON HIS WIFE OR ANY
CHILD TO BE BORN OF THE MARRIAGE FROM BEING SET ASIDE AS DISPOSITION
WITHOUT VALUE ON THE HUSBANDS INSOLVENCY, IF CERTAIN REQUIREMENTS ARE
MET. DISCUSS HOW SECTION 27 MAY BE DISCRIMINATORY AND MAY FAIL
CONSTITUTIONAL SCRUTINY (5)
The right to equality in section 9 of the Constitution seeks to provide equal

benefits before the law to persons in the same or similar positions by
prohibiting unfair discrimination. Section 9(3) prohibitsunfairdiscrimination
on anyone on the grounds of marital status, sexual orientation and birth,
among others. This makes section 27 of the Insolvency Act vulnerable to
constitutional review under section 9(3) of the Constitution on the grounds
of marital status, sexual orientation and birth because it unfairly
distinguishes between benefit s given to husbands and wives, civil unions
partners, children born outside of wedlock and children adopted by civil
union partners.
f) TENZA AND MPHO ARE MARRIED OUT OF COMMUNITY OF PROEPRTY AND OF PROFIT
AND LOSS, AND THEIR ANTENUPTIAL CONTRACT DOES NOT EXCLUDE THE ACCRUAL
SYSTEM. A FEW YEARS LATER TENZA’S ESATTE IS SEQUESTRATED. IT APPEARS THAT
MPHO’S ESTATE HAS INCREASED BY R 100 000 SINCE THE CONCLUSION OF THE
MARRIAGE. TENZA’S ESTATE HAS OBVIOUSLY NOT INCREASED AT ALL, BECAUSE
THE ESTATE IS INSOLVENT.
1) EXPLAIN WHETHER THE TRUSTEE OF TENZA’S INSOLVENT ESTATE HAS ANY

CLAIM TO HALF THE ACCRUAL OF MPHO’S ESTATE (2)
The trustee of Tenza’s insolvent estate does not have any claim tohalf the accrual in Mpho’s
estate, because the marriage has not yet been dissolved.
g) NAME ANY FOUR GROUNDS ON WHICH A COMPANY MAY BE WOUND UP BY THE

COURT (4)
a. If the main object for which the company was formed can no longer be attained. In
such a case, it is said that the company’s substratum has disappeared. This happened
in In re Rhenosterkop Copper Co 1908 CTR 931, because the land on which the
company was to conduct mining operations contained no minerals.
b. If the company’s objects are illegal, or if the company was formed to defraud the
persons invited to subscribe for its shares.
c. If there is a justifiable lack of confidence in the way in which the directors are managing
the company’s affairs. This situation arose in Moosa NO v Mavjee Bhawan (Pty) Ltd
and Another 1967 (3) SA 131 (T), where a director had misled members about the
advisability of a transaction good faith.
d. If there is a deadlock in the management of the company the voting power in the board
of directors and the general meeting is divided, and winding- up is the only
solution.
e. If the company is a quasi-partnership and grounds exist on which a partnership could
be dissolved. This situation is encountered where the personal relationship between
the members is based on good faith.
f. If the minority shareholders are oppressed by the controlling shareholders. Winding-

up will be just and equitable only if the oppression cannot be removed by another
suitable remedy.













MAY/JUNE 2019 EXAMINATION PAPER AND ANSWERS
QUESTION 1: FILL IN THE BLANKS
a) The term “debtor” also embraces a partnership, even one whose members are all JURISTIC
persons (2)
b) Brenda’s application for voluntary surrender must set out the causes of her insolvency in some
detail to enable the court to determine whether the application is
BONA FIDE (2)
c) Christoper commits an act of insolvency by departing from his dwelling with the intent b y
doing so to evade PAYMENTS of his debts. (2)
d) An application for COMPULSORY sequestration brought by a creditor who is not at arm’s
length is generally referred to as a “friendly sequestration” (2)
e) If a trustee elects to set aside a contract, he may recover any performance rendered by the
insolvent, but he must also restore to the third party any BENEFITS that the insolvent has
received under the transaction. (2)
f) Dave is a miner, and his right to a benefit or a GRATUITY, or money paid to him as a miner,
does not form part of his insolvent estate (2)
g) The insolvent spouse must, within 7 days of service, lodge with the Master a statement of
his/her affairs as at the date of sequestration, framed by the necessary requirements and
verified by affidavit.
h) With regard to a contract completed by an insolvent, a right to performance held by the estate
lapses if the other party in good faith, and WITHOUT knowledge of the sequestration,
performs to the insolvent.
i) Section 84(1) of the Insolvency Act presupposes that the seller is the OWNER of the property
sold (the res vendita) (2)
j) Kim, the trustee of Lee’s insolvent estate, is obliged to convene a general meeting of creditors
by means of a NOTICE that must state the matters to be dealt with at the meeting
k) If the Master declines too confirm a party’s election or to appoint him as a trustee, he must
notify the party in WRITING and state the reasons for so declining.
l) The object of section 26 is simply to prevent a person in insolvent circumstances from

impoverishing his estate by giving away assets without receiving any appreciable ADVANTAGE
in return
m) In deciding whether a disposition was made in the ORDINARY course of business, an objective
test is applied
n) Under section 29(1), the court may set aside a disposition which the insolvent made at
any time before sequestration If he made the d1spos1t1on with the intention ofpreferring
one of his creditors above another
o) Compared to a common – law compromise, the main advantage of a statutory composition is
that it does not depend on the CONSENT of all creditors (2)
p) An application for rehabilitation is brought by way of notice of MOTION supported by affidavit

q) A sequestration of apartner's estate, ipso ,ure, TERMINATES the partnership (2)

r) The human beings (natural persons) who administer the business of the company are its
DIRECTORS (2)
s) Section 7(k) of the Companies Act 2008 provides for "the efficient rescue and re covery of
financially distressed companies, in a manner that BALANCES the rights and interests of all
relevant stakeholders"
t) The application for compulsory business rescue SUSPENDS any liquidation proceedings
involving the company.
QUESTION 2:
Indicate whether the following statements are true or false. DO NOT give a written explanation: use
only the letters T or F.
1. In Magnum Financial Holdings (Pty) Ltd (2) In Magnum (Pty) Ltd v Summerly and Another
NNO 1984 (1) SA 160 (W) It was de cided that a trust can be regarded as a debtor Inthe usual
sense of the word for purposes of the Insolvency Act 24 of 1936 and can therefore be
sequestrated
TRUE
2. The “costs of sequestration” only include the cost of surrender

FALSE
that may be deemed as “acts of insolvency” in term of Section 8 of the Insolvency Act 24 of
1936
FALSE
4. The Insolvency Act 24 of 1936 does not deprive a debtor of his contractual capacity generally
and accordingly he retains a general competency to make binding agreements, but subject
to certain restrictions on the debtor’s capacity
TRUE
5. The courts have held that the after-acquired estate of an insolvent may never again be
sequestrated
FALSE.
6. Section 21 of the Insolvency Act 24 of 1936 contemplates an existing relationship between
spouses if, prior to sequestration, the relationship between the spouses has been
terminated, then section 21 is not applicable
TRUE
7. As a general rule, sequestration suspends or puts to an end any contract which the insolvent
had concluded
FALSE
8. The Insolvency Act 24 of 1936 provides that the work office of the trustee is the only venue
where the meeting of creditors must be held
FALSE
9. A disposition made in fraud of creditors may be set aside in terms of the common law
TRUE

seller acquires, ownership over the property, on sequestration
TRUE
11. An insolvent may apply for his rehabilitation after 12 months have elapsed from the
confirmation by the Master of the first account m the estate. If the insolvent's estate has
been sequestrated before, the period which must elapse before he can apply for
rehabilitation is three years from the date of confirmation of the first account
TRUE
partner
FALSE
13. In Rand Air (pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345 0N) It was
section 345(1)(a) of the Companies Act
TRUE
14. The court having jurisdiction to wind up a close corporation is the court where the
corporation’s registered office or main place of business is situated
TRUE
15. During the period of sequestration, only the Master may be compelled to appear to give
information that he considers desirable about the insolvent or his estate or the
administration of the estate or about any claim or demand against the estate
FALSE
QUESTION 3
A) FIVE MONTHS AGO, TENZA BOUGHT A SUIT FROM TOM FOR R800. TENZA
IS TOM’S ONLY DEBTOR. TENZA HAS NO OTHER CREDITORS. TENZA LIVES
WITH HIS MOTHER AND POSSESSES NO PROPERTY OTHER THAN THE SUIT
AND SOME OTHER CLOTHING ITEMS OF LITTLE VALUE. HE ADVISES TOM
THAT HE CANNOT PAY FOR THE SUIT. GIVE REASONS WHY A
SEQUESTRATION ORDER MAY OR MAY NOT BE GRANTED AGAINST
TENZA. (4)
If a debtor has only one creditor, there are no conflicting interests

between creditors which must be equitably resolved. If the debtor’s assets are
not suffi cient to cover the costs of sequestration, creditors will derive no
advantage from the process of sequestration. Consequently, in such a case
sequestration would merely amount to a waste of time and money.

B) TENZA’S UNCLE AND AUNT, MR AND MRS ZONDI, WERE MARRIED IN

COMMUNITY OF PROPERTY IN 1991 AND ARE NOW INSOLVENT,
EXPLAIN, GIVING REASONS FOR YOUR ANSWER, WHO MAY NOW APPLY
FOR THE VOLUNTARY SURRENDER OF THEIR ESTATE
(3)
Mr. and Mrs. Zondi were married in community of property in 1991 and are
now insolvent; voluntary surrender may be sought by Mr. and Mrs. Zondi.
C) REGARDING HENDRIKS v SWANEPOEL 1962 (4) SA 338 (A), DISCUSS

WHETHER THE SPECIFIC TRANSACTION IN THAT CASE WAS IN THE
ORDINARY COURSE OF BUSINESS FOR PURPOSES OF SECTION 29 OF THE
INSOLVENCY ACT 24 OF 1936 (6)
In deciding whether a disposition was made in the ordinary course of business, an objective
test is applied—whether the disposition was one which would normally be entered into
between solvent businesspersons
In Hendriks NO v Swanepoel where it was held that ordinary transactions between
farmers are not a special field of business. The fact that the contract was
exceptionally disadvantageous to one party, for example, played an important part
in Hendriks. The fact that security was lodged for a debt which previously existed is
also, generally, not in the ordinary course of business.
D) STATE THE LAW ON THE INTERROGATION OF WITNESSES AT A GENERAL

MEETING (2)
A general meeting may not be convened solely for the purpose of interrogating
witnesses. But witnesses may be interrogated at a general meeting properly called
“for the purpose of giving the trustee directions”.
E) WHY MUST A TRUSTEE WHO HAS BEEN FOUND GUILTY OF OFFENCES

SUCH AS THEFT AND FRAUD BE REMOVED FROM OFFICE (2)
The assets of the insolvent debtor vest in the trustee and that he has to gather and
preserve the assets of the insolvent debtor, realise them, and divide the proceeds
among the creditors according to the provisions of the Act. Holding such an office is
incompatible with conduct where an element of dishonesty was present.
F) SECTION 27 OF THE INSOLVENCY ACT 24 OF 1936 PREVENTS A

SETTLEMENT OF PROPERTY IN AN ANTENUPTIAL CONTRACT BY A
HUSBAND ON HIS WIFE OR ANY CHILD TO BE BORN OF THE MARRIAGE
FROM BEING SET ASIDE AS DISPOSITION WITHOUT VALUE ON THE
HUSBANDS INSOLVENCY, IF CERTAIN REQUIREMENTS ARE MET. DISCUSS
HOW SECTION 27 MAY BE DISCRIMINATORY AND MAY FAIL
CONSTITUTIONAL SCRUTINY (5)
The right to equality in section 9 of the Constitution seeks to provide equal benefits
before the law to persons in the same or similar positions by prohibiting unfair
discrimination. Section 9(3) prohibitsunfair discrimination on anyone on thegrounds of
marital status, sexual orientation and birth, among others. This makes section 27 of
the Insolvency Act vulnerable to constitutional review under section 9(3) of the
Constitution on the grounds of marital status, sexual orientation and birth because it
unfairly distinguishes between benefits given to husbands and wives, civil unions
partners, children born outside of wedlock and children adopted by civil union
partners.
G) EXPLAIN WHY AN INSOLVENT APPLYING FOR A DECLARATORY ORDER

MUST NOTIFY THE CREDITORS OF HIS INTENTION TO DO SO (2)
The basis for a declaratory order is that the creditors have waived their rights with
respect to the property. The reason for the requirement is that creditors cannot
waive rights of which they are unaware.
H) EXPLAIN BRIEFLY WHEN A COMPANY IS DEEMED TO BE UNABLE TO PAY

ITS DEBTS (6)
In terms of section 345 of the Companies Act, 1973 a company is deemed

unable to pay its debts if –
a. a creditor having a claim of at least R100 which is already due leaves a
demand at the company’s registered office and the company for three
weeks after that has failed to pay the claim, to give security for it, or to
compromise it to the satisfaction of the creditor, or
b. a warrant of execution or other process issued on a judgment against the
which he found did not, upon sale, satisfy the process, or
c. it is proved to the satisfaction of the court that the company is unable to
pay its debts.


















OCTOBER / NOVEMBER 2018 - EXAMINATION PAPER AND ANSWERS
a) Inability to pay debts is at most, merely EVIDENCE of insolvency (2)

BONA FIDE (2)
c) Christopher commits and act of insolvency by departing from his dwelling with the intent by
doing so to evade PAYMENT of his debts (2)
d) The court must be of it mindful of the fact that where debtor and creditor in sequestration
proceedings are not at arm’s length, there is considerable potential for COLLUSION and
malpractice (2)
e) If a trustee elects to set aside a contract, he may recover any performance rendered by the
insolvent, but he must also restore to the third party any BENEFITS that the insolvent has
received under the transaction. (2)
g) One of the duties of the sheriff on receiving a sequestration order is to serve a copy of the
order on the solvent spouse if she has a SEPARATE estate that has not been sequestrated (2)
h) Section 84(1) of the Insolvency Act presupposes that the seller is the OWNER of the property
sold ( the res vendita) (2)
i) If the insolvent has carried out his side of the contract and only the other party’s performance
is outstanding, the right to that performance is an ASSETT in the insolvent estate and vests in
the trustees (2)
by means of a NOTICE that must state the matters to be dealt with at a meeting (2)
k) Where the insolvent contracted acquire immovable property and the property has not been
transferred to him, the trustee must make his election to uphold or repudiate the contract
within SIX WEEKS after receiving written notice from the other party calling upon him to do
so. (2)
l) If the creditors have elected a trustee UNLAWFULLY, the Master is obliged not to confirm the
election
m) In deciding whether a disposition was made in the ORDINARY course of business, an objective
test is applied
n) In terms of s 89(2) of the Insolvency Act (24 of 1936), a secured creditor may, when proving
his claim, choose to rely exclusively on his SECURITY
p) An application for rehabilitation is brought by way of notice of MOTION supported by affidavit
q) When a partnership is dissolved because the estate of one of the partners has been
sequestrated, the partnership assets are divided among the partners in terms of the
partnership contract or the COMMON-LAW. (2)
r) The human beings (the natural persons) who administers the business of the company are its
DIRECTORS (2)
s) A voluntary winding – up of Kilo CC may be either a creditor’s voluntary winding-up, a
voluntary winding -up by the corporation, or a MEMBER voluntary winding -up
t) The application for compulsory business rescue SUSPENDS any liquidation proceedings
QUESTION 2:
NNO 1984 (1) SA 160 (W) It was decided that a trust can be regarded as a debtor In the
usual sense of the word for purposes of the Insolvency Act 24 of 1936 and can therefore
be sequestrated
TRUE
2. The “costs of sequestration” include not only the costs of surrender but also all the general
costs of administration
TRUE
3. The removal of property with intent to prejudice of prefer is not one of the listed grounds
that may be deemed as “Acts of Insolvency” in terms of Section 8 of the Insolvency Act 24 0f
1936 (2)
FALSE
4. The Insolvency Act deprives a debtor of his contractual capacity and the debtor generally has
no competency to make binding agreements (2)
FALSE
5. The courts have held that the after-acquired estate of an insolvent may never again be
sequestrated
FALSE
6. The vesting of the solvents spouse’s property in the trustee may have serious consequences
on her. The Insolvency Act 24 of 1936 accordingly makes provision for the postponement of
vesting of some or all of the solvent spouses’ assets (2)
TRUE
7. As a general rule, sequestration suspends or puts to an end any contract which the insolvent
had concluded
FALSE
8. The Master determines the date and time of the first meeting, and thereafter the dates and
times of all the other meetings
FALSE. THE DATES AND TIMES OF ALL OTHER MEETINGS IS DETERMINED BY THE TRUSTEES
9. A disposition made in fraud of creditors may be set aside in terms of the common law
TRUE

seller acquires, ownership over the property, on sequestration
TRUE
11. If the insolvent has been convicted of a fraudulent act in relation to his insolvency, he may
apply for rehabilitation after two years have elapsed from the date of his conviction. (2)
FALSE
partner. (2)
FALSE
13. In Rand Air (pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345 0N) It was
section 345(1)(a) of the Companies Act
TRUE
corporation’s registered office or main place of business is situated (2)
TRUE
15. With regard to commencement of business rescue proceedings, compulsory business rescue
starts with a resolution bby the Directors of the juristic person concerned
FALSE – RESOLUTION APPLIES TO VOLUNTAYRY, WHEREAS A COURT APPLICATION IS
NEEDED FOR COMPULSORY
QUESTION 3
A) FIVE MONTHS AGO, TENZA BOUGHT A SUIT FROM TOM FOR R800. TENZA IS
TOM’S ONLY DEBTOR. TENZA HAS NO OTHER CREDITORS. TENZA LIVES WITH
HIS MOTHER AND POSSESSES NO PROPERTY OTHER THAN THE SUIT AND SOME
OTHER CLOTHING ITEMS OF LITTLE VALUE. HE ADVISES TOM THAT HE CANNOT
PAY FOR THE SUIT. GIVE REASONS WHY A SEQUESTRATION ORDER MAY OR
MAY NOT BE GRANTED AGAINST TENZA. (4)
If a debtor has only one creditor, there are no conflicting interests

between creditors which must be equitably resolved. If the debtor’s assets are
not suffi cient to cover the costs of sequestration, creditors will derive no
advantage from the process of sequestration. Consequently, in such a case
sequestration would merely amount to a waste of time and money.
B) TENZA’S UNCLE AND AUNT, MR AND MRS ZONDI, WERE MARRIED IN

COMMUNITY OF PROPERTY IN 1991 AND ARE NOW INSOLVENT, EXPLAIN,
GIVING REASONS FOR YOUR ANSWER, WHO MAY NOW APPLY FOR THE
VOLUNTARY SURRENDER OF THEIR ESTATE (3)
Mr. and Mrs. Zondi were married in community of property in 1991 and are
now insolvent; voluntary surrender may be sought by Mr. and Mrs. Zondi.

C) DISCUSS AMOD v KHAN 1947 (2) SA 432 (N)
In this case, the debtor had a claim against the applicant’s son which was
larger than the claim of the applicant against the debtor. The sequestration
of the debtor’s estate would have meant that he himself (the debtor) would
no longer have been able to enforce his claim against the son. In the
circumstances, sequestration would not have been to the advantage of the
creditors (of the debtor) as a group. The applicant’s correct remedy was to
take out a warrant for the execution of his judgment against the debtor, and
then have the debtor’s claim against the applicant’s son attached in
payment of the judgment debt. The court went further in giving reasons for
its judgment. Even if it were assumed that sequestration would have been
to the advantage of the creditors, it was clear that the applicant had brought
the application with the exclusive aim of preventing the debtor from
enforcing his claim against the applicant’s son. That amounted to an abuse
of the court process, and for that reason the court should in any event
exercise its discretion against the applicant.
D) TENZA AND MPHO ARE MARRIED OUT OF COMMUNITY AND OF PROFIT AND
LOSS, AND THEIR ANTENUPTIAL CONTRACT DOES NOT EXCLUDE THE
ACCRUAL SYSTEM. A FEW YEAR’S LATER TENZA’S ESTATE IS SEQUESTRATED.
IT APPEARS THAT MPHO’S ESTATE HAS INCREASED BY R 100 000 SINCE THE
CONCLUSION OF THE MARRIAGE. TENZA’S ESTATE HAS OBVIOUSLY NOT
INCREASED AT ALL, BEACAUSE THE ESTATE IS INSOLVENT
1) EXPLAIN WHETHER THE TRUSTEE OF TENZA’S INSOLVENT ESTATE HAS ANY

CLAIM TO HALF THE ACCRUAL OF MPHO’S ESTATE
The trustee of Tenza’s insolvent estate does not have any claim to halfthe accrual in
Mpho’s estate, because the marriage has not yet been dissolved
2) WOULD YOUR ANSWER DIFFER IN (1) ABOVE SHOULD MPHO DIE BEFORE
TENZA IS REHABILITATED
Should Mpho die (and the marriage therefore dissolve) before Tenza is rehabilitated,
Tenza’s right to the accrual in Mpho’s estate will form part of Tenza’s insolvent estate
and it could be enforced by the trustee for the benefit of the creditors of Tenza.
E) IN TERMS OF SECTION 27 OF THE INSOLVENCY ACT 24 OF 1936, THERE IS AN

EXCEPTION TO SECTION 26 OF THE INSOLVENCY ACT. STATE THE
REQUIREMENTS OF SECTION 27 (5)
A settlement of property in an antenuptial contract by the husband on his wife (1

mark) or any child to be born of the marriage (1 mark) is not liable to be set aside as
a disposition without value (1 mark) on the husband's insolvency (1 mark) if the
following requirements are met (section 27(1) and (2); (1 mark):
• The disposition must be an immediate benefit (1 mark), ie, a benefit given

by a transfer, delivery, payment, cession, pledge, or special mortgage of
property completed within three months of the date of the marriage (1
mark)
• The disposition must have been given in good faith (1 mark). "Good faith" in
this context refers to the absence of any intention to prejudice creditors in
obtaining payment of their claims or to prefer one creditor above another
(1 mark) (section 2) (1 mark))
• The antenuptial contract must have been duly registered (1 mark) at least two
years before sequestration (1 mark)
F) EXPLAIN WHY AN INSOLVENT APPLYING FOR A DECLARATORY ORDER

MUST NOTIFY THE CREDITORS OF HIS INTENTION TO DO SO (2)
The basis for a declaratory order is that the creditors have waived their rights with
respect to the property. The reason for the requirement is that creditors cannot waive
rights of which they are unaware
G) EXPLAIN BRIEFLY WHEN A COMPANY IS DEEMED TO BE UNABLE TO PAY

ITS DEBTS (6)
In terms of section 345 of the Companies Act, 1973 a company is deemed

unable to pay its debts if –
a. a creditor having a claim of at least R100 which is already due leaves a
demand at the company’s registered office and the company for three
weeks after that has failed to pay the claim, to give security for it, or to
compromise it to the satisfaction of the creditor, or
b. a warrant of execution or other process issued on a judgment against the
which he found did not, upon sale, satisfy the process, or
c. it is proved to the satisfaction of the court that the company is unable to
pay its debts.


























MAY/JUNE 2018 - EXAMINATION PAPER AND ANSWERS
a) If a formal defect (or irregularity) has not caused a substantial injustice, the court may
CONDONE the defect (2)
BONA FIDE (2)
c) Christopher commits and act of insolvency by departing from his dwelling with the intent by
doing so to evade PAYMENT of his debts (2)
d) An application for COMPULSORY sequestration brought by a creditor who is not at arm’s

length is generally referred to as a “friendly sequestration” (2)
e) Mpho is the trustee of an insolvent estate, and if she chooses to set aside a prohibited
contract, then she must restore to the third party any benefits that the INSOLVENT DEBTOR
has received under the transaction. (2)
g) 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 (2)
h) Section 84(1) of the Insolvency Act presupposes that the seller is the OWNER of the property
sold (the res vendita) (2)
is outstanding, the right to that performance is an ASSETT in the insolvent estate and vests in
the trustees (2)
by means of a NOTICE that must state the matters to be dealt with at a meeting (2)
so. (2)
l) The Master may revoke Mike from office as the trustee of Nicci’s insolvent estate on the
grounds that Mike is mentally or PHYSICALLY incapable of performing his duties as trustee
satisfactorily (2)
m) In terms of Section 29(1) of the Insolvency Act, the value of the assets to be assessed is the
MARKET VALUE(2)
n) A valid PLEDGE is constituted where there is delivery of movable property to a creditor on the
understanding that it will be retained by him until his claim has been satisfied (2)

p) The rehabilitation of an insolvent is a matter which lies solely within the discretion of the
COURT. (2)
q) When a partnership is dissolved because the estate of one of the partners has been
r) A voluntary winding-up of Bravo Co ltd is initiated by a special RESOLUTION voluntary winding-

up. (2)
s) A voluntary winding – up of Kilo CC may be either a creditor’s voluntary winding-up, a

voluntary winding -up by the corporation, or a MEMBER voluntary winding -up
t) In terms of the Companies Act 2008, an AFFECTED PERSON may apply to court for an order to
set aside a business rescue resolution.
QUESTION 2:
NNO 1984 (1) SA 160 (W) It was de cided that a trust can be regarded as a debtor Inthe usual
sense of the word for purposes of the Insolvency Act 24 of 1936 and can therefore be
sequestrated
TRUE
3. Regarding the advantage of creditors, the court in Ex parte Henning 1981(3) SA 843 (O) held
that future possibilities, and not the present situation as at the time of application, should
determine whether a sequestration order can be regarded as being to the advantage of
creditors (2)
FALSE
4. The removal of property with intent to prejudice of prefer is not one of the listed grounds that
may be deemed as “Acts of Insolvency” in terms of Section 8 of the Insolvency Act 24 0f 1936
(2)
FALSE
no competency to make binding agreements (2)
FALSE

6. Property inherited by an insolvent during his insolvency does not fall into his insolvent estate
(2)
FALSE
7. The vesting of the solvents spouse’s property in the trustee may have serious consequences
on her. The Insolvency Act 24 of 1936 accordingly makes provision for the postponement of
vesting of some or all of the solvent spouses’ assets (2)
TRUE
8. Because of the principle of “huur gaat voor koop” the trustee cannot, as a rule, repudiate a
lease of immovable property concluded by the insolvent as lessor and must realise the
property subject to the lease (2)
TRUE
9. Debtors of the estate whose claims were not in existence at the date of sequestration, such
as, for example, an attorney who has rendered professional services at the instance of the
trustee, do not have to prove their claims and have no right to vote at meetings (2)
TRUE
10. In Hendriks No v Swanepoel 1962 (4) SA 338 (A) it was held that the test to determine whether
a specific transaction was in the ordinary course of business for purposes of section 29 of the
Insolvency Act 24 of 1936, was subjective (2)
FALSE
11. As a rule, an insolvent does not have to wait for a certain period of time before he may apply
for his rehabilitation (2)
FALSE
apply for rehabilitation after two years have elapsed from the date of his conviction. (2) FALSE
– Hockley’s 19.2.1 (ii)
partner. (2)
FALSE – Hockley’s 20.1
1. In Rand Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA d345 (W) itwasdecided
among things , that a summons is not ademand as contemplated by section 345(1)(a) of the Companies
Actbut adocument inwhichthesheriff isorderedto conveycertain informationabout thedebtor (2)
TRUE
2. The court having jurisdiction to wind up a close corporation is the court where the corporation’s
registered office or main place of business is situated (2)
TRUE
15. The rehabilitation of an insolvent is a matter which lies solely within the discretion of the court
TRUE

QUESTION 3
F) DESCRIBE WHAT THE COURT MUST BE CONVINCED OF PRIOR TO GRANTING AN
ORDER FOR THE VOLUNTARY SURRENDER OF A DEBTORS ESTATE
In terms of section 6(1) of the Insolvency Act, the court must be satisfied that
(a) all the prescribed formalities have been adhered to (notices, etc.); It should be made to
appear that the court has jurisdiction to hear the application and that the applicant has locus
standi to bring it.
(b) The estate is indeed insolvent and facts that establish this
(c) An averment that the applicant owns realizable property of sufficient value to defray
all the costs of sequestration which will in terms of the Act be payable out of the free
residue of his estate
(d) it will be to theadvantageof the Creditors if the estate is sequestrated.
G) SUPPOSE TENZA’S BROTHER ALF APPLIES FOR THE VOLUNTARY SURRENDER OF

HIS ESTATE. IT APPEARS THAT HIS WIFE RECEIVES A GOOD INCOME AND THAT
FROM THAT SHE CONTRIBUTES A SUBSTANTIAL AMOUNT TOWARDS THE
PAYMENT OF HIS DEBTS, BUT THAT SHE WILL DEFINITELY NOT CONTRIBUTE TO
DO SO IF ALF’S ESTATE IS SEQUESTRATED. SHOULD THE COURT DISMISS THE
APPLICATION MERELY BECAUSE IT WOULD BE MORE TO THE ADVANTAGE OF
ALFS CREDITORS IF ALFS WIFE WERE TO CONTINUE HELPING TO PAY HIS (ALF’S)
DEBTS? GIVE REASONS FOR YOUR ANSWER (3)
With regard to the requirement of advantage to creditors at an application for the voluntary
surrender of the estate, note the prescribed decision in Ex parte Henning 1981 (3) SA 843 (O).
In this case, the debtor’s wife, to whom he was married out of community of property, made
a monthly contribution from her salary to pay his (the debtor’s) creditors. The question was
whether this fact should have been taken into account to determine whether sequestration
would be to the advantage of the creditors. The court held that it could not be taken into
account, because it was uncertain whether the debtor’s wife would continue working and
would continue to make the monthly contribution. She could not be compelled to do so,
because her husband’s creditors were not her creditors.
C) GIVE REASONS WHY THE COURT IN Magnum Financial Holdings (PTY) LTD (in
Liquidation) v Summerly and Another 1894 (1) SA 160 (W) WAS SATISFIED THAT THE
APPLICANTS HAD MADE OUT A CASE FOR THE RELIEF SOUGHT (the urgent grant of a
provisional sequestration order)
There had been sufficient service of the papers on the trustee of the trust. (Note that this
was not a trustee in terms of the Insolvency Law, because the estate of the trust had not yet
been sequestrated. Instead, the trustee was the trustee in terms of the law of trusts, who
administered the trust property for the benefit of the trust beneficiaries.) The one provisional
liquidator of the applicant company had locus standi to apply for the provisional sequestration
of the trust estate. The applicant company had a claim against the trust for about R1,6
million which was due and payable. An act of insolvency in terms of section 8(g) of the
Insolvency Act, 1936 had been committed, and the trust estate was also insolvent. It was to
the advantage of the trust’s creditors that its estate be sequestrated urgently. Further, the
necessary security bond had been duly lodged and also annexed to the court papers
d) PROVIDE REASONS WHY AN INSOLVENT PERSON IS PROHIBITED FROM HOLDING

CERTAIN OFFICES
1. Insolvent prevented from holding office

• insolvent is prohibited from holding some offices if there is a possibility of prejudice to
the public interest,
• if a great amount of trust and responsibility is required, or
• if the possibility of dishonest business practices exists.
• The common denominators in these offices are honesty and trust.
• Sometimes there is an accumulation of circumstances over which the debtor had no control
which led to his insolvency. But very high expectations are placed on members of the
National Assembly, and it is therefore reasonable to prohibit a person who is insolvent
from serving as amember.
e) MR AND MRS TENZA AND MPHO ZONDI ARE MARIED OUT OF COMMUNITY OF
PROPERTY AND PROFIT AND LOSS. ON THE BIRTH OF THEIR FIRST CHILD, TENZA
DONATES HIS OLD MERCEDES BENZ MOTOR VEHICHLE TO MPHO, AND THEN BUYS
HIMSELF A VERY FLASHY NEW BMW MOTOR VEHICLE. THE FOLLOWING YEAR, TENZA’S
ESTATE IS SEQUESTRATED. EXPLAIN THE POSITION REGARDING THE MERCEDES BENZ
MOTOR VEHICLE THAT TENZA DONATED TO MPHO.
Under section 21(1) of the Insolvency Act, the property of the solvent spouse (Mpho) vests in
the trustee of the insolvent estate. In terms of section 21(2)(c), however, the trustee must
release property if it is proved that it was acquired during the marriage by a title valid as against
creditors of the insolvent’s estate. At common law, donations between spouses were
prohibited, except those in terms of an antenuptial contract. Section 22 of the Matrimonial
Property Act abolished this common-law prohibition. Accordingly, Mpho is entitled to the
release of the Mercedes Benz. (Nevertheless, the possibility exists that the donation of this
vehicle could be set aside as a disposition without value in terms of s 26.)
f) DISCUSS Pretorious’ trustee v Van Blommenstein 1949 (1) SA 267 (O)
Pretorius Trustee v Blommenstein

• Insolvent purchased vehicle
• Defaulted on payment
• Seller extended payment
• Subject to security on vehicle – pledged
• Trustee made application of disposition to be set aside
o S29 – voidable preference
o S30- undue preference
• Defence ordinary course of business
• No preference ito s29
• Insolvent did not contemplate insolvency
• Ord course of biz

• Objective test
used
g) NAME THE TWO MODES OF WINDING – UP OF COMPANIES AS WELL AS THE TWO

ALTERNATIVES TO WINDING -UP
Winding up a company
1. Special resolution of shareholders (voluntary)
2. Creditors place the company into liquidation
(Compulsory) Alternate
Business Rescue
Compromise with
Creditors






















OCT/NOV 2017 - EXAMINATION PAPER AND ANSWERS
a) In terms of section 149 (1) of the Insolvency Act , a court has jurisdiction over a debtor and in
regard to the estate of a debtor if at any time within the 12 MONTHS immediately preceeding
the lodging of the application, the debtor ordinarily resided or carried on business within the
jurisdiction of the court (2)
b) As a general rule, costs occasioned by an unsuccessful opposition to an application of voluntary

surrender must be borne by the CREDITOR concerned (2)
c) To avail as an act of insolvency under section 8 (b) of the Insolvency Act, the sheriff’s return
should refer to all DISPOSAL property of whatever description. (2)
d) The court must be of it mindful of the fact that where debtor and creditor in sequestration
proceedings are not at arm’s length, there is considerable potential for COLLUSION and
malpractice (2)
e) Unless granted exemption by the COURT, the insolvent is disqualified from being a director of
the company. (2)
f) “Immovable property” is defined by section 2 of the Insolvency Act as land and every right or
interest in land or MINERALS which is registered in a deed’s registry within the Republic (2)
g) Section 23(8) of the Insolvency Act 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 (2)
h) A majority of the Constitutional court decided that section 21 of the Insolvency Act cannot be
regarded as expropriating the solvent spouse’s property since it does not contemplate a
permanent transfer of OWNERSHIP to the Master of the trustee (2)
is outstanding, the right to that performance is an ASETT in the insolvent estate and vests in
the trustees (2)
j) The MASTER determines the date and time of the first meeting of creditors (2)
so. (2)

l) Note that as a result of a relative ground for disqualification such a person cannot be a trustee
of specific insolvent estate. This prohibition differs from the ABSOLUTE grounds for
disqualification where such a person may not be a trustee of any insolvent estate whatsoever
(2)
m) The term “disposition” does not include a disposition made in compliance with an ORDER OF
COURT (2)
n) In terms of section 89(2) of the Insolvency Act, a secured creditor may, when proving his claim,
choose to rely exclusively on his SECURITY (2)

p) At any time after the confirmation by the Master of a plan of distribution providing for the
payment in full of all claims proved against the insolvent estate with interest calculated in terms
of the Act and all the COST OF SECURITY the insolvent many apply for his rehabilitation (2)
q) A partnership, therefore, although not a separate juristic person in the eyes of the law, is
regarded for purposes of the Act as a separate ENTITY with an estate which may be
sequestrated like that of a natural person (2)
r) The human beings (the natural persons) who administers the business of the company are its
DIRECTORS (2)
s) A member of a close corporation has a MEMBER’S INTEREST in the close corporation
t) Business rescue proceedings commence when the company files a RESOLUTION to place itself
under supervision.
QUESTION 2:
1. In common parlance, a person is insolvent when he is unable to pay his debts. But the
legal test of insolvency is whether the debtors liabilies, fairly estimated, exceed his assets,
fairly valued
TRUE
2. Regarding the advantage of creditors, the court in Ex parte Henning 1981 (3) SA 843 (O)
held that future possibilities, and not the present situation as at the time of application,
should determine whether a sequestration order can be regarded as being to the
advantage of creditors
FALSE
3. The Insolvency Act deprives a debtor of his contractual capacity and the debtor generally
has no competency to make binding agreements
FALSE

4. The trustee of Mr Brown’s insolvent estate is obliged to release the house that MR Brown’s
wife, Mrs Brown, owned immediately before she married mr brown out of community of
property.
TRUE
5. Because of the principle of “huur gaat voor koop”, the trustee cannot, as a rule, repudiate
a lease of immovable property concluded by the insolvent as lessor and must realise the
property subject to the lease
TRUE
6. A resolution taken at an informal meeting of creditors is valid if everyone concerned has

acquiesced in or condoned the irregularities
TRUE
7. In deciding whether a disposition was made in the ordinary course of business, a subjective
test is applied – whether the disposition was one with which would normally be entered
between solvent businesspersons
FALSE – OBJECTIVE TEST IS APPLIED
8. Creditors may invoke the action Pauliana to recover not only the assets disposed of, bit also
any benefits accruing from the insolvent’s fraud
TRUE
9. The costs of maintaining, conserving, and realizing the encumbered asset include a
proportionate share of the master’s fees
TRUE
10. Estate assets covered by the provisions of the composition remain vested in the trustee
TRUE
11. If the court issues an order that the insolvent will not be automatically rehabilitated, the
Registrar must send a copy of the order to every Registrar of the High Court (a 127A (2) of
the Insolvency Act)
FALSE
12. If the Court sequestrates the estate of a partnership, the court is bound at the same time
to sequestrate the private estate of every member of the partnership
FALSE
13. One effect of the principle of the separate legal personality of the company is that the assets
and liabilities of the company are the assets and liabilities of the company, and not of the
members of the company.
TRUE
corporations registered office or main place of business is situated
TRUE
15. The company is “financially distressed” if it appears to be reasonably likely that the
company will become insolvent within the immediately ensuing twelve months.
FALSE

QUESTION 3
a) WITHIN 7 DAYS AFTER PUBLICATION OF THE NOTICE OF SURENDER, THE DEBTOR MUST
FURNIS COPIES OF NOTICE TO VARIOUS PARTIES. NAME THOSE PARTIES
Registered trade
union Employees
Creditor
sars
b) THE COURT MAY GRANT AN APPLICATION FOR THE COMPULSORY SEQUESTRATION OF

A DEBTORS ESTATE IF THE COURT IS STAISFIED THAT CERTAIN REQUIRMENTS HVE
BEEN MET. STATE THOSE REQUIREMENTS
(1) An applicant for compulsory sequestration must prove a certain type

of claim against the debtor.
(2) An applicant for compulsory sequestration does not need to prove
specific- cally that there are sufficient assets to cover the costs of
sequestration. But the absence of these assets will often lead to the
conclusion that sequestration will not be to the advantage of
creditors.
(3) An applicant for compulsory sequestration does not necessarily have
to prove that the debtor is indeed insolvent. It is sufficient if he can
prove an act of insolvency.
(4) The onus of proof with respect to the requirement of advantage to
creditors is lighter in the case of compulsory sequestration than in the
case of voluntary surrender.
C) Thoby sells his car to Bobby. The parties do not agree on when the purchase price is to
be paid. Thoby delivers the car to Bobby, and Bobby hand Thoby a cheque for the purchase
price. Bobby’s estate is sequestrated two days later. The bank refuses to pay the cheque
because there is not enough money in Bobby’s bank account.
1. WHAT TYPE OF SALE WAS ENTERED INTO BY THOBY AND BOBBY?
a. Cash sales
2. WHAT FIRST STEP MUST THOBY TAKE TO CLAIM THE CAR BACK
So Thoby must give written notice, within 10 days after delivery of the car, to Bobby, the Master, or
Bobby’s trustee that he (Thoby) reclaims the car. If the trustee then disputes Thoby’s right to reclaim
the car, he (Thoby) must, in addition, institute legal proceedings to enforce his right within 14 days
after he has received notice of the trustee’s attitude.

3. IF THOBY DOES NOT TAKE THIS STEP WHAT WILL HAPPEN TO THE CAR
If Thoby fails to take these steps the car will be an asset in the insolvent estate, and Thoby will have
only a concurrent claim for the purchase price.
D) WHEN IS A TRUSTEE OBLIGED TO CALL A GENERAL MEETING

The trustee of an insolvent estate may at any time and shall, whenever he is so required by
the Master or by a creditor or creditors representing one-fourth of the value of all claims
proved against the estate, convene in the manner prescribed by subsection (3) of section
forty, a meeting of creditors (hereinafter called a general meeting of creditors) for the purpose
of giving him directions concerning any matter relating to the administration of the estate and shall
state in such notice the matters to be dealt with at that meeting
E) THREE CREDITORS HAVE PROVED THEIR CLAIMS AGAINST PETER STEYN’S INSOLVENT ESTATE.
OUT OF THE TWO PEOPLE NOMINATED BY THE CREDITORS TO BE TRUSTEE, XOLANI OBTAINED A
MAJORITY OF VOTES IN NUMBER AND ZANELE OBTAINED A MAJORITY OF VOTES IN VALUE
1) WHO WILL BE APPOINTED AS THE TRUSTEE OF PETER STEYN’S INSOLVENT ESTATE?
Both Xolani and Xanele
2) WILL YOUR ANSWER TO QUESTION (e1) ABOVE CHANGE IF IT TURNS OUT THAT ZANELE LIVES IN
BOTSWANA?
Yes, only residents of SA can be
trustees
3) WHO MAY REMOVE A TRUSTEE FROM OFFICE ONN THE GROUND THAT THE TRUSTEE FAILED TO
PERFORM ANY OF HIS DUTIES SATISFACTORILY
The Master
F) EXPLAIN THE DIFFERENCE BETWEEN A SECURED CLAIM AND A PREFERRED CLAIM
A secured claim is paid out of the proceeds of a specific encumbered asset. (If those proceeds are
insufficient, the unpaid balance is paid as a concurrent claim from the free residue, unless the creditor
has waived the unsecured balance of his claim.) A preferent claim is paid out of the free residue (the
proceeds of the unencumbered assets) but enjoys preference over concurrent claims. (If only part of a
claim enjoys preference, the balance is also treated as a concurrent claim.)
G) THE COURTS HAVE HELD THAT IT IS JUST AND EQUITABLE TO WIND UP A COMPANY IN SIX
SPECIFIC CATEGORIES OF CASES. STATE FOUR OF THESE SIX CATEGORIES
•
• Where the main object for which the company was formed is not possible of being attained;
• Where the company’s objects are illegal, or the company was formed to defraud the persons
invited to subscribe for its shares.
• Where there is a justifiable lack of confidence in the conduct and management of the company’s
affairs. For a lack of confidence to be justifiable, it must relate to the conduct of the directors in
carrying on the company’s affairs, not their private lives
• Where the voting power in the board of directors or in the general meeting of the company is so
divided between dissenting groups that the deadlock cannot be resolved except by winding up the
company
• Where the company is a ‘quasi-partnership’ and circumstances exist, which would be good grounds
for dissolving a partnership

• Where the minority shareholders are oppressed by the controlling shareholders. However, the
court may refuse a winding-up order in this type of case if the oppression can be removed with
some other remedy, for example, by interdicting the wrongdoers from continuing their oppression

















EXAM: OCTOBER/NOVEMBER 2016 EXAMINATIONS:

QUESTION 1:
a) The terms "sequestration" and "sequestration order" should strictly be used only with
references to a PERSON’S estate. (2)
b) In Ex parte Henning, the statement of affairs that lay for inspection did not contain the
PERSONAL information (Annexure VIII). (2)
c) According to section 8(G) of the Insolvency Act it is an act of insolvency if a debtor gives notice
in writing to a creditor that he is unable to pay one or more of his debts. (2)
d) A debtor may not, without the WRITTEN consent of the trustee, enter into a contract which
adversely affects his estate. (2)
e) 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.
(2)
f) 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. (2)
g) 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. (2)
h) The SEQUESTRATION of an employer’s estate suspends the employment contract between

him and his employees with immediate effect. (2)
is outstanding, the right to that performance is an ASSET in the insolvent estate and vests in
the trustee.
j) After receiving a final sequestration order the Master must immediately convene (cause to
come together) a FIRST meeting of creditors by notice in the Government Gazette. (2)
k) A nurse who has treated the insolvent’s deceased wife or MINOR CHILD may have a preferent
claim against the insolvent estate if further requirements are met. (2)
l) Note that as a result of a relative ground for disqualification such a person cannot be a trustee
of a specific insolvent estate. This prohibition differs from the ABSOLUTE grounds for
disqualification where such a person may not be a trustee of any insolvent estate whatsoever.
(2)
m) The term "disposition" does not include a disposition made in compliance with an ORDER OF
COURT / COURT ORDER (2)
n) A valid PLEDGE is constituted where there is delivery of movable property to a creditor on the
understanding that it will be retained by him until his claim has been satisfied. (2)
o) Interest due on a secured claim for a period not exceeding TWO years immediately preceding
the date of sequestration is secured as if it were part of the capital sum. (2)
p) The rehabilitation of an insolvent is a matter which lies solely within the discretion of the
COURT. (2)
q) The human beings (the natural persons) who administer the business of the company are its
DIRECTORS. (2)
r) When a partnership is dissolved because the estate of one of the partners has been
s) Rehabilitation has the effect of putting an end to the SEQUESTRATION. (2)
t) Employees are "preferred UNSECURED creditors" for unpaid but due and payable sums of
remuneration, reimbursements for expenses, or other employment-related money before the
business rescue proceedings began.
QUESTION 2:
1. 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.
(2)
TRUE – Hockley’s 1.1
2. Publication of the notice in the Gazette and a newspaper must take place not more than 30
days and not less than 18 days before the date stated in the notice as the date for the hearing
of the application. (2)
FALSE – Hockley’s 2.3.1
3. Section 9(1) allows proceedings for the compulsory sequestration of a debtor’s estate to be
instituted by two or more creditors (or their agents) who have liquidated claims against the
debtor amounting, in aggregate, to not less than R200. (2)
TRUE – Hockley’s 3.1.3.
4. If the trustee elects to set aside a contract, he may not recover any performance rendered by
the insolvent. (2)
FALSE – Hockley’s 4.1.3.
no competency to make binding agreements. (2)
FALSE - – Hockley’s 4.1.
6. It has been held by a majority of the Constitutional Court that section 21 of the Insolvency Act
does not impair the fundamental dignity of solvent spouses. (2)
TRUE – Hockley’s 6.1.

7. As far as ranking is concerned, a secured creditor (e.g., a mortgage bondholder) is in the

strongest position, because his or her claim is paid first out of the proceeds of a certain asset
which serves as security for that claim. (2)
TRUE – Study Guide 16.1.
8. Because of the principle of "huur gaat voor koop", the trustee cannot, as a rule, repudiate a
lease of immovable property concluded by the insolvent as lessor and must realise the property
subject to the lease. (2)
TRUE – Hockley’s 7.2.7 (i)
9. An insolvent estate, for purposes of distribution, consists of the proceeds of both the
encumbered and unencumbered assets. (2)
members of the company. (2)
TRUE – MO Page 75
apply for rehabilitation after two years have elapsed from the date of his conviction. (2) FALSE
– Hockley’s 19.2.1 (ii)
partner. (2)
13. A concurrent creditor enjoys advantage over other creditors of the insolvent. (2)
14. Unlike in the case of a company, no provision is made for the appointment of a provisional
liquidator for a close corporation. (2)
TRUE / FALSE – MO 243 Page 90
15. The application for compulsory business rescue suspends any liquidation proceedings involving
the company.
TRUE – MO 25.1.1 (iii) Page 101
QUESTION 3:
a. You are the trustee of Tenza’s insolvent estate. You have discovered that Tenza paid
Bobby, Cynthia, and Donald within six months of the sequestration of his estate, for
reasons that remain unclear. You wish to question Bobby, Cynthia, and Donald about
these payments. On what occasions could they be questioned?
Because a trustee has been appointed in respect of Tenza’s insolvent estate (1 mark) the first
meeting of creditors (at which the trustee is elected) has already been held (1 mark) (see
Hockly’s 9.1.1). Bobby, Cynthia, and Donald could still be interrogated at a second meeting (1
mark) or a general meeting of creditors (1 mark) (s 65(1) (1 mark)). But they could not be
questioned at a special meeting called for the sole purpose of interrogating Tenza (1 mark).
(5)

b. Please read these instructions before you start to answer this question. This question
is in a framework format. Each of the ten questions appears in the left column named
"Question". The space for your answers is in the right column named "Answer". Thus,
answer each question in the opposite space provided in the right column. So, for
example, your answer to question (1) must appear in the space provided for answer
(1). (10)
QUESTION: ANSWER:
(1) What principle of insolvency law was The question whether a trust could, at law, be
discussed in Magnum Financial Holdings Ltd sequestrated / whether a trust can qualify as a
(Pty) Ltd (in Liquidation) v Summerly & another debtor for sequestration purposes.
NNO 1984 (1) SA 160 (W)?
Study Guide study unit 1, activity 3, sub-
question (2).
(2) If it is clear that the free residue is Refuse the application / dismiss the
insufficient, what must the court do when it application. Hockly’s par 2.2.2.
hears the debtor's application for voluntary
surrender?
(3) For the purposes of section 9(1) of the An unliquidated claim. Hockly’s 3.1.1.
Insolvency Act, a claim for the payment of an
untaxed attorney and client bill of costs is an
example of which type of claim?
(4) For sequestration to be to the advantage of A not-negligible dividend / 50 cents in a rand.
creditors, what dividend must it yield at the Hockly’s 3.1.3; Study Guide study unit 4,
least? activity 4, feedback.
(5) May an insolvent be a registered credit No. Hockly’s 4.4, fifth bullet.
provider?
(6) If the trustee wishes to continue the hire of Three months after his appointment. Hockly’s
property, what is the period of time within 7.2.3(ii).
which he must notify the lessor?
(7) One purpose of a special meeting of creditors Interrogation of the insolvent. Hockly’s
is the proof of claims. Which is the other 9.1.3(ii).
purpose of a special meeting of creditors?
(8) What is the name of the common law action Actio Pauliana. Hockly’s 12.2.5; Study Guide,
by which a creditor may have a disposition set study unit 14, activity 2.
aside?
(9) If the proceeds of the encumbered property A concurrent claim. Hockly’s 16.1.2.
are insufficient to cover the secured creditor's
claim, which type of claim does this creditor
have for the balance?
(10) If the insolvent applies for rehabilitation The Master's recommendation. Hockly’s
within two years of the date of his sequestration, 19.2.1(ii), third bullet.
whose recommendation is
required for this application?
c. Provide reasons why an insolvent person is prohibited from holding certain offices. (4)
An insolvent is prohibited from holding some offices if there is a possibility of prejudice to the
public interest (1 mark), if a great amount of trust and responsibility is required (1 mark), or if
the possibility of dishonest business practices exists. The common denominators in these
offices are honesty and trust (1 mark). Sometimes there is an accumulation of circumstances
over which the debtor had no control which led to his insolvency (1 mark). But very high
expectations are placed on members of the National Assembly, and it is therefore reasonable
to prohibit a person who is insolvent from serving as a member. (1 mark) - Study guide page
63 activity 9
d. Explain the difference between a secured claim and a preferent claim. (5)
A secured claim is paid out of the proceeds of a specific encumbered asset (1 mark). (If those
proceeds are insufficient, the unpaid balance is paid as a concurrent claim from the
freeresidue (1 mark), unless the creditor has waived the unsecured balance of his claim (1
mark).) A preferent claim is paid out of the free residue (1 mark) (the proceeds of the
unencumbered assets (1 mark)), but enjoys preference over concurrent claims (1 mark). (If only
part of a claim enjoys preference (1 mark), the balance is also treated as a concurrent claim (1
mark).) NOTE: Students are to be awarded a mark if they indicate that a secured claim is a claim
where a creditor has some form of security from an asset (1 mark) OR it ranks higher than a
preferent claim (1 mark). - Study guide page 158, 159; study unit 17, self-test question 2.
e. D’s estate was sequestrated in 2014. His concurrent creditors received no dividend and
even had to pay contributions. D has not yet been rehabilitated. He has just won a
motorcar to the value of R150 000 in a competition. The trustee of D’s insolvent estate
has heard about his good fortune and claims delivery of the car. Explain whether D has
to deliver the car to the trustee. (6)
All assets of the insolvent estate at the time of sequestration (1 mark), and all assets that the
insolvent acquires during sequestration (1 mark), that is before rehabilitation, fall into the
insolvent estate (1 mark) (section 20 of the Insolvency Act) (1 mark), unless the property is
specifically excluded (1) in terms of section 23 of the Insolvency Act (1 mark). The car that D
has won is not excluded by the Insolvency Act and thus forms part of the insolvent estate (1
mark). Even on rehabilitation the assets in the insolvent estate do not (subject to one
exception) pass to the insolvent again (1 mark).
(6)
NOTE: Students are to be awarded a mark if they mention declaratory order (1 mark) OR If the
student mentions that the trustee can waive his right (1 mark) OR if the student mentions that
formalities have to be met (1 mark) - Study guide page 180; study unit 20, self-test question 1

This paper consists of 17 pages
Hierdie vraestel bestaan uit 17 bladsye
(1) Answer ALL the questions.

Beantwoord AL die vrae.
(2) Answer each question in the space provided in this examination paper.
Beantwoord elke vraag in die ruimte wat in hierdie eksamenvraestel voorsien is.
(3) We advise you not to spend more than approximately 30 minutes on Question 1.
Good luck with the examination.
U word aangeraai om nie meer as ongeveer 30 minute aan Vraag 1 te bestee nie.
Baie sterkte met die eksamen.
[TURN OVER/BLAAI OM]

MRL3701/MRL301M
May/June/Mei/Junie 2016
QUESTION 1
VRAAG 1

Vul die ontbrekende woorde in:
(a) 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 _________________________, to free himself from all
unpaid pre-sequestration debts. (2)
(a) Alhoewel sekwestrasie nie ontwerp is ter verligting van die posisie van die
skuldenaar nie, het dit noodwendig hierdie gevolg omdat dit hom vrystel van
regstappe deur sy skuldeisers en hy, deur ______________________________,
van alle onbetaalde voor-sekwestrasie-skulde bevry word. (2)
(b) The purpose of the notice of surrender is to alert _____________________________

as to the intended application, in case they wish to oppose it. (2)
(b) Die doel van die kennisgewing van oorgawe is om

_______________________________ van die voorgenome aansoek in te lig,
ingeval hulle dit wil teenstaan. (2)
(c) An application for ___________________________ sequestration brought by a

creditor who is not at arm’s length is generally referred to as a 'friendly sequestration'.
(2)
(c) ŉ Aansoek vir _______________________________ sekwestrasie wat deur ŉ

skuldeiser gebring word wat nie 'at arm’s length' met die skuldenaar is nie, word
gewoonlik na verwys as ŉ 'vriendelike' sekwestrasie. (2)
(d) A debtor may not, without the ______________________________ consent of the

trustee, enter into a contract which adversely affects his estate. (2)
(d) Die skuldenaar mag nie sonder die ___________________________ toestemming

van die kurator ŉ kontrak aangaan wat ŉ nadelige uitwerking op sy boedel het
nie. (2)

MRL3701/MRL301M
(e) 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
_______________________ by the trustee. (2)
(e) Goed van die solvente eggenoot (waar die huwelik buite gemeenskap van goed is)
gaan ook op die kurator van die insolvente boedel oor totdat dit deur die kurator
______________________________ word. (2)
(f) Only if there is the required opinion by the _______________________________ is

the insolvent divested of the relevant portion of her earnings. (2)
(f) Slegs indien die vereiste mening deur die ___________________________

bestaan, word die insolvent van die relevante gedeelte van haar verdienste
ontneem. (2)
(g) The trustee is obliged to release property which was acquired by the solvent spouse
during her marriage with the insolvent by a
valid___________________________________ against creditors of the insolvent.
(2)
(g) Die kurator is verplig om goed wat die solvente eggenoot gedurende haar
huwelik met die insolvent verkry het kragtens ŉ
_________________________________ wat regsgeldig teenoor die skuldeisers
van die insolvent is, vry te stel. (2)
(h) Although concurrent creditors rank equally, they do not necessarily receive the same
amounts when the free residue of the estate is distributed. The dividend payable to
concurrent creditors amounts to a certain __________________________________
of cents in the rand. (2)
(h) Alhoewel konkurrente skuldeisers dieselfde rangorde beklee, ontvang hulle nie
noodwendig dieselfde bedrag wanneer die vrye oorskot van die boedel verdeel
word nie. Die vrye oorskot wat aan konkurrente skuldeisers betaalbaar is,
beloop ŉ sekere ____________________________________________ van sente in
die rand. (2)

MRL3701/MRL301M
(i) If the insolvent has carried out his side of the contract and only the other party’s
performance is outstanding, the right to that performance is an
______________________________________ in the insolvent estate and vests in the
trustee. (2)
(i) Indien die insolvent sy deel van die kontrak nagekom het en slegs die ander
party se prestasie uitstaande is, vorm die reg op daardie prestasie ŉ
____________________________ in die insolvente boedel en gaan dit op die
kurator oor. (2)
(j) After receiving a final sequestration order the Master must immediately convene
(cause to come together) a _______________________________ meeting of creditors
by notice in the Government Gazette. (2)
(j) Wanneer die Meester die finale sekwestrasiebevel ontvang, moet hy onmiddellik
deur middel van ŉ kennisgewing in die Staatskoerant ŉ
____________________________ vergadering van skuldeisers belê. (2)
(k) A nurse who has treated the insolvent’s deceased wife or ___________________
___________________ may have a preferent claim against the insolvent estate if
further requirements are met. (2)
(k) ŉ Verpleegster wat die insolvent se oorlede vrou of ____________________

____________________ behandel het, kan ŉ preferente eis teen die insolvente
boedel instel indien aan verdere vereistes voldoen word. (2)
(l) Note that as a result of a relative ground for disqualification such a person cannot be a
trustee of a specific insolvent estate. This prohibition differs from the
______________________________________ grounds for disqualification where
such a person may not be a trustee of any insolvent estate whatsoever. (2)
(l) Let daarop dat op grond van die relatiewe gronde van diskwalifikasie sodanige
persoon nie die kurator van ŉ spesifieke insolvente boedel kan wees nie. Hierdie
verbod is anders as by die _______________________________________ gronde
van diskwalifikasie, waar sodanige persoon nie die kurator van enige insolvente
boedel mag wees nie. (2)

MRL3701/MRL301M
(m) The term ‘disposition’ does not include a disposition made in compliance with an
____________________ ___________ _____________________. (2)
(m) Die omskrywing van ‘vervreemding’ sluit ŉ vervreemding ter voldoening aan ŉ
__________________________________ uit. (2)
(n) A valid _________________________ is constituted where there is delivery of

movable property to a creditor on the understanding that it will be retained by him
until his claim has been satisfied. (2)
(n) ŉ Geldige __________________________ kom tot stand waar roerende goed aan
ŉ skuldeiser gelewer word met die verstandhouding dat dit deur hom behou sal
word totdat daar aan sy vordering voldoen is. (2)
(o) A company is a ___________________________________ person that has a legal

personality separate from the members of the company. (2)
(o) ŉ Maatskappy is ŉ ___________________________________ persoon wat

regspersoonlikheid het afsonderlik van die lede van die maatskappy. (2)
(p) A private company has a name that must end with the words
“(__________________________________) Limited”. (2)
(p) ŉ Privaatmaatskappy het ŉ naam wat met die woord

“(__________________________________) Beperk” moet eindig. (2)
(q) The name of a public company must end with the word
“_______________________________________”. (2)
(q) Die naam van ŉ openbare maatskappy moet met die woord
“_________________________________” eindig. (2)
(r) A close corporation must have at least _______________ ___________________,

but not more than 10 members. (2)

MRL3701/MRL301M
(r) ŉ Beslote korporasie moet ten minste ______________ ___________________,

hê, maar nie meer as 10 lede nie. (2)
(s) Rehabilitation has the effect of putting an end to the

___________________________________. (2)
(s) Rehabilitasie het die uitwerking dat daar ŉ einde aan

_____________________________________ gemaak word. (2)
(t) You must clearly distinguish between two types of business rescue proceedings:
voluntary business rescue and ______________________________ business rescue.
(2)
(t) U moet duidelik tussen twee tipes ondernemingsreddingsverrigtinge kan

onderskei: vrywillige ondernemingsredding en __________________________
ondernemingsredding. (2)
TOTAL QUESTION 1 / TOTAAL VRAAG 1: [40]
QUESTION 2
VRAAG 2
Indicate whether the following statements are true or false. DO NOT give a written
explanation: use only the letters T or F.
Dui aan welke van die volgende stellings reg of verkeerd is. MOENIE skriftelik
verduidelik nie: gebruik slegs die letters R of V.
1. A debtor is sequestrated, not the estate itself. (2)
1. ŉ Skuldenaar word gesekwestreer, nie die boedel self nie. (2)

________________________________________________________________________

MRL3701/MRL301M
2. The court may accept the surrender of a debtor’s estate only if it is satisfied that the
debtor’s estate is, in fact, solvent. (2)
2. Die hof kan die oorgawe van ŉ skuldenaar se boedel aanvaar slegs indien hy
oortuig is dat die skuldenaar se boedel inderdaad solvent is. (2)
________________________________________________________________________
3. 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. (2)
3. Die feit dat ŉ beduidende bedrag vir verdeling beskikbaar sal wees ná die
sekwestrasiekoste betaal is, beteken nie noodwendig dat die sekwestrasie tot die
voordeel van skuldeisers sal wees nie. (2)
________________________________________________________________________
4. If the trustee elects to set aside a contract, he may not recover any performance
rendered by the insolvent. (2)
4. Indien die kurator kies om die kontrak tersyde te stel, kan hy nie enige prestasie
wat die insolvent gelewer het, verhaal nie. (2)
________________________________________________________________________
5. The insolvent may not recover for his own benefit any pension to which he may be
entitled for services rendered by him. (2)
5. Die insolvent kan nie tot sy eie voordeel ŉ pensioen waarop hy geregtig mag wees
weens dienste deur hom gelewer, invorder nie. (2)
________________________________________________________________________
6. It has been held by a majority of the Constitutional Court that section 21 of the
Insolvency Act does not impair the fundamental dignity of solvent spouses. (2)
6. Dit is deur ŉ meerderheid van die Konstitusionele Hof beslis dat artikel 21 van
die Insolvensiewet nie die fundamentele waardigheid van solvente eggenote
aantas nie. (2)
________________________________________________________________________

MRL3701/MRL301M
7. As far as ranking is concerned, a secured creditor (eg, a mortgage bondholder) is in

the strongest position, because his or her claim is paid first out of the proceeds of a
certain asset which serves as security for that claim. (2)
7. Wat rangorde betref, is ŉ versekerde skuldeiser (bv ŉ verbandhouer) in die

sterkste posisie, aangesien sy of haar eis eerste uit die opbrengs van ŉ bepaalde
bate wat as sekuriteit vir sy eis dien, betaal word. (2)
________________________________________________________________________
8. Where the insolvent contracted to acquire immovable property and the property has
not been transferred to him, the trustee must make his election to uphold or repudiate
the contract within six months after receiving written notice from the other party
calling upon him to do so. (2)
8. Waar die insolvent ŉ kontrak aangegaan het om onroerende goed te verkry en

dit nog nie aan hom oorgedra is nie, moet die kurator sy keuse om die kontrak in
stand te hou of te repudieer, uitoefen binne ses maande nadat hy van die ander
party skriftelike kennisgewing ontvang het om dit te doen. (2)
________________________________________________________________________
9. A debtor whose estate has been sequestrated finally may obviate the usual process of
liquidation of the estate assets and shorten the period of his insolvency by making a
compromise with his creditors in terms of s 120 of the Insolvency Act. (2)
9. Verder kan ŉ skuldenaar wie se boedel finaal gesekwestreer is die normale

prosedure van die tegeldemaking van die boedelbates uitskakel en die termyn
van sy insolvensie verkort deur kragtens a 120 van die Insolvensiewet ŉ akkoord
met sy skuldeisers aan te gaan. (2)
________________________________________________________________________
10. One effect of the principle of the separate legal personality of the company is that the
assets and liabilities of the company are the assets and liabilities of the company, and
not of the members of the company. (2)
10. Een gevolg van die beginsel van die afsonderlike regspersoonlikheid van die
maatskappy is dat die bates en laste van die maatskappy die bates en laste van
die maatskappy is, en nie dié van die lede van die maatskappy nie. (2)
________________________________________________________________________

MRL3701/MRL301M
11. As a general rule, a member of a close corporation must be a juristic person (a human
being). (2)
11. As ŉ algemene reël moet ŉ lid van ŉ beslote korporasie ŉ regspersoon (ŉ mens)
wees. (2)
________________________________________________________________________
12. The rehabilitation of an insolvent is a matter which lies solely within the discretion of
the court. (2)
12. Die rehabilitasie van die insolvent is ŉ aangeleentheid wat suiwer by die
diskresie van die hof berus. (2)
________________________________________________________________________
13. ŉ Konkurrente skuldeiser geniet voordeel bo ander skuldeisers van die insolvent.
(2)
________________________________________________________________________
14. A partner en commandite, like an ordinary partner, participates in the management

and business of the partnership. (2)
14. ŉ Kommanditêre vennoot neem soos ŉ gewone vennoot deel aan die bestuur en
bedryf van die vennootskap. (2)
________________________________________________________________________
15. One method of obtaining business rescue is compulsory business rescue by means of
an application by an affected person to court. (2)
15. Een metode waarop ondernemingsredding verkry kan word is verpligte

ondernemingsredding deur ŉ hofaansoek deur ŉ geaffekteerde persoon. (2)
________________________________________________________________________
QUESTION 3

MRL3701/MRL301M
VRAAG 3
(a) The requirements for voluntary surrender are stricter than those for compulsory
sequestration. Explain why. (5)
(a) Die vereistes vir vrywillige boedeloorgawe is swaarder as dié vir verpligte
sekwestrasie. Verduidelik hoekom. (5)
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(b) Please read these instructions before you start to answer this question. This
question is in a framework format. Each of the ten questions appears in the left
column named "Question". The space for your answers is in the right column named
"Answer". Thus, answer each question in the opposite space provided in the right
column. So, for example, your answer to question (1) must appear in the space
provided for answer (1).
(b) Lees asseblief die volgende instruksies alvorens u hierdie vraag beantwoord.
Hierdie vraag is in 'n raamwerk-formaat. Elkeen van die tien vrae verskyn in die
linkerkantse kolom wat "Vraag" genoem is. Die ruimte vir u antwoorde is in die
10

MRL3701/MRL301M
regtekantse kolom wat "Antwoord" genoem is. Beantwoord dus elke vraag in die
teenoorgestelde ruimte wat in die regtekantste kolom verskaf is. So, byvoorbeeld,
moet u antwoord op vraag (1) in die ruimte wat vir antwoord (1) verskaf is,
verskyn.
Question / Vraag Answer / Antwoord

(1) Which case dealt with the question (1)
whether the solvent wife could be
compelled to work so that her
contribution to her insolvent husband's
monthly payments could be taken into
account?
(1) Watter hofsaak het gehandel oor die
vraag of die solvente vrou verplig kon
word om te werk sodat haar bydrae
tot haar insolvente man se
maandelikse paaiemente in ag geneem
kan word?
(2) Had the debtor in Epstein v Epstein (2)
engaged in transactions which required
investigation?
(2) Was die skuldenaar in Epstein v
Epstein betrokke by transaksies wat
ondersoek vereis het?
(3) Name the case in which the sequestration (3)
of the debtor's estate was applied for so
that the debtor's claim against a relative
of the applicant would be extinguished.
(3) Noem die hofsaak waarin aansoek om
die sekwestrasie van die skuldenaar se
boedel gedoen is sodat die skuldenaar
se eis teen 'n familielid van die
applikant uitgewis sou word.
(4) May the trustee demand payment of (4)

money that is owed to the insolvent
under a post-sequestration partnership
which the insolvent has entered into with
the trustee's consent?
(4) Mag die trustee die betaling van geld
afdwing wat aan die insolvent
verskuldig is op grond van 'n
vennootskap wat die insolvent na
sekwestrasie met die kurator se
toestemming aangegaan het?
(5) State the general rule at common law (5)
regarding the continuation of a contract
not completed by the insolvent.
11

MRL3701/MRL301M
(5) Gee die algemene reël in die gemene

reg met betrekking tot die voortsetting
van 'n kontrak wat nog nie deur die
insolvent uitgevoer is nie.
(6) How did the court in Estate Wege v (6)
Strauss define the word "value"?
(6) Hoe het die hof in Estate Wege v Strauss
die woord "teenwaarde" omskryf?
(7) In which case did the insolvent expect to (7)
stave off insolvency if he could obtain an
extension of time in which to dispose of
his main asset?
(7) In watter hofsaak het die insolvent
verwag om insolvensie te verhoed
indien hy 'n verlenging van die
tydperk waarbinne hy sy hoofbate kon
vervreem, kon verkry het.
(8) In Ensor NO v Rensco Motors, Illings (8)
Acceptances appointed Mackenzies
Garage (Pty) Ltd to sell Mazda vehicles
and spare parts. Which type of contract
was the contract between these two
contracting parties?
(8) In Ensor NO v Rensco Motors het

Illings Acceptances vir Mackenzies
Garage (Pty) Ltd aangestel om
Mazda-voertuie en onderdele te
verkoop. Watter tipe kontrak was die
kontrak tussen dié twee kontraktante?
(9) Which case dealt with the question of (9)
when a conditional or contingent debt
could be regarded as being incurred in
order to establish whether two months
had elapsed before the bond was lodged?
(9) Watter hofbeslissing het gehandel oor
die vraag van wanneer 'n
voorwaardelike skuld as aangegaan
beskou kan word om vas te stel of twee
maande verloop het alvorens die
verband ingedien is?
(10) What did the presiding officer record as (10)
having been accepted at the meeting of
creditors in Prinsloo en ŉ Ander v Van
Zyl?
(10) Wat het die voorsittende beampte op
die rekord aangeteken as aanvaar by
die vergadering van skuldeisers in
Prinsloo en 'n Ander v Van Zyl?
(10)
12

MRL3701/MRL301M
(c) Provide reasons why an insolvent person is prohibited from holding certain offices.
(4)
(c) Verskaf redes waarom ŉ insolvente persoon verbied word om sekere ampte te
beklee. (4)
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(d) Discuss Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386
Ltd 2012 (2) SA 423 (WCC) in respect of the question whether business rescue
proceedings may be used to secure a better return for creditors or shareholders where
there is no clear prospect of the company continuing to operate on a solvent basis or
being restored to solvency. (5)
(d) Bespreek Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments
386 Ltd 2012 (2) SA 423 (WCC) ten opsigte van die vraag of
ondernemingsreddingsverrigtinge gebruik kan word om ŉ beter opbrengs vir
13

MRL3701/MRL301M
skuldeisers of aandeelhouers te verseker waar daar nie ŉ duidelike vooruitsig vir

ŉ maatskappy is om op ŉ solvente grondslag (basis) voort te gaan of tot solvensie
herstel te word nie. (5)
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
14

MRL3701/MRL301M
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(e) D’s estate was sequestrated in 2010. His concurrent creditors received no dividend
and even had to pay contributions. D has not yet been rehabilitated. He has just won a
motorcar to the value of R150 000 in a competition. The trustee of D’s insolvent
estate has heard about his good fortune and claims delivery of the car. Explain
whether D has to deliver the car to the trustee. (6)
(e) D se boedel is in 2010 gesekwestreer. Sy konkurrente skuldeisers het geen

dividend ontvang nie en moes selfs bydraes betaal. D is nog nie gerehabiliteer nie.
Hy het pas ŉ motor ter waarde van R150 00 in ŉ kompetisie gewen. Die kurator
van D se insolvente boedel het van sy geluk te hore gekom en eis lewering van die
motor. Verduidelik aan D of hy die motor aan die kurator moet oorhandig. (6)
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
15

MRL3701/MRL301M
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
TOTAL / TOTAAL: [100]

©
UNISA 2016
16

MAY/JUNE 2016- EXAMINATION PAPER AND ANSWERS
QUESTION 1:
a) 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.
b) The purpose of a notice of surrender is to alert CREDITORS as to the

intended application, in case they wish to oppose.
c) An application for COMPULSORY sequestration brought by a creditor who is

not at arm’s length is generally referred to as a “friendly sequestration.”
d) A debtor may not, without the WRITTEN consent of the trustee, enter
into a contract which adversely affects his estate.
e) 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.
f) Only if there is the required opinion by the MASTER is the insolvent divested
of the relevant portion of her earnings.
g) 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.
h) Although concurrent creditors rank equally, they do not necessarily

receive the same amounts when the free residue of the estate is distributed.
The dividend payable to concurrent creditors amounts to a certain
PROPORTION / PERCENTAGE of cents in the rand.
i) If the insolvent has carried out his side of the contract and only the other
party’s performance is outstanding, the right to that performance is an ASSET
in the insolvent estate and vests in the trustee.
j) After receiving a final sequestration order the Master must immediately convene a FIRST
meeting of creditors by notice in the Government Gazette.
k) A nurse who has treated the insolvent’s deceased wife or MINOR CHILD may
have a preferent claim against the insolvent estate if further requirements are
met.
l) Note that as a result of a relative ground of disqualification such a person

cannot be a trustee of a specific insolvent estate. This prohibition differs from

the ABSOLUTE grounds for disqualification where such a person may not be a
trustee of any insolvent estate whatsoever.
m) The term ‘disposition’ does not include a disposition made in

compliance with an ORDER OF COURT.
n) A valid PLEDGE is constituted where there is delivery of movable

property to a creditor on the understanding that it will be retained by him until
his claim has been satisfied.
o) A company is a JURISTIC person that has a legal personality separate

from the members of the company.
p) A private company has a name that must end with the words “PTY /
PROPRIETARY
limited.’
q) The name of a public company must end with the word “LTD / Limited.”
r) A close corporation must have at least ONE MEMBER but not more than 10
members.
s) Rehabilitation has the effect of putting an end to the SEQUESTRATION.
t) You must clearly distinguish between two types of business rescue

proceedings: voluntary business rescue and COMPULSORY business rescue.
QUESTION 2:
1. A debtor is sequestrated, not the estate itself.

False.
2. The court may accept the surrender of a debtor’s estate only if it is satisfied that the debtor’s
estate is, in fact, solvent.
False.
3. The fact that there will be a significant amount for distribution after the costs of sequestration
have satisfied does not necessarily mean that sequestration will be to the advantage of the
creditors.
True.
the insolvent.
False.

5. The insolvent may not recover for his own benefit any pension to which he may be entitled
for services rendered by him.
False.
6. It has been held by a majority of the Constitutional Court that s21 of the Insolvency Act does
not impair the fundamental dignity of solvent spouses.
True.
7. As far as ranking is concerned, a secured creditor (e.g. A mortgage bondholder) is in the

which serves as security for that claim.
True.
8. Where the insolvent contracted to acquire immovable property and the property has not been
within six months after receiving written notice from the other party calling upon him to do
so.
False.
compromise with his creditors in terms of s120 of Insolvency Act.
False.
True.
11. As a general rule, a member of a close corporation must be a juristic person (a human being).
False.
12. The rehabilitation of an insolvent is a matter which lies solely within the discretion of the
court.
True.
13. A concurrent creditor enjoys advantage over other creditors of the insolvent.
False.
14. A partner en commandite, like an ordinary partner, participates in the management and
business of the partnership.
False.
15. One method of obtaining business rescue is compulsory business rescue by means of an
application by an affected person to court.
True.
QUESTION 3:
a. The requirements for voluntary surrender are stricter than those for compulsory
In voluntary surrender, the court will accept the voluntary surrender of a debtor’s estate only
if it is satisfied that sequestration will be to the advantage of creditors (s 6(1)). Whereas in an

application for compulsory sequestration, the creditor has to show merely that there is reason
to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated
(s 12(1)). The onus, in other other words, is more strenuous in voluntary surrender than in
compulsory sequestration. The reason for this is that the 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 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.
b
QUESTION: ANSWER:
1. Which case dealt with the question whether Ex parte Henning
the solvent wife could be compelled to work
so that her contribution to her insolvent
husband’s monthly payments could be
taken into account?
2. Had the debtor in Epstein v Epstein engaged Yes, he committed an act of insolvency.
in transactions which required
investigation?
3. Name the case in which the sequestration if Amod v Khan
the debtor’s estate was applied for so that
the debtor’s claim against a relative of the
applicant would be extinguished.
4. May the trustee demand payment of money Yes
that is owed to the insolvent under a post-
sequestration partnership which the
insolvent has entered into with the trustee’s
consent?
5. State the general rule at common-law Generally, sequestration does not suspend or
regarding the contribution of a contract not end a contract.
completed by the insolvent.
6. How did the court in Estate Wege v Strauss Need not to be tangible or reciprocal... beinga
define the word “value?” member of the Tatterstall was defined as
value...
Value carries its ordinary meaning

7. In which case did the insolvent expect to stave Pretorius Trustee v van Blommenstein
off insolvency if he could obtain an
extension of time in which to dispose of his
main asset?
8. In Ensor NO v Rensco Motors, Illings Franchise Agreement.
Acceptances appointed Mackenzies Garage
(Pty) Ltd to sell Mazda vehicles and spare
parts. Which type of contract was the
contract between these two contracting
parties?
9. Which case dealt with the question of when a Joint Liquidators of Glen Anil Development
conditional or contingent debt could be
regarded as being incurred in order to
establish whether two months had elapsed
before the bond was lodged?

10. What did the presiding officer record as Offer of composition.

creditors in Prinsloo en ander v van Zyl?
C. Provide reasons why an insolvent person is prohibited from holding certain offices? (4)
public interest, if a great amount of trust and responsibility is required, or if the possibility of
dishonest business practices exists. The common denominators in these offices are honesty
and trust. Sometimes there is an accumulation of circumstances over which the debtor had
no control which led to his insolvency. But very high expectations are placed on members of
the National Assembly, and it is therefore reasonable to prohibit a person who is insolvent
from serving as a member.
D. Discuss Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd 2012
(2) SA 423 (WCC) in respect of the question whether business rescue proceedings may be used
to secure a better return for creditors or shareholders where there is no clear prospect of the
company continuing to operate on a solvent basis or being restored to solvency. (5)
This aspect of the case deals with the meaning of “rescuing the company” in business rescue.
Rescuing the company in this context means achieving the goals set out in the definition of
“business rescue”. These goals are to facilitate the rehabilitation of a company or corporation
in financial distress through-
• the temporary supervision of the company and the management of its affairs,
• a temporary moratorium on the rights of claimants against the company or in respect
of property in its possession; and
• the development and implementation of a plan to rescue the company and by
restructuring its affairs, business, property, debt and other liabilities, and equity in a
manner that maximizes the likelihood of it continuing in existence on a solvent basis
or; if this is not possible, that results in a better return for the company’s creditors or
shareholders than would result from the immediate liquidation of the company.
In this case Zoneska Investments (ZI) applied to court for the winding-up of Midnight Storm
(MS) because it could not pay its debts. Southern Palace (SP) then applied to court for MS to
be placed in business rescue proceedings. In respect of whether business rescue proceedings
may be used to secure a better return for creditors-
• the court held that, it regarded that goal as an independent alternative goal that may
be pursued for its own sake.
• it further held that if that goal was simply to secure a better return for creditors, it
must be made clear what resources will be made available to the company and on
which terms because, in the absence of such information, it would be mere
speculation to say that creditors will be better off than they would have been with
immediate liquidation.
In the present case the second alternative goal, to implement a business rescue plan that
would yield a better return for the creditors and shareholders than would result from
immediate liquidation, was not sought. The court exercised its discretion and rejected the
application for business rescue, and placed MS in provisional liquidation.

E. D’s estate was sequestrated in 2005. His concurrent creditors received no dividend and even
had to pay contributions. D has not yet been rehabilitated. He has just won a motorcar to the
value of R150 000 in a competition. The trustee of D’s insolvent estate has heard about his
good fortune and claims delivery of the car. Explain whether D has to deliver the car to the
trustee. (5)
Study guide page 180 activity
All assets of the insolvent estate at the time of sequestration, and all assets that the insolvent
acquires during sequestration, that is before rehabilitation, fall into the insolvent estate
(section 20 of the Insolvency Act), unless the property is specifically excluded in terms of
section 23 of the Insolvency Act. The car that D has won is not excluded by the Insolvency Act
and thus forms part of the insolvent estate. Even on rehabilitation the assets in the insolvent
estate do not (subject to one exception) pass to the insolvent again.


















OCTOBER /NOVEMBER 2015 - EXAMINATION PAPER AND ANSWERS
QUESTION 1:
(a) Mr and Mrs Van Tonder were married in community of property in 2001 and are now
insolvent. Voluntary surrender may be sought by MR AND MRS VAN TONDER / BOTH
SPOUSES / BOTH DEBTORS. (2)
(b) If it is uncertain whether the free residue is sufficient, the court may grant the application
for voluntary surrender, provided a guarantee for COSTS / SECURITY, to the satisfaction
of the Master, has been furnished. (2)
(c) That portion of the insolvent estate which is not subject to any right of preference by
reason of any special mortgage, legal hypothec, pledge or right of retention, is also known
as the FREE RESIDUE. (2)
(d) 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 a period of 24 HOURS
notice of the application has been given to the sequestrating creditor (s 11(3)). (2)
(e) Section 21 of the Insolvency Act applies only where there is, indeed, a SOLVENT spouse.
(2)
(f) Only if there is the required opinion by the MASTER is the insolvent divested of the
relevant portion of her earnings. (2)
(g) Another category of property which the trustee must release is that acquired by the
solvent spouse under a marriage settlement (s 21(2)(b)). The solvent spouse need not
prove that the settlement was BONA FIDE (2)
concurrent creditors amounts to a certain PROPORTION / PERCENTAGE of cents in the
rand. (2)
(i) When an employment contract between an employer and employee is suspended in

terms of section 38(1) of the Insolvency Act, amongst other things, no EMPLOYMENT
benefit accrues to the employee in terms of the contract.
(j) The Supreme Court of Appeal has now laid down authoritatively that the beneficiary in
this type of case merely has a COMPETENCE or power to accept the inheritance or benefit
in question and that, until he does so, it does not form part of his estate (Wessels NO v De
Jager en ’n ander NNO 2000 (4) SA 924 (SCA) 928). (2)
(k) A nurse who has treated the insolvent’s deceased wife or MINOR CHILD may have a
preferent claim against the insolvent estate if further requirements are met. (2)
(l) It is an CRIMINAL offence for a person to accept a benefit as consideration for agreeing
to, or for not opposing, a composition (s 141). (2)
(m) Examples of dispositions not for VALUE are a donation and a payment for a promise which
the promisor cannot be compelled to carry out. To qualify as “value”, the reciprocal
benefit need not be a monetary or tangible one. (2)
(n) A valid PLEDGE is constituted where there is delivery of movable property to a creditor on
the understanding that it will be retained by him until his claim has been satisfied. (2)
(o) A company is a JURISTIC person that has a legal personality separate from the members
of the company. (2)
(p) A private company has a name that must end with the words “(PTY / PROPRIETARY)
Limited”. (2)
(q) The name of a public company must end with the word “LTD / LIMITED”. (2)
(r) A close corporation must have at least ONE MEMBER but not more than 10 members. (2)
(s) Rehabilitation has the effect of putting an end to the SEQUESTRATION. (2)
(t) You must clearly distinguish between two types of business rescue proceedings: voluntary
business rescue and COMPULSORY business rescue. (2)
QUESTION 2:
1. In an application for voluntary surrender, it is possible to infer that the debtor is insolvent
merely because he asked the creditor for time to pay the debt. (2)
False (Hockly 3.1.2(ii))
2. If a court is satisfied that all requirements have been met and that the preliminary
formalities have been observed, it has no discretion to reject the voluntary surrender of
the debtor’s estate. (2)
False (Hockly’s 2.6)
3. A debtor may 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 and the friend will then apply
for voluntary surrender on the strength of this act of insolvency. (2)
False (Hockly’s 3.1.4)
4. ABC Bank registered the first mortgage over Fred’s farm and Ella registered the second
mortgage over the farm. The bank and Ella may regard the farm as “disposable property”
for the purposes of section 8(b) of the Insolvency Act. (2)

False (Hockly 3.1.2(i)(b))
5. A liquidated claim is a claim for money, the amount of which is fixed by agreement,
judgment, or otherwise. (2)
True (Hockly 3.1.1; Study guide Page 44 and 45)
6. It has been held by a majority of the Constitutional Court that section 21 of the Insolvency
Act does not impair the fundamental dignity of solvent spouses. (2)
True (Hockly 6.1, last bullet)
7. Kelly has purchased the insolvent Lisa’s land under the Alienation of Land Act and may
arrange payment of the relevant amounts to the satisfaction of the trustee of Lisa’s
insolvent estate within 21 days. (2)
8. Where the insolvent contracted to acquire immovable property and the property has not
been transferred to him, the trustee must make his election to uphold or repudiate the
contract within six months after receiving written notice from the other party calling upon
him to do so. (2)
9. Under section 34(3) of the Insolvency Act, Ilse’s transfer of her jewellery business in July
is void as against Jack, who sued Ilse in the Magistrate’s Court in June for the purchase
price of diamonds that he delivered to her for that business. (2)
True (Hockly 12.7; 12.6)
assets and liabilities of the company are the assets and liabilities of the company, and not
of the members of the company. (2)
True (MO (printed version) Page 75)
being). (2)
False (MO (printed version) Page 89)
12. One month after Dee’s estate was sequestrated, the trustee hired X Protection Services
Ltd to guard Dee’s house, and X Protection Services Ltd is entitled to vote at a meeting of
creditors. (2)
False (Hockly 9.1)
14. The free residue must be applied, in the first place, to defray funeral expenses. (2)
True (Hockly’s 16.3.2)
application by an affected person to court. (2)

QUESTION 3
(a) Explain the concept “concursus creditorum” as well as what it presupposes. (5)
Hockly 1.2
The legal machinery that comes into operation on sequestration is designed to ensure that
creditorum” means that upon the granting of a sequestration order (or provisional order)
“coming together of creditors” is established, and the interests of creditors as a group enjoy
preference over the interests of individual interests. The debtor is divested of his estate and
cannot burden it with any further debts. A creditor’s rights to recover his claim in full by judicial
proceedings is replaced by the right, on proving a claim against the insolvent estate, to share
with all other proved creditors in the proceeds of the estate assets. Apart from what is
permitted by the Insolvency Act, nothing may be done which would have the effect of
diminishing the estate assets or prejudicing the rights of creditors. Walker v Syfret NO 1911
AD 141.
(b) The requirements for voluntary surrender are stricter than those for compulsory
Hockly 2.2.3
if it is satisfied that sequestration will be to the advantage of creditors (s 6(1)).
Whereas in an application for compulsory sequestration, the creditor has to show merely that
there is reason to believe that it will be to the advantage of creditors of the debtor if his estate
is sequestrated (s 12(1)). The onus, in other other words, is more strenuous in voluntary
surrender than in compulsory sequestration. The reason for this is that the 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 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.
(c) Discuss Amod v Kahn 1947 (2) SA 432 (N). (6)

Casebook page 172
This was an appeal from an order dismissing an application for compulsory sequestration and
setting aside the provisional order of sequestration. The debt owed by the respondent
represented the taxed costs of the action in the Magistrate Court and the taxed costs of the
same case on appeal. The appellant issued a writ of execution in respect of each case and in
both cases, there was a nulla bona return. It was clear that the respondent committed an act
of insolvency in terms of s 8(b) of the Insolvency Act. When a creditor applies for the
compulsory sequestration of a debtor’s estate, the court needs to be satisfied that there is
reason to believe that sequestration of the debtor’s estate will be to the advantage of his
creditors, before granting a final sequestration order. However, in the case of a voluntary
surrender, s 6 places a heavier burden of proof on the applicant, being the debtor himself, in
that he has to satisfy the court that sequestration of his estate will be to the advantage of
creditors. The court drew attention to and explained this difference in the burden of proof
required and held that even when all the requirements of the respective sections were
complied with, the court retained its discretion to refuse a sequestration order. In this case it
exercised its discretion by refusing an application for compulsory sequestration because the
applicant was clearly abusing the process.
(d) Provide reasons why an insolvent person is prohibited from holding certain offices. (4)
the National Assembly, and it is therefore reasonable to prohibit a person who is inso lvent
(e) Discuss Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd 2012
• the temporary supervision of the company and the management of its affairs,
• a temporary moratorium on the rights of claimants against the company or in respect
• the development and implementation of a plan to rescue the company and by
• the court held that, it regarded that goal as an independent alternative goal that may
• it further held that if that goal was simply to secure a better return for creditors, it

(f) D’s estate was sequestrated in 2005. His concurrent creditors received no dividend and even
trustee. (5)
SUMMARY OF PRINSLOO V VAN ZYL

Prinsloo v Van Zyl 1967 (1) SA 581 (T)
Facts:
(a) This case deals with a composition in terms of section 119 of the Insolvency Act. An offer
of composition by the insolvent (Prinsloo) had been accepted by a simple majority in value
of creditors, but not by a three fourths majority in number or in value.
(b) The presiding officer at the meeting of creditors erroneously noted the composition as
having been accepted, resulting in the insolvent being reinstated with his assets, and
certain further consequences.
Judgment:
(a) The requirement of the acceptance of composition by three fourths in value and in
number is regulated by s 119 of the Insolvency Act.
(b) This acceptance is required to render it valid and enforceable.
(c) This is an absolute requirement and no composition can be valid unless it has been so
accepted.















OCT/NOV 2014 EXAMINATION PAPER AND ANSWERS
(a) Insolvency law provides a procedure for dealing fairly with the claims that the unpaid
CREDITORS of the insolvent person have against the insolvent estate. Insolvency law also
protects the debtor from being harassed by his or her creditors. (2)
(b) 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. (2)
(c) The court may accept the surrender of a debtor's estate only if it is satisfied that the debtor's
estate is in fact insolvent, that the debtor own realizable property of sufficient value to defray
all the costs of the sequestration which will, in terms of the act be payable out of the free
residue of his estate. It must also be shown that sequestration will be to the ADVANTAGE of
creditors. (2)
(d) In Ex parte Harmse, 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. (2)
(e) The sequestrating creditor has to approach the court twice; once to obtain a provisional order
and the second time to have the provisional order CONFIRMED and made final. (2)
(f) An act of insolvency need not be committed vis-à-vis the SEQUESTRATING creditor. (2)
(g) Only a HIGH COURT has jurisdiction to wind up a company. (2)
(h) Another category of property which the trustee must release is that acquired by the solvent
spouse under a marriage settlement (s 21(2)(b)). The solvent spouse need not prove that the
settlement was BONA FIDE. (2)
(i) Tenza sells his car to Bobby. The parties do not specifically agree on when the purchase price
is to be paid. Tenza delivers the car to Bobby, and Bobby hands Tenza a cheque for the
purchase price. Bobby’s estate is sequestrated two days later. The bank refuses to pay the
cheque, because there is not enough money in Bobby’s bank account. Suppose that in the
above example of the sale of the car you are the seller, Tenza, and the buyer is Bobby. The
sale and delivery took place on 14 August in Bloemfontein in the Free State. The purchase
price was R1 000, and Bobby handed you a cheque as payment. The cheque remains unpaid,
because of lack of funds in Bobby’s account. You have photocopied the details of the car sold
from your records. Bobby’s estate was sequestrated on 16 August. You have 10 days from the
date of delivery (14 Aug), not 10 days from the date of the SEQUESTRATION of Bobby’s estate
(16 Aug) to reclaim the property. (2)
(j) The question whether the trustee has elected to abide by the contract is one of FACT, not law.
(2)

(k) Broadly speaking, a party (Ben), has a right of RETENTION over specific property belonging to
another if he (Ben) has expended labour or incurred expenses in respect of the property. (2)
(l) There may be various reasons why an interested person wishes to apply for an order that
automatic rehabilitation should not take place after the lapse of 10 years. It may, for example,
happen that only just before the completion of the 10-year period the trustee becomes aware
of some possible IMPEACHABLE dispositions. (2)
(m) However, by electing to uphold the contract, the trustee becomes liable to perform only what
is RECIPROCALLY due to the other party. (2)
(n) The Supreme Court of Appeal has now laid down authoritatively that the beneficiary in this
type of case merely has a COMPETENCE or power to accept the inheritance or benefit in
question and that, until he does so, it does not form part of his estate (Wessels NO v De Jager
en ’n ander NNO 2000 (4) SA 924 (SCA) 928). (2)
(o) It is not necessary to establish whether or not the insolvent INTENDED to prejudice creditors
by making the disposition: the object of s 26 is simply to prevent a person in insolvent
circumstances from impoverishing his estate by giving away assets without receiving any
appreciable advantage in return (cf Estate Wege v Strauss 1932 AD 76 84). (2)
(p) Concurrent creditors are paid out of the free residue after any PREFERENT creditors have been
paid. (2)
(q) As a rule, an insolvent must wait for a certain period of time before he may apply for his
rehabilitation. However, where an offer of COMPOSITION has been accepted, the insolvent
may be entitled to apply for his rehabilitation immediately. (2)
(r) It is a CRIMINAL offence for a person to accept a benefit as consideration for agreeing to, or
for not opposing, a composition (s 141). (2)
(s) The insolvency of a party comes to an end when he is rehabilitated. Although a person’s estate
is sequestrated, his PERSON is rehabilitated. (2)
(t) The basis for a declaratory order is that the creditors have WAIVER their rights with respect
to the property. (2)
QUESTION 2
1. Mr and Mrs Jones were married in community of property in 1999 and are now insolvent. Only
Mr Jones has to apply for the voluntary surrender of the joint estate. (2)
False (Hockly 2.1)

2. The debtor must apply for voluntary surrender within the period of 10 days after the
advertised date. (2)
False (Study guide p 30)
3. In an application for compulsory sequestration, it is possible to infer that the debtor is

insolvent merely because he asked the creditor for time to pay the debt. (2)
4. Brian commits an act of insolvency when he sends his Rolex watch to his sister in Australia so
that it will not be available to pay the R200 000 that he owes Carl. (2)
True (Hockly 3.1.2(i)(d))
5. The sequestration of an employer’s estate does not suspend the employment contract
between him and his employee. (2)
False (Hockly 7.2.6(i)
6. The notice of the second meeting of creditors in English and in Afrikaans in the newspaper
must, as far as practicable, occupy the same amount of space. (2)
True (Hockly 9.1.2)
7. The Master must accept as trustee the person whom the creditors have elected. (2)
False (Hockly 10.1.2)
8. A ‘disposition’ includes an arrangement by which a party who has agreed to lend money to
the insolvent is required to pay the amount of the loan into the bank account of a third person
for the purpose of channelling the amount to a creditor of the insolvent. (2)
True (Hockly 12.1)
10. A valid pledge is constituted where there is delivery of immovable property to a creditor on
the understanding that it will be retained by him/her until the claim has been satisfied. (2)
11. In Prinsloo en 'n ander v Van Zyl NO 1967 (1) SA 581 (T), the offer of composition was accepted
only by a majority in value, and so there was no valid acceptance, and thus no valid
composition. (2)
True (Study guide p 176)
12. The sequestration of a partner’s estate does not terminate the partnership. (2)
False (Hockly 20.3)
13. The court may wind up a solvent company that is in business rescue if the business rescue
practitioner concludes that there is no reasonable prospect of the company’s being rescued.
(2)
True (Hockly 23.2.2(viii))
14. The business rescue practitioner can set aside a voidable preference under section 29 of the
Insolvency Act 24 of 1936. (2)
15. Only a magistrate’s court has jurisdiction to wind up a close corporation. (2)
QUESTION 3
(a) In terms of the Insolvency Act, all property belonging to the insolvent at the date of
sequestration and all property which the insolvent acquired during sequestration forms part of
the insolvent estate. However, there are certain exceptions to this rule. List the property that
forms part of the exceptions. (8)
Choose any eight of the below.

Hockley 5.3
• Wearing apparel, bedding, household furniture, tools and some form of subsistence;
• Remuneration or reward for work done or professional services rendered by the
insolvent;
• Pension the insolvent may be entitled to for services rendered;
• Compensation for defamation or personal injuries for loss or damage suffered;
• Compensation for occupational injuries or disease;
• Benefits or gratuity or money payable to miner
• Unemployment Insurance benefits which insolvent may be entitled to;
• Insurance policies which may include policies covering liability to third parties, and life
policies;
• Share in accrual in a marriage of the insolvent which is subject to Accrual system;
• Trust property/ funds (in terms of Trust Property Control Act);
• Right of labour tenant to land or right in land;
• Friendly society moneys and assets.
(b) In terms of a written contract of sale, Sarah sold Peter 500 valuable books from her library. A
month later, after Peter had already paid the full purchase price but before Sarah had delivered
the books, Sarah estate was sequestrated. Advise Peter on the effect of the sequestration of
Sarah’s estate on this contract. (9)
As regards this contract which has not been completed by the insolvent, Sarah, at the time of
the sequestration of her estate, the general rule is that the contract is not terminated by
sequestration. The trustee may elect whether to perform in terms of the contract or not. The
other party to the contract may not, however, claim specific performance of the obligation to
deliver the books. The trustee’s power to repudiate the contract must be exercised in the
interests of the concursus creditorum. He must therefore seek and adopt the instructions of
the general body of creditors and must not choose a course of action that harms the interests
of the concursus. Here the concursus would instruct the trustee to repudiate the contract with
Peter, so that the valuable books may be sold, and the proceeds may thereby increase the free
residue. Peter will then be left with a concurrent claim for repayment of the purchase price,
and for damages. Once he has decided to uphold or to repudiate the contract the trustee may
not change his mind. If he does not make his decision within a reasonable time, he is assumed
to repudiate the contract.
(c) You are the trustee to Sarah’s insolvent estate. You have discovered that Sarah paid Bobby,
Cynthia and Donald within six months of the sequestration of her estate, for reasons that
remain unclear. You wish to question Bobby, Cynthia and Donald about these payments. On
what occasions could they be questioned? (5)
Because a trustee has been appointed in respect of Sarah’s insolvent estate the first meeting
of creditors (at which the trustee is elected) has already been held. Bobby, Cynthia, and Donald
could still be interrogated at a second meeting or a general meeting of creditors. But they could
not be questioned at a special meeting called for the sole purpose of interrogating Sarah.
(d) Discuss Estate Wege v Strauss 1932 AD 76 in respect of dispositions that can be set aside by a
court after the sequestration of a debtor’s estate. (8)
Two dispositions that can be set aside by the court after the sequestration of a debtor’s estate
were discussed in this decision.
The first was a disposition without value (in terms of section 26 of the Insolvency Act and here
the court held that although a betting transaction was an invalid agreement and thus
unenforceable in a court of law, payment of such a wagering debt was not a disposition without
value. The court pointed out that the object of the relevant section was not to prevent a person
in insolvent circumstances from engaging in ordinary transaction, but to prevent such person
from impoverishing his estate by giving away his assets without receiving any advantage in
return.
The second type of disposition examined by the court was the so called “undue preference” in
terms of section 29 of the Insolvency Act. In particular, the court dealt with the defence of
ordinary course of business and the fact that one had to look at the particular type of business
involved, namely that of bookmakers.

ASSIGNMENT 1 – SEMESTER 1 – 2017:
1. The legislator has designated certain acts or omissions by a debtor as “acts of insolvency.”
2. A concurrent creditor does not enjoy any advantage over other creditors of the insolvent.
3. Once the new Companies Act 2008 came into effect, the law was divided. Since then, the
winding-up of solvent companies is dealt with in terms of the Companies Act 2008.
4. With regard to a close corporation, there are several important differences between
payments by reason of membership, and salaries or remuneration. The all-important
difference is the difference of capacity.
5. A voluntary business rescue starts with a resolution by the directors of the juristic person
concerned.
6. As a rule, only a Provincial or Local Division of the High Court may adjudicate upon an
insolvency matter.
6.1. True.
7. For sequestration to be to the advantage of creditors it must “yield at the least, a not negligible
dividend.
7.1. True.
8. If a trustee vacates his office, is removed from office, or dies, the estate revests in the insolvent
until a new trustee is appointed.
8.1. False: Correct Statement: the estate revests in the Master until a new trustee is appointed.
9. As a general rule, sequestration suspends or puts an end to a contract.

9.1. False: Correct statement: As a general rule, sequestration does not suspend or put an end to
the contract.
10. A minor is an example of a person absolutely disqualified from being a trustee.

10.1. True.
ASSIGNMENT 1 – SEMESTER 2 – 2017:
1. An application for compulsory sequestration brought by a creditor who is not arm's length is
generally referred to as a friendly sequestration.
2. A landlord who is owed rent has a hypothec over movable property brought on to the leased
premises for use by the tenant.
3. Once the new Companies Act 2008 came into effect, the law was divided. Since then, the
winding up of solvent companies is dealt with in terms of the Companies Act 1973.
4. With regard to a close corporation, there are several important differences between
payments by reason of membership, and salaries or remuneration. The all-important
difference is the difference of capacity.
5. A compulsory business rescue starts with an application to court.
6. The Notice of surrender (and consequently the debtor’s application for surrender) never lapses,
even if the court does not accept the surrender.

6.1. False: Correct statement: A notice of surrender lapses if the court does not accept the
surrender when the application is made, 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 days
after the date advertised as the date of hearing of the application.
7. An insolvent who brings an action in the magistrate court is obliged to give security for the
costs of the action if the defendant requests it.
7.1. True.
8. Where the joint estate of spouses married in community of property is sequestrated, both
spouses become insolvent and s21, accordingly, has no application.
8.1. True.
9. A special meeting may be called for either of the following purposes: (i) Proof of claims and
(ii) to elect a trustee.
9.1. False: Correct statement: (i) proof of claims and (ii) Interrogation of the insolvent.
10. The Master may remove a trustee from office on the ground that the majority of creditors has
requested in writing that he be removed.
10.1. True.
EXAM: OCTOBER/NOVEMBER 2016:
QUESTION 1:
(a) The terms "sequestration" and "sequestration order" should strictly be used only with
references to a PERSON’S estate. (2)
(b) In Ex parte Henning, the statement of affairs that lay for inspection did not contain the
PERSONAL information (Annexure VIII). (2)
(c) According to section 8(G) of the Insolvency Act it is an act of insolvency if a debtor gives notice
in writing to a creditor that he is unable to pay one or more of his debts. (2)
(d) A debtor may not, without the WRITTEN consent of the trustee, enter into a contract which
adversely affects his estate. (2)
(e) 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.
(2)
(f) 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. (2)

(g) 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. (2)
(h) The SEQUESTRATION of an employer’s estate suspends the employment contract between
him and his employees with immediate effect. (2)
(i) If the insolvent has carried out his side of the contract and only the other party’s performance
is outstanding, the right to that performance is an ASSET in the insolvent estate and vests in
the trustee.
(j) After receiving a final sequestration order the Master must immediately convene (cause to
come together) a FIRST meeting of creditors by notice in the Government Gazette. (2)
(k) A nurse who has treated the insolvent’s deceased wife or MINOR CHILD may have a preferent
claim against the insolvent estate if further requirements are met. (2)
(l) Note that as a result of a relative ground for disqualification such a person cannot be a trustee
of a specific insolvent estate. This prohibition differs from the ABSOLUTE grounds for
disqualification where such a person may not be a trustee of any insolvent estate whatsoever.
(2)
(m) The term "disposition" does not include a disposition made in compliance with an ORDER OF
COURT / COURT ORDER (2)
(n) A valid PLEDGE is constituted where there is delivery of movable property to a creditor on the
understanding that it will be retained by him until his claim has been satisfied. (2)
(o) Interest due on a secured claim for a period not exceeding TWO years immediately preceding
the date of sequestration is secured as if it were part of the capital sum. (2)
(p) The rehabilitation of an insolvent is a matter which lies solely within the discretion of the
COURT. (2)
(q) The human beings (the natural persons) who administer the business of the company are its
DIRECTORS. (2)
(r) When a partnership is dissolved because the estate of one of the partners has been
(t) Employees are "preferred UNSECURED creditors" for unpaid but due and payable sums of
remuneration, reimbursements for expenses, or other employment-related money before the
business rescue proceedings began.

QUESTION 2:
1. 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. (2)
2. Publication of the notice in the Gazette and a newspaper must take place not more than 30
days and not less than 18 days before the date stated in the notice as the date for the hearing
of the application. (2)
FALSE – Hockley’s 2.3.1
3. Section 9(1) allows proceedings for the compulsory sequestration of a debtor’s estate to be
instituted by two or more creditors (or their agents) who have liquidated claims against the
debtor amounting, in aggregate, to not less than R200. (2)
TRUE – Hockley’s 3.1.3.
the insolvent. (2)
no competency to make binding agreements. (2)
FALSE - – Hockley’s 4.1.
6. It has been held by a majority of the Constitutional Court that section 21 of the Insolvency Act
does not impair the fundamental dignity of solvent spouses. (2)
TRUE – Hockley’s 6.1.
7. As far as ranking is concerned, a secured creditor (eg, a mortgage bondholder) is in the

which serves as security for that claim. (2)
TRUE – Study Guide 16.1.
8. Because of the principle of "huur gaat voor koop", the trustee cannot, as a rule, repudiate a
lease of immovable property concluded by the insolvent as lessor and must realise the
property subject to the lease. (2)
TRUE – Hockley’s 7.2.7 (i)
9. An insolvent estate, for purposes of distribution, consists of the proceeds of both the
encumbered and unencumbered assets. (2)
members of the company. (2)
TRUE – MO Page 75

apply for rehabilitation after two years have elapsed from the date of his conviction. (2)
FALSE – Hockley’s 19.2.1 (ii)
partner. (2)
14. Unlike in the case of a company, no provision is made for the appointment of a provisional
liquidator for a close corporation. (2)
TRUE / FALSE – MO 243 Page 90
15. The application for compulsory business rescue suspends any liquidation proceedings
TRUE – MO 25.1.1 (iii) Page 101
QUESTION 3:
A. You are the trustee of Tenza’s insolvent estate. You have discovered that Tenza paid Bobby,
Cynthia, and Donald within six months of the sequestration of his estate, for reasons that
remain unclear. You wish to question Bobby, Cynthia, and Donald about these payments. On
what occasions could they be questioned?
Hockly’s 9.1.3(ii)
Because a trustee has been appointed in respect of Tenza’s insolvent estate (1 mark) the first
meeting of creditors (at which the trustee is elected) has already been held (1 mark) (see
Hockly’s 9.1.1). Bobby, Cynthia, and Donald could still be interrogated at a second meeting (1
mark) or a general meeting of creditors (1 mark) (s 65(1) (1 mark)). But they could not be
questioned at a special meeting called for the sole purpose of interrogating Tenza (1 mark).
(5)
B. Please read these instructions before you start to answer this question. This question is in a
framework format. Each of the ten questions appears in the left column named "Question".
The space for your answers is in the right column named "Answer". Thus, answer each
question in the opposite space provided in the right column. So, for example, your answer to
question (1) must appear in the space provided for answer (1). (10)
QUESTION: ANSWER:
(1) What principle of insolvency law was The question whether a trust could, at law, be
discussed in Magnum Financial Holdings Ltd sequestrated / whether a trust can qualify as a
(Pty) Ltd (in Liquidation) v Summerly & another debtor for sequestration purposes.
NNO 1984 (1) SA 160 (W)?

Study Guide study unit 1, activity 3, sub-

question (2).
(2) If it is clear that the free residue is Refuse the application / dismiss the
insufficient, what must the court do when it application. Hockly’s par 2.2.2.
hears the debtor's application for voluntary
surrender?
(3) For the purposes of section 9(1) of the An unliquidated claim. Hockly’s 3.1.1.
Insolvency Act, a claim for the payment of an
untaxed attorney and client bill of costs is an
example of which type of claim?
(4) For sequestration to be to the advantage of A not-negligible dividend / 50 cents in a rand.
creditors, what dividend must it yield at the Hockly’s 3.1.3; Study Guide study unit 4,
least? activity 4, feedback.
(5) May an insolvent be a registered credit No. Hockly’s 4.4, fifth bullet.
provider?
(6) If the trustee wishes to continue the hire of Three months after his appointment. Hockly’s
property, what is the period of time within 7.2.3(ii).
which he must notify the lessor?
(7) One purpose of a special meeting of creditors Interrogation of the insolvent. Hockly’s
is the proof of claims. Which is the other 9.1.3(ii).
purpose of a special meeting of creditors?
(8) What is the name of the common law action Actio Pauliana. Hockly’s 12.2.5; Study Guide,
by which a creditor may have a disposition set study unit 14, activity 2.
aside?
(9) If the proceeds of the encumbered property A concurrent claim. Hockly’s 16.1.2.
are insufficient to cover the secured creditor's
claim, which type of claim does this creditor
have for the balance?
(10) If the insolvent applies for rehabilitation The Master's recommendation. Hockly’s
within two years of the date of his 19.2.1(ii), third bullet.
sequestration, whose recommendation is
required for this application?
C. Provide reasons why an insolvent person is prohibited from holding certain offices. (4)
public interest (1 mark), if a great amount of trust and responsibility is required (1 mark), or if
the possibility of dishonest business practices exists. The common denominators in these
offices are honesty and trust (1 mark). Sometimes there is an accumulation of circumstances
over which the debtor had no control which led to his insolvency (1 mark). But very high
expectations are placed on members of the National Assembly, and it is therefore reasonable
to prohibit a person who is insolvent from serving as a member. (1 mark) - Study guide page
63 activity 9
D. Explain the difference between a secured claim and a preferent claim. (5)
A secured claim is paid out of the proceeds of a specific encumbered asset (1 mark). (If those
proceeds are insufficient, the unpaid balance is paid as a concurrent claim from the free

residue (1 mark), unless the creditor has waived the unsecured balance of his claim (1 mark).)
A preferent claim is paid out of the free residue (1 mark) (the proceeds of the unencumbered
assets (1 mark)), but enjoys preference over concurrent claims (1 mark). (If only part of a claim
enjoys preference (1 mark), the balance is also treated as a concurrent claim (1 mark).)
NOTE: Students are to be awarded a mark if they indicate that a secured claim is a claim where
a creditor has some form of security from an asset (1 mark) OR it ranks higher than a preferent
claim (1 mark). - Study guide page 158, 159; study unit 17, self-test question 2.
trustee. (6)
All assets of the insolvent estate at the time of sequestration (1 mark), and all assets that the
insolvent acquires during sequestration (1 mark), that is before rehabilitation, fall into the
insolvent estate (1 mark) (section 20 of the Insolvency Act) (1 mark), unless the property is
specifically excluded (1) in terms of section 23 of the Insolvency Act (1 mark). The car that D
has won is not excluded by the Insolvency Act and thus forms part of the insolvent estate (1
mark). Even on rehabilitation the assets in the insolvent estate do not (subject to one
exception) pass to the insolvent again (1 mark).
(6)
NOTE: Students are to be awarded a mark if they mention declaratory order (1 mark) OR If
the student mentions that the trustee can waive his right (1 mark) OR if the student mentions
that formalities have to be met (1 mark) - Study guide page 180; study unit 20, self-test
question 1
EXAM MAY/JUNE 2016:
QUESTION 1:
(a) 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.
(b) The purpose of a notice of surrender is to alert CREDITORS as to the intended application,
in case they wish to oppose.
(c) An application for COMPULSORY sequestration brought by a creditor who is not at arm’s
length is generally referred to as a “friendly sequestration.”
(d) A debtor may not, without the WRITTEN consent of the trustee, enter into a contract
which adversely affects his estate.

(e) 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.
relevant portion of her earnings.
(g) 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.
rand.
(i) If the insolvent has carried out his side of the contract and only the other party’s
performance is outstanding, the right to that performance is an ASSET in the insolvent
estate and vests in the trustee.
(j) After receiving a final sequestration order the Master must immediately convene a FIRST
meeting of creditors by notice in the Government Gazette.
preferent claim against the insolvent estate if further requirements are met.
(l) Note that as a result of a relative ground of disqualification such a person cannot be a
trustee of a specific insolvent estate. This prohibition differs from the ABSOLUTE grounds
for disqualification where such a person may not be a trustee of any insolvent estate
whatsoever.
(m) The term ‘disposition’ does not include a disposition made in compliance with an ORDER
OF COURT.
the understanding that it will be retained by him until his claim has been satisfied.
of the company.
(p) A private company has a name that must end with the words “PTY / PROPRIETARY
limited.’
(q) The name of a public company must end with the word “LTD / Limited.”
(r) A close corporation must have at least ONE MEMBER but not more than 10 members.
(s) Rehabilitation has the effect of putting an end to the SEQUESTRATION.

(t) You must clearly distinguish between two types of business rescue proceedings:
voluntary business rescue and COMPULSORY business rescue.
QUESTION 2:
1. A debtor is sequestrated, not the estate itself.

False.
2. The court may accept the surrender of a debtor’s estate only if it is satisfied that the debtor’s
estate is, in fact, solvent.
False.
3. The fact that there will be a significant amount for distribution after the costs of sequestration
have satisfied does not necessarily mean that sequestration will be to the advantage of the
creditors.
True.
the insolvent.
False.
5. The insolvent may not recover for his own benefit any pension to which he may be entitled
for services rendered by him.
False.
6. It has been held by a majority of the Constitutional Court that s21 of the Insolvency Act does
not impair the fundamental dignity of solvent spouses.
True.
7. As far as ranking is concerned, a secured creditor (eg. A mortgage bondholder) is in the

which serves as security for that claim.
True.
8. Where the insolvent contracted to acquire immovable property and the property has not been
within six months after receiving written notice from the other party calling upon him to do
so.
False.

compromise with his creditors in terms of s120 of Insolvency Act.
False.
True.
11. As a general rule, a member of a close corporation must be a juristic person (a human being).
False.
12. The rehabilitation of an insolvent is a matter which lies solely within the discretion of the
court.
True.
13. A concurrent creditor enjoys advantage over other creditors of the insolvent.
False.
14. A partner en commandite, like an ordinary partner, participates in the management and
business of the partnership.
False.
application by an affected person to court.
True.
QUESTION 3:
a. The requirements for voluntary surrender are stricter than those for compulsory
if it is satisfied that sequestration will be to the advantage of creditors (s 6(1)). Whereas in an
application for compulsory sequestration, the creditor has to show merely that there is reason
to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated
(s 12(1)). The onus, in other others words, is more strenuous in voluntary surrender than in
compulsory sequestration. The reason for this is that the 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 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.

b.
QUESTION: ANSWER:
1. Which case dealt with the question whether Ex parte Henning
the solvent wife could be compelled to work
so that her contribution to her insolvent
husband’s monthly payments could be
taken into account?
2. Had the debtor in Epstein v Epstein engaged Yes, he committed an act of insolvency.
in transactions which required
investigation?
3. Name the case in which the sequestration if Amod v Khan
the debtor’s estate was applied for so that
the debtor’s claim against a relative of the
applicant would be extinguished.
4. May the trustee demand payment of money Yes
that is owed to the insolvent under a post-
sequestration partnership which the
insolvent has entered into with the trustee’s
consent?
5. State the general rule at common-law Generally sequestration does not suspend or
regarding the contribution of a contract not end a contract.
completed by the insolvent.
6. How did the court in Estate Wege v Strauss Need not to be tangible or recipirocal... being a
define the word “value?” member of the Tatterstall was defined as
value...
Value carries its ordinary meaning

7. In which case did the insolvent expect to Pretorius Trustee v van Blommenstein
stave off insolvency if he could obtain an
extension of time in which to dispose of his
main asset?
8. In Ensor NO v Rensco Motors, Illings Franchise Agreement.
Acceptances appointed Mackenzies Garage
(Pty) Ltd to sell Mazda vehicles and spare
parts. Which type of contract was the
contract between these two contracting
parties?
9. Which case dealt with the question of when Joint Liquidators of Glen Anil Development
a conditional or contingent debt could be
regarded as being incurred in order to
establish whether two months had elapsed
before the bond was lodged?
10. What did the presiding officer record as Offer of composition.
creditors in Prinsloo en ander v van Zyl?

C. Provide reasons why an insolvent person is prohibited from holding certain offices? (4)
D. Discuss Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd 2012
 a temporary moratorium on the rights of claimants against the company or in respect
 the court held that, it regarded that goal as an independent alternative goal that may
 it further held that if that goal was simply to secure a better return for creditors, it

trustee. (5)
EXAM OCTOBER/NOVEMBER 2015:
QUESTION 1:
(a) Mr and Mrs Van Tonder were married in community of property in 2001 and are now
insolvent. Voluntary surrender may be sought by MR AND MRS VAN TONDER / BOTH
SPOUSES / BOTH DEBTORS. (2)
(b) If it is uncertain whether the free residue is sufficient, the court may grant the application
for voluntary surrender, provided a guarantee for COSTS / SECURITY, to the satisfaction
of the Master, has been furnished. (2)
(c) That portion of the insolvent estate which is not subject to any right of preference by
reason of any special mortgage, legal hypothec, pledge or right of retention, is also known
as the FREE RESIDUE. (2)
(d) 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 a period of 24 HOURS
notice of the application has been given to the sequestrating creditor (s 11(3)). (2)
(e) Section 21 of the Insolvency Act applies only where there is, indeed, a SOLVENT spouse.
(2)
relevant portion of her earnings. (2)
(g) Another category of property which the trustee must release is that acquired by the
solvent spouse under a marriage settlement (s 21(2)(b)). The solvent spouse need not
prove that the settlement was BONA FIDE (2)

rand. (2)
(i) When an employment contract between an employer and employee is suspended in

terms of section 38(1) of the Insolvency Act, amongst other things, no EMPLOYMENT
benefit accrues to the employee in terms of the contract.
(j) The Supreme Court of Appeal has now laid down authoritatively that the beneficiary in
this type of case merely has a COMPETENCE or power to accept the inheritance or benefit
in question and that, until he does so, it does not form part of his estate (Wessels NO v De
Jager en ’n ander NNO 2000 (4) SA 924 (SCA) 928). (2)
preferent claim against the insolvent estate if further requirements are met. (2)
(l) It is an CRIMINAL offence for a person to accept a benefit as consideration for agreeing
to, or for not opposing, a composition (s 141). (2)
(m) Examples of dispositions not for VALUE are a donation and a payment for a promise which
the promisor cannot be compelled to carry out. To qualify as “value”, the reciprocal
benefit need not be a monetary or tangible one. (2)
the understanding that it will be retained by him until his claim has been satisfied. (2)
of the company. (2)
(p) A private company has a name that must end with the words “(PTY / PROPRIETARY)
Limited”. (2)
(q) The name of a public company must end with the word “LTD / LIMITED”. (2)
(r) A close corporation must have at least ONE MEMBER but not more than 10 members. (2)
(t) You must clearly distinguish between two types of business rescue proceedings: voluntary
business rescue and COMPULSORY business rescue. (2)

QUESTION 2:
1. In an application for voluntary surrender, it is possible to infer that the debtor is insolvent
merely because he asked the creditor for time to pay the debt. (2)
2. If a court is satisfied that all requirements have been met and that the preliminary
formalities have been observed, it has no discretion to reject the voluntary surrender of
the debtor’s estate. (2)
False (Hockly’s 2.6)
3. A debtor may 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 and the friend will then apply
for voluntary surrender on the strength of this act of insolvency. (2)
4. ABC Bank registered the first mortgage over Fred’s farm and Ella registered the second
mortgage over the farm. The bank and Ella may regard the farm as “disposable property”
for the purposes of section 8(b) of the Insolvency Act. (2)
False (Hockly 3.1.2(i)(b))
5. A liquidated claim is a claim for money, the amount of which is fixed by agreement,
judgment, or otherwise. (2)
True (Hockly 3.1.1; Study guide Page 44 and 45)
6. It has been held by a majority of the Constitutional Court that section 21 of the Insolvency
Act does not impair the fundamental dignity of solvent spouses. (2)
True (Hockly 6.1, last bullet)
7. Kelly has purchased the insolvent Lisa’s land under the Alienation of Land Act and may
arrange payment of the relevant amounts to the satisfaction of the trustee of Lisa’s
insolvent estate within 21 days. (2)
8. Where the insolvent contracted to acquire immovable property and the property has not
been transferred to him, the trustee must make his election to uphold or repudiate the
contract within six months after receiving written notice from the other party calling upon
him to do so. (2)
9. Under section 34(3) of the Insolvency Act, Ilse’s transfer of her jewellery business in July
is void as against Jack, who sued Ilse in the Magistrate’s Court in June for the purchase
price of diamonds that he delivered to her for that business. (2)
True (Hockly 12.7; 12.6)

assets and liabilities of the company are the assets and liabilities of the company, and not
of the members of the company. (2)
being). (2)
False (MO (printed version) Page 89)
12. One month after Dee’s estate was sequestrated, the trustee hired X Protection Services
Ltd to guard Dee’s house, and X Protection Services Ltd is entitled to vote at a meeting of
creditors. (2)
False (Hockly 9.1)
14. The free residue must be applied, in the first place, to defray funeral expenses. (2)
True (Hockly’s 16.3.2)
application by an affected person to court. (2)
QUESTION 3
(a) Explain the concept “concursus creditorum” as well as what it presupposes. (5)
Hockly 1.2
The legal machinery that comes into operation on sequestration is designed to ensure that
creditorum” means that upon the granting of a sequestration order (or provisional order)
“coming together of creditors” is established, and the interests of creditors as a group enjoy
preference over the interests of individual interests. The debtor is divested of his estate and
cannot burden it with any further debts. A creditor’s rights to recover his claim in full by
judicial proceedings is replaced by the right, on proving a claim against the insolvent estate,
to share with all other proved creditors in the proceeds of the estate assets. Apart from what
is permitted by the Insolvency Act, nothing may be done which would have the effect of
diminishing the estate assets or prejudicing the rights of creditors. Walker v Syfret NO 1911
AD 141.
(b) The requirements for voluntary surrender are stricter than those for compulsory
Hockly 2.2.3
if it is satisfied that sequestration will be to the advantage of creditors (s 6(1)).
Whereas in an application for compulsory sequestration, the creditor has to show merely that
there is reason to believe that it will be to the advantage of creditors of the debtor if his estate
is sequestrated (s 12(1)). The onus, in other others words, is more strenuous in voluntary

surrender than in compulsory sequestration. The reason for this is that the 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 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.
(c) Discuss Amod v Kahn 1947 (2) SA 432 (N). (6)

Casebook page 172
This was an appeal from an order dismissing an application for compulsory sequestration and
setting aside the provisional order of sequestration. The debt owed by the respondent
represented the taxed costs of the action in the Magistrate Court and the taxed costs of the
same case on appeal. The appellant issued a writ of execution in respect of each case and in
both cases there was a nulla bona return. It was clear that the respondent committed an act
of insolvency in terms of s 8(b) of the Insolvency Act. When a creditor applies for the
compulsory sequestration of a debtor’s estate, the court needs to be satisfied that there is
reason to believe that sequestration of the debtor’s estate will be to the advantage of his
creditors, before granting a final sequestration order. However, in the case of a voluntary
surrender, s 6 places a heavier burden of proof on the applicant, being the debtor himself, in
that he has to satisfy the court that sequestration of his estate will be to the advantage of
creditors. The court drew attention to and explained this difference in the burden of proof
required, and held that even when all the requirements of the respective sections were
complied with, the court retained its discretion to refuse a sequestration order. In this case it
exercised its discretion by refusing an application for compulsory sequestration because the
applicant was clearly abusing the process.
(d) Provide reasons why an insolvent person is prohibited from holding certain offices. (4)
(e) Discuss Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd 2012

 a temporary moratorium on the rights of claimants against the company or in respect

 the court held that, it regarded that goal as an independent alternative goal that may
 it further held that if that goal was simply to secure a better return for creditors, it
(f) D’s estate was sequestrated in 2005. His concurrent creditors received no dividend and even
trustee. (5)
SUMMARY OF PRINSLOO V VAN ZYL

Prinsloo v Van Zyl 1967 (1) SA 581 (T)
Facts:
(a) This case deals with a composition in terms of section 119 of the Insolvency Act. An offer
of composition by the insolvent (Prinsloo) had been accepted by a simple majority in value
of creditors, but not by a three fourths majority in number or in value.

(b) The presiding officer at the meeting of creditors erroneously noted the composition as
having been accepted, resulting in the insolvent being reinstated with his assets, and
certain further consequences.
Judgment:
(a) The requirement of the acceptance of composition by three fourths in value and in
number is regulated by s 119 of the Insolvency Act.
(b) This acceptance is required to render it valid and enforceable.
(c) This is an absolute requirement and no composition can be valid unless it has been so
accepted.
EXAM OCTOBER / NOVEMBER 2014:
(a) Insolvency law provides a procedure for dealing fairly with the claims that the unpaid
CREDITORS of the insolvent person have against the insolvent estate. Insolvency law also
protects the debtor from being harassed by his or her creditors. (2)
(b) 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. (2)
(c) The court may accept the surrender of a debtor's estate only if it is satisfied that the debtor's
estate is in fact insolvent, that the debtor own realizable property of sufficient value to defray
all the costs of the sequestration which will, in terms of the act be payable out of the free
residue of his estate. It must also be shown that sequestration will be to the ADVANTAGE of
creditors. (2)
(d) In Ex parte Harmse, 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. (2)
(e) The sequestrating creditor has to approach the court twice; once to obtain a provisional order
and the second time to have the provisional order CONFIRMED and made final. (2)
(f) An act of insolvency need not be committed vis-à-vis the SEQUESTRATING creditor. (2)
(g) Only a HIGH COURT has jurisdiction to wind up a company. (2)
(h) Another category of property which the trustee must release is that acquired by the solvent
spouse under a marriage settlement (s 21(2)(b)). The solvent spouse need not prove that the
settlement was BONA FIDE. (2)
(i) Tenza sells his car to Bobby. The parties do not specifically agree on when the purchase price
is to be paid. Tenza delivers the car to Bobby, and Bobby hands Tenza a cheque for the

purchase price. Bobby’s estate is sequestrated two days later. The bank refuses to pay the
cheque, because there is not enough money in Bobby’s bank account. Suppose that in the
above example of the sale of the car you are the seller, Tenza, and the buyer is Bobby. The
sale and delivery took place on 14 August in Bloemfontein in the Free State. The purchase
price was R1 000, and Bobby handed you a cheque as payment. The cheque remains unpaid,
because of lack of funds in Bobby’s account. You have photocopied the details of the car sold
from your records. Bobby’s estate was sequestrated on 16 August. You have 10 days from the
date of delivery (14 Aug), not 10 days from the date of the SEQUESTRATION of Bobby’s estate
(16 Aug) to reclaim the property. (2)
(j) The question whether the trustee has elected to abide by the contract is one of FACT, not law.
(2)
(k) Broadly speaking, a party (Ben), has a right of RETENTION over specific property belonging to
another if he (Ben) has expended labour or incurred expenses in respect of the property. (2)
(l) There may be various reasons why an interested person wishes to apply for an order that
automatic rehabilitation should not take place after the lapse of 10 years. It may, for example,
happen that only just before the completion of the 10-year period the trustee becomes aware
of some possible IMPEACHABLE dispositions. (2)
(m) However, by electing to uphold the contract, the trustee becomes liable to perform only what
is RECIPROCALLY due to the other party. (2)
(n) The Supreme Court of Appeal has now laid down authoritatively that the beneficiary in this
type of case merely has a COMPETENCE or power to accept the inheritance or benefit in
question and that, until he does so, it does not form part of his estate (Wessels NO v De Jager
en ’n ander NNO 2000 (4) SA 924 (SCA) 928). (2)
(o) It is not necessary to establish whether or not the insolvent INTENDED to prejudice creditors
by making the disposition: the object of s 26 is simply to prevent a person in insolvent
circumstances from impoverishing his estate by giving away assets without receiving any
appreciable advantage in return (cf Estate Wege v Strauss 1932 AD 76 84). (2)
(p) Concurrent creditors are paid out of the free residue after any PREFERENT creditors have been
paid. (2)
(q) As a rule, an insolvent must wait for a certain period of time before he may apply for his
rehabilitation. However, where an offer of COMPOSITION has been accepted, the insolvent
may be entitled to apply for his rehabilitation immediately. (2)
(r) It is a CRIMINAL offence for a person to accept a benefit as consideration for agreeing to, or
for not opposing, a composition (s 141). (2)
(s) The insolvency of a party comes to an end when he is rehabilitated. Although a person’s estate
is sequestrated, his PERSON is rehabilitated. (2)

(t) The basis for a declaratory order is that the creditors have WAIVER their rights with respect
to the property. (2)
QUESTION 2
1. Mr and Mrs Jones were married in community of property in 1999, and are now insolvent.
Only Mr Jones has to apply for the voluntary surrender of the joint estate. (2)
False (Hockly 2.1)
2. The debtor must apply for voluntary surrender within the period of 10 days after the
advertised date. (2)
False (Study guide p 30)
3. In an application for compulsory sequestration, it is possible to infer that the debtor is

insolvent merely because he asked the creditor for time to pay the debt. (2)
4. Brian commits an act of insolvency when he sends his Rolex watch to his sister in Australia so
that it will not be available to pay the R200 000 that he owes Carl. (2)
True (Hockly 3.1.2(i)(d))
5. The sequestration of an employer’s estate does not suspend the employment contract
between him and his employee. (2)
False (Hockly 7.2.6(i)
6. The notice of the second meeting of creditors in English and in Afrikaans in the newspaper
must, as far as practicable, occupy the same amount of space. (2)
True (Hockly 9.1.2)
7. The Master must accept as trustee the person whom the creditors have elected. (2)
8. A ‘disposition’ includes an arrangement by which a party who has agreed to lend money to
the insolvent is required to pay the amount of the loan into the bank account of a third person
for the purpose of channelling the amount to a creditor of the insolvent. (2)
True (Hockly 12.1)
10. A valid pledge is constituted where there is delivery of immovable property to a creditor on
the understanding that it will be retained by him/her until the claim has been satisfied. (2)

11. In Prinsloo en 'n ander v Van Zyl NO 1967 (1) SA 581 (T), the offer of composition was accepted
only by a majority in value, and so there was no valid acceptance, and thus no valid
composition. (2)
True (Study guide p 176)
12. The sequestration of a partner’s estate does not terminate the partnership. (2)
False (Hockly 20.3)
13. The court may wind up a solvent company that is in business rescue if the business rescue
practitioner concludes that there is no reasonable prospect of the company’s being rescued.
(2)
True (Hockly 23.2.2(viii))
14. The business rescue practitioner can set aside a voidable preference under section 29 of the
Insolvency Act 24 of 1936. (2)
15. Only a magistrate’s court has jurisdiction to wind up a close corporation. (2)
QUESTION 3
(a) In terms of the Insolvency Act, all property belonging to the insolvent at the date of
sequestration and all property which the insolvent acquired during sequestration forms part
of the insolvent estate. However, there are certain exceptions to this rule. List the property
that forms part of the exceptions. (8)
Choose any eight of the below.

Hockley 5.3
 Wearing apparel, bedding, household furniture, tools and some form of subsistence;
 Remuneration or reward for work done or professional services rendered by the
insolvent;
 Pension the insolvent may be entitled to for services rendered;
 Compensation for defamation or personal injuries for loss or damage suffered;
 Compensation for occupational injuries or disease;
 Benefits or gratuity or money payable to miner
 Unemployment Insurance benefits which insolvent may be entitled to;
 Insurance policies which may include policies covering liability to third parties, and life
policies;
 Share in accrual in a marriage of the insolvent which is subject to Accrual system;
 Trust property/ funds (in terms of Trust Property Control Act);
 Right of labour tenant to land or right in land;
 Friendly society moneys and assets.

(b) In terms of a written contract of sale, Sarah sold Peter 500 valuable books from her library. A
month later, after Peter had already paid the full purchase price but before Sarah had delivered
the books, Sarah estate was sequestrated. Advise Peter on the effect of the sequestration of
Sarah’s estate on this contract. (9)
As regards this contract which has not been completed by the insolvent, Sarah, at the time of
the sequestration of her estate, the general rule is that the contract is not terminated by
sequestration. The trustee may elect whether to perform in terms of the contract or not. The
other party to the contract may not, however, claim specific performance of the obligation to
deliver the books. The trustee’s power to repudiate the contract must be exercised in the
interests of the concursus creditorum. He must therefore seek and adopt the instructions of
the general body of creditors, and must not choose a course of action that harms the interests
of the concursus. Here the concursus would instruct the trustee to repudiate the contract with
Peter, so that the valuable books may be sold and the proceeds may thereby increase the free
residue. Peter will then be left with a concurrent claim for repayment of the purchase price,
and for damages. Once he has decided to uphold or to repudiate the contract the trustee may
not change his mind. If he does not make his decision within a reasonable time he is assumed
to repudiate the contract.
(c) You are the trustee to Sarah’s insolvent estate. You have discovered that Sarah paid Bobby,
Cynthia and Donald within six months of the sequestration of her estate, for reasons that
remain unclear. You wish to question Bobby, Cynthia and Donald about these payments. On
what occasions could they be questioned? (5)
Because a trustee has been appointed in respect of Sarah’s insolvent estate the first meeting
of creditors (at which the trustee is elected) has already been held. Bobby, Cynthia, and Donald
could still be interrogated at a second meeting or a general meeting of creditors. But they could
not be questioned at a special meeting called for the sole purpose of interrogating Sarah.
(d) Discuss Estate Wege v Strauss 1932 AD 76 in respect of dispositions that can be set aside by a
court after the sequestration of a debtor’s estate. (8)
Two dispositions that can be set aside by the court after the sequestration of a debtor’s estate
were discussed in this decision.
The first was a disposition without value (in terms of section 26 of the Insolvency Act and here
the court held that although a betting transaction was an invalid agreement and thus
unenforceable in a court of law, payment of such a wagering debt was not a disposition without
value. The court pointed out that the object of the relevant section was not to prevent a person
in insolvent circumstances from engaging in ordinary transaction, but to prevent such person
from impoverishing his estate by giving away his assets without receiving any advantage in
return.
The second type of disposition examined by the court was the so called “undue preference” in
terms of section 29 of the Insolvency Act. In particular, the court dealt with the defence of
ordinary course of business and the fact that one had to look at the particular type of business
involved, namely that of bookmakers.


MRL3701
NOTES

NOTES
Insolvency Law
MRL3701
1. INTRODUCTION TO INSOLVENCY LAW

1.1. Meaning of “insolvency”
Section 2 of the Insolvency Act, 24 of 1936 (“Act”) – Definitions
'insolvent' when used as a noun, means a debtor whose estate is under sequestration and includes
such a debtor before the sequestration of his estate, according to the context.
'insolvent estate' means an estate under sequestration.
Everyday language A person is unable to pay his debts = merely evidence of insolvency
Legal test of insolvency A debtor’s liabilities, fairly estimated, exceed his assets, fairly valued.
A person is not treated as insolvent for legal purposes unless his estate has been sequestrated by
an order of court, being a formal declaration that a debtor is insolvent granted either at request of:
the debtor (voluntary sequestration); or Ways to sequestrate
one or more of the debtor’s creditors (compulsory sequestration). an estate
Only after a sequestration order has been granted, the consequences of the Act will apply for
1
example Sections 26, 29, 30 and 31 making provision for some dispositions to be set aside.
Although the dispositions have taken place before sequestration, the relevant sections of the Act
may be invoked only after the court has sequestrated the debtor’s estate.
1.2. Purpose of a sequestration order
The main objective of a sequestration order is to secure the orderly and equitable distribution of a
debtor’s assets where they are insufficient to meet the claims of all his creditors. Once an 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 the individual
creditor. Creditors who have proved a claim have the right to share with other proved creditors in
the proceeds of the estate assets replacing their right to recover claims by judicial proceedings.
Court won’t grant a sequestration order if no advantage to creditors has been shown and generally
not when there is only one creditor. If debtor’s assets aren’t enough to cover the costs of seques-
tration, there is no sense in sequestrating his estate as creditors won’t get anything thus being a
waste of time and money. The debtor is divested of his estate and can’t burden it with more debts.
1.3. What may be sequestrated?
The Act provides for the sequestration of
An Estate is usually conceived as:
the ‘estate’ of a ‘debtor’
an estate that includes assets and liabilities;
an estate that consists of liabilities only;
the joint estate of spouses married in community of property;
the separate estates of spouses married out of community of property; and
a new estate of a debtor whose estate has been sequestrated.
A Debtor may be:
a natural person;
a partnership;
a deceased person and a person incapable of managing his own affairs;
an external company that does not fall within the definition of external company, eg a foreign
company that has not established a place of business in South Africa; and
an entity or association of persons that is not a juristic person, eg a trust.
1
Refer to paragraph 10 below

MRL301-M Page 2 of 47
Section 2 of Act – Definitions

'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, except a body corporate or a company or other association of persons which may be placed
in liquidation under the law relating to Companies.
A body corporate established in terms of the Sectional Titles Act, 95 of 2986, is a body corporate
as defined in the Companies Act, 61 of 1973 and, therefore, not a debtor for purposes of the Act.
1.4. Jurisdiction of the court
Which court has jurisdiction?
As a rule, only a Provincial or Local Division of the High Court (“HC”) may adjudicate upon an
insolvency matter, but a Magistrate’s Court (“MC”) may preside over prosecutions for criminal
offences under the Act, setting aside of voidable dispositions and a few other matters if the
jurisdictional limits are not exceeded.
Jurisdiction over a debtor and his estate
In terms of Section 149 of the Act, a court has jurisdiction over a debtor and his estate if:
on the date of lodging, the debtor is domiciled or owns property, or is entitled to property,
situated within the jurisdiction of the court; or
at any time within the 12 months immediately preceding lodging, the debtor ordinarily resided or
carried on business within the jurisdiction of the court.
A person is domiciled at a particular place if he is lawfully present there and has the intention to
settle there for an indefinite period (Section 1(2) of the Domicile Act, 3 of 1992).
Jurisdiction in litigation against third parties
Section 149 of the Act: It is not relevant where the trustee of an estate litigates against third parties.
Competing courts – removal to another court
A court having jurisdiction over a debtor may refuse or postpone proceedings if it appears to the
court equitable or convenient that the estate should be sequestrated by another court. The inquiry
is not where the sequestration order may more conveniently be granted, but where the estate may
more conveniently be administered.
1.5. The Master
A Master is appointed in terms of the Administration of Estates Act, 66 of 1965, to each of the
areas of the Provincial Divisions of the HC and one of his most important functions is the custody of
all documents relating to insolvent estates. For the performance of various functions the Master is
entitled to charge fees, some being in cash, some by means of revenue stamps. The Master is a
“creature of statute” and only has the powers granted to him by legislation.
1.6. Condonation of irregularities
In terms of Section 157(1) of the Act, irregularities in procedure can be condoned in the following
instances:
where the irregularity has not caused a substantial injustice; or
where the irregularity has caused a substantial injustice, but the prejudice to creditors can be
remedied by an order of court.
The courts have recognised the following additional grounds whereby an irregularity can be
condoned:
where a deviation is so slight as to fall within the maxim de minimis non curat lex (the law is not
concerned with trifles);
where all interested parties have waived compliance with the provisions of the Act;
where the provision in question is not peremptory and has substantially been complied with; and
where it was impossible to comply with the Act.
1.7. Historical overview
South Africa followed Roman Dutch law regarding insolvencies, but in 1843 a landmark ordinance
was passed changing the law and more specifically abolishing the cessio bonorum (voluntary

surrender of goods by a debtor to his creditors). The Constitution provides a basis for the further
reform of Insolvency Law as it poses a potential threat to a number of fundamental rights, but mere
conflict does not render a provision constitutionally invalid. Constitutional invalidity involves a
twofold inquiry:
Does the provision conflict with a fundamental right?
If so, is the limitation reasonable and justifiable in an open and democratic society based on
human dignity, equality and freedom?
2. VOLUNTARY SURRENDER
2.1. Who may apply
The following persons may apply to surrender the estates mentioned:
Estate Person
Estate of natural person Debtor or his agent, expressly authorised to do so

Estate of deceased Executor
Estate of debtor incapable of managing own affairs Party entrusted with administering the estate, ie the curator bonis
Partnership estate All members of partnership residing in South Africa, or their agent2
Joint estate of spouses married in community Both spouses
2.2. Requirements
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
A debtor is insolvent if the amount of his total liabilities exceeds the value of all of his assets.
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 realise enough for this purpose.
(2) The debtor owns realisable property of sufficient value to defray all costs of
sequestration which will be payable out of the free residue of his estate
The “costs of the sequestration” include not only the costs of surrender, but also all the
general costs of administration in terms of Section 97 of the Act.
'free residue', 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.
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 even against a guarantee being furnished to the Master for the costs of
sequestration. Such an estate can, however, be compulsorily sequestrated.
(3) Sequestration will be to advantage of creditors
The debtor has to prove that sequestration will be to the advantage of the 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 is thus more strenuous in voluntary surrender.
2.3. Preliminary formalities
Court must be satisfied that certain formalities have been observed as set out in Section 4 of Act:
(1) Notice of intention to surrender
How A debtor must publish 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.
Why Alerting the debtor’s creditors of the intended application should they wish to oppose.
Format Form A, First Schedule of the Act3
2
Two exceptions: 1) special partnerships, which have been repealed and can be ignored; 2) partners en commandite, who are not
liable to creditors for partnership debts or co-partners for any losses – they merely contribute

Contain • Full names, address and occupation of debtor;

• Date upon which, and the particular division of the HC 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.
Time Publication of the notice must take place not less than 14 and not more than 30 days before the
stated date of hearing of the application.
Proof Filing copies/cuttings of the Government Gazette and the newspaper with the relevant HC OR
attach copies/cuttings from the Government Gazette and the newspaper to an affidavit and file them
with court.
(2) Notice to creditors and other parties

Within 7 days after publication of the notice to surrender, the debtor must furnish copies of
the notice to:
every one of his creditors whose address he knows or can ascertain;
to every registered trade union that, to his knowledge, represents his employees. In
addition, notice to the employees themselves by –
o affixing a copy to notice board
o affixing a copy to the front gate of debtor’s premises if employees have no access
o affixing a copy to the front door of the premises from which the debtor conducted
business immediately prior to the surrender;
SARS.
(3) Preparation and lodging of statement of affairs
Preparation of statement
The statement of affairs referred to in the notice of surrender must be framed substantially in
accordance with Form B, First Schedule of the Act and contain:
Form B Balance sheet
Annexure I List of immovable assets, estimated values, as well as any mortgages
Annexure II List of any movable property not incl. in Annexures III or V and their value
Annexure III List of debtors with their residential and postal addresses, details of each debt and an
estimate extent (good, bad or doubtful)
Annexure IV List of creditors, addresses, particulars of each claim and security held
Annexure V List of any movable assets pledged, hypothecated, subject to a lien or under attachment in
execution of a judgment
Annexure VI List and description of every accounting book used by the debtor at the time of surrender or
ceasing to carry on business
Annexure VII Detailed statement of the causes of the debtor’s insolvency
Annexure VIII Personal information about debtor incl. prior insolvency and rehabilitation
Affidavit Made by the debtor verifying the statement of affairs is true, complete and estimated
amounts fairly and correctly estimated
When a partnership estate and a private estate of a partner are surrendered simultaneously,
separate statements of affairs must be prepared and costs are part of sequestration costs.
Lodging of statement
The statement with supporting documents must be lodged in duplicate at Master’s Office and
lie for inspection by creditors at all times during office hours for 14 days. On expiry of
3
NOTICE OF SURRENDER OF A DEBTOR’S ESTATE (SECTION 4(1))
Notice is hereby given that application will be made to the ………… Division of the Supreme Court on …… the …… day of …………
… 20… at …… o’clock in the forenoon or as soon thereafter as the matter can be heard, for the acceptance of the surrender of the
estate of …………… of …………… and that a statement of his affairs will lie for inspection at the office of the Master of the Supreme
Court at ……………… (and at the office of ………) for a period of fourteen days as from the ……day of …………… 20...
XYZ
Attorney for …………………
…………………
……………20…

inspection period, a certificate is issued to the effect that it’s duly lain for inspection and
whether any objections were lodged, which is filed with Registrar before application is heard.
2.4. Effect of notice of surrender
(1) Stay of sales in execution
After publication of the notice, 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 could not have known of the publication. If the sale proceeded, the trustee of the
estate cannot claim it if ownership thereof has been transferred unless he proves that the
buyer acted in bad faith and with knowledge that the sale was unlawful.
The court or the Master may, however, order that such an asset should nevertheless be sold
if, in his opinion, the value does not exceed R 5,000.00 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 proceed with the sale. Publication of a notice of surrender has
no effect on other civil and criminal proceedings and attachments in execution of judgments
may be made, although sale in execution is stayed.
(2) Curator bonis may be appointed
Debtor is still at liberty to deal with his property as he chooses. As a safeguard against the
debtor squandering his assets after publication, the Master may appoint a curator bonis to
debtor’s estate, who takes estate into his custody and assumes control of any business or
undertaking of debtor. Estate remains vested with debtor and curator is only the caretaker.
(3) Potential compulsory sequestration
If after having published the 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 is not properly withdrawn, the debtor commits an act of insolvency which
entitles a creditor to apply for the compulsory sequestration of his estate. Compulsory
sequestration cannot be applied for if the notice of intention to surrender has lapsed.
(4) No withdrawal of notice without consent
A notice of surrender cannot be withdrawn without the written consent of the Master.
(5) Lapse of notice of surrender
The notice of surrender lapses if:
the court does not accept the surrender; or
if the notice is properly withdrawn; 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.
2.5. Application for surrender
Form and contents of application
4
Application for surrender is brought by way of a notice of motion . It is supported by a founding
affidavit:
4
IN THE HIGH COURT OF SOUTH AFRICA
(…………………… Division)
Case number: …………
In the matter of
…………………… Applicant
NOTICE OF MOTION
TAKE NOTICE that application will be made on behalf of the above applicant on the …… day of …………… 20… at 10h00 or as
soon thereafter as Counsel may be heard for an order in the following terms:
1. That the surrender of the estate of the applicant is accepted.
2. That alternative relief is granted to the applicant.
FURTHER TAKE NOTICE that the affidavit of ……………………, annexed hereto, will be used in support of the application.

Why To persuade the court that the 4 requirements for voluntary surrender has been satisfied
Contain • Full name, status, occupation and address of applicant to show jurisdiction and locus standi
• An allegation of insolvency and facts to establish this
• Explanation as to how the insolvency came about
• An averment that applicant owns realisable property of sufficient value to defray all the costs of
sequestration which will be payable out of the free residue of the estate
• An allegation that it will be to the advantage of the creditors if the debtor’s estate is sequestrated,
amplified by facts supporting the allegation
• Details of any salary or income that the debtor is receiving
• Any other information that may influence the courting granting or refusing the surrender
• A description of the procedural steps followed by applicant prior to bringing the application supported by
documents proving that each step has been taken
Confirm It must be sworn in and signed before a commissioner of oaths independent of the office in which it was
drawn.
Filing of application at court

The application must be filed with the Registrar of the HC prior to the date advertised in the notice
of surrender.
Copy of application to consulting party
If the debtor is an employer, he must provide a “consulting party” as contemplated in Section 189 of
the Labour Relations Act, 66 of 1995, with a copy of the application. Section 189 deals with the
dismissal of employees for reasons based on the employer’s operational requirements and require
the employer to consult one of the following:
the person whom he is required to consult in terms of a collective agreement;
if no collective agreement, the workplace forum and registered trade union of the employees
likely to be affected by the proposed dismissals;
if no workplace forum, the registered trade union whose members are likely to be affected by
the proposed dismissals;
if no trade union, the employees likely to be affected by the proposed dismissals or their
representatives.
Master’s report
In the Cape, a Master’s report must be obtained and filed prior to the set-down of the application.
Opposition to application
A creditor may oppose the application even if his claim is less than the amount required to entitle
him to apply for compulsory sequestration and even if his claim is disputed by the debtor.
Adjudication on the application
When adjudicated upon, the following documents must be before the court:
The notice of motion and supporting affidavit(s);
The debtor’s statement of affairs, incorporating the verifying affidavit;
Any sworn valuation necessary in the circumstances;
Proof of publication of the notice of surrender;
Proof by affidavit that the applicant has delivered/posted copies of the notice as required;
A certificate from the Master that the statement of affairs has lain for inspection;
Any report by the Master;
Any opposing affidavits by creditors; and
The debtor’s replying affidavit.
KINDLY place the matter on the role for hearing accordingly.

DATED at ………………… this …… day of …………… 20…
XYZ
Applicant’s Attorney
…………………
TO: THE REGISTRAR OF THE HIGH COURT, ………………………
AND TO: THE MASTER OF THE HIGH COURT, ………………………

2.6. Court’s discretion

The court has the discretion to reject the surrender even if all the requirements have been met and
influencing factors may be:
Debtor displayed gross extravagance and run up debts on a pretentious scale;
Debtor’s creditors are not pressing him for payment and are willing to give him time or to accept
payment in monthly instalments;
Debtor’s had an ulterior motive, eg to avoid paying or defeat rights of creditors;
Debtor failed to give a full and frank account of his financial position;
Debtor’s papers were deficient in a number of respects.
2.7. Costs of surrender
Costs incurred in surrendering are included in the costs of sequestration and are payable out of the
estate. Costs occasioned by unsuccessful opposition to the application must be borne by the
creditor concerned, but court may order these costs (or part thereof) to be paid out of the estate.
2.8. Setting aside sequestration order
No appeal lies against the order refusing to accept the surrender, but anyone aggrieved by an
order accepting it may appeal against such an order. Noting of an appeal does not suspend the
operation or execution of the relevant order.
One of the consequences of a rehabilitation order in terms of Section 129(1)(b) of the Act is that
the debtor is discharged from all debts, the cause of which arose before sequestration (except
ones out of fraud on his part). Even if all debts have not been paid in full from the proceeds of the
estate, the order enables the debtor to start building up a new estate without recourse by creditors
who have not been paid in full. If the debtor is not rehabilitated, but the sequestration order is
simply set aside, this consequence does not follow and the debtor then remains fully liable for all
debts which existed before the granting of the sequestration order.
3. COMPULSORY SEQUESTRATION
3.1. Requirements
The court may grant an application for the sequestration of a debtor’s estate if it is satisfied that:
(1) Applicant entitled to apply in terms of Section 9(1)
Section 9(1) allows proceedings to be instituted by:
a creditor (or his agent) with a liquidated claim for more than R 100.00; or
two or more creditors (or their agents) with liquidated claims of not less than R 200.00
in aggregate.
The fact that a creditor holds security for his claim doesn’t exclude him from applying even if
the value of the security exceeds the amount of the claim.
A liquidated claim is a monetary claim where the amount of the claim has been fixed or
determined such as:
price of goods sold and delivered;
a claim based on a provisional sentence judgment;
a claim for return of price paid under a sale cancelled due to the seller’s repudiation;
a delictual claim for the theft of a fixed and determinable sum of money
An unliquidated claim does not give locus standi to apply for example:
a claim for transfer of property;
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.
Liquidated does not mean an amount is already due and payable. Section 9(2) provides that
a liquidated claim “which has accrued but isn’t yet due” by the time application is heard must
be regarded as liquidated for these purposes. After debtor’s estate has been provisionally
sequestrated, debtor himself cannot make a payment to sequestrating creditor to extinguish
his claim or to reduce it below R 100.00. A third person, such as a surety, may make such
payment on debtor’s behalf after which provisional order must be discharged. Creditor can’t

refuse payment in full, but may reject part payment. Where creditor’s locus standi is elimi-
nated, another creditor may intervene and apply for a further provisional order to be granted.
(2) Debtor has committed an act of insolvency or is insolvent
Acts of insolvency
A debtor’s estate may be sequestrated even though he is technically solvent in terms of
Section 9(1) by any creditor if he commits one of the following acts of insolvency:
i) Absence from the Republic or dwelling
Section 8(a): 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 the intention to
evade or delay payment of his debts. The creditor must establish the debtor’s
intention and such may be inferred from for eg an appointment made by the debtor to
make a payment and then departing without keeping it.
ii) Failure to satisfy judgment
Section 8(b): 2 acts of insolvency are created where a court has given judgement
against a debtor, namely:
o if he fails, upon the demand of the officer whose duty it is to execute the judgment,
to satisfy it or to indicate disposable property sufficient to satisfy it; or
o if it appears from the return made by the officer, without presenting the writ to the
debtor, that he has not found sufficient disposable property to satisfy the judgment.
“Disposable property” is any property which may be attached and sold in execution. If
the debtor point out insufficient disposable property to satisfy the writ, the sheriff may
refuse to attach it and make a nulla bona return, in which event the creditors may
apply for sequestration.
iii) Disposition prejudicing creditors or preferring one creditor
Section 8(c): If he makes, or attempts to make, any disposition of any of his property
which has the effect of prejudicing his creditors or preferring one creditor above
another. Only the effect of the disposition need be considered and it does not matter if
the debtor acted on purpose or recklessly as his intention is irrelevant. A debtor
commits this act, for example, if he:
o refuses to meet one debt while paying another in full;
o sells an asset deliberately below its market value whilst failing to meet debts;
o passes a mortgage over immovable property to secure his debt to 1 creditor, while
his business ventures are in financial difficulties and he’s not paying creditors.
iv) Removal of property with intent to prejudice or prefer
Section 8(d): If a debtor removes, or attempts to remove, any of his property with the
intent to prejudice his creditors or to prefer one above another. Differs from Section
8(c) insofar as a disposition of property is not required, mere removal is sufficient, and
the intent of the debtor, not the effect, is important – Eg sending money or goods to a
foreign country so that they aren’t available for the settlement of the creditor’s claims.
v) Offer of arrangement
Section 8(e): If he makes, or offers to make, any arrangement with any of his creditors
for releasing him wholly or part of his debts, it qualifies as an act of insolvency if it is
indicative of the debtor’s inability to pay his debts.
vi) Failure to apply for surrender
Section 8(f): 3 acts of insolvency are created where a debtor has published a notice of
surrender of his estate which hasn’t lapsed or been withdrawn and 1 of following done:
o he fails to comply with the requirements of Section 4(3) - lodging a statement of
affairs with the Master; or
o he lodges a statement which is incorrect or incomplete in any material respect; or
o he fails to apply for acceptance of the surrender on the specified date.

vii) Notice of inability to pay

Section 8(g): If he gives notice in writing to any one of his creditors that he is unable to
pay any of his debts. One looks at the content of the notice to determine whether it is
an act of insolvency and not the debtor’s intention. Usually, the notice must be
reasonable interpreted to have intended to give notice of inability to pay any single
debt. Mere unwillingness to pay is not an act of insolvency.
viii) Inability to pay debts after notice of transfer of business
Section 8(h): 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.
'trader' means any person who carries on any trade, business, industry or undertaking
in which property is sold, or is bought, exchanged or manufactured for purpose of sale
or exchange, or in which building operations of whatever nature are performed, or an
object whereof is public entertainment, or who carries on the business of an hotel
keeper or boarding-house keeper, or who acts as a broker or agent of any person in
the sale or purchase of any property or in the letting or hiring of immovable property;
and any person shall be deemed to be a trader for the purpose of this Act (except for
the purposes of subsection (10) of section twenty-one) unless it is proved that he is
not a trader as hereinbefore defined: Provided that if any person carries on the trade,
business, industry or undertaking of selling property which he produced (either
personally or through any servant) by means of farming operations, the provisions of
this Act relating to traders only shall not apply to him in connection with his said trade,
business, industry or undertaking; ≠Farmer
As soon as the notice is published, every liquidated liability of the trader in connection
with his business which would have become due at some future date, falls due if the
creditor demands payment. It follows that the act of insolvency is still committed if the
trader cannot pay a debt which bears no relation to his business.
Debtor in fact insolvent
Instead of relying on an act of insolvency by the debtor, the sequestration creditor can rely
on the fact that the debtor’s estate is insolvent and that his liabilities exceed his assets. If
the creditor relies on an act of insolvency and can’t establish that it’s been committed, but it’s
clear that the debtor is insolvent, court may grant a final sequestration order on latter ground.
Factual insolvency may be established:
Directly by evidence of the debtor’s liabilities and the market value of assets; or
Indirectly by evidence of facts and circumstances from which the conclusion of insolvency
is fairly and properly derivable.
(3) Reasons to believe sequestration will be to the advantage of creditors
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 the creditors. Creditors means all or the
general body of creditors.
Question: Will a substantial portion of creditors get an advantage from the sequestration?
If, after the costs of sequestration have been met, there is no payment to creditors, or only a
minimal payment, there is no advantage. The court must compare the position of the
creditor if there is no sequestration with the position if there is sequestration and it will only
be to the advantage of the creditors if it will result in a greater dividend than would otherwise
be the case. The onus of establishing an advantage remains on the sequestrating creditor
even if the debtor committed an act of insolvency.
The onus of satisfying the court of these 3 matters rests on the sequestrating creditors, no onus on
debtor to disprove any element.
Friendly sequestration
A debtor can arrange with a friend to whom he owes a debt and whom he is unable to pay, that he
will commit an act of insolvency by, for example, write saying he cannot meet the debt so that his
friend can apply for compulsory sequestration. An application for compulsory sequestration

brought by a creditor who is not at arms length is referred to as ‘friendly’ sequestration and the
legal position is as follows:
Creditor’s co-operation/motivation to assist debtor doesn’t preclude granting of sequestration.
Court must be mindful of proceedings not at arm’s length – potential collusion and malpractice.
Example of abuse: Mthimkhulu v Rampersad – Debtor seeks attorney, writes a letter to his
“creditor” who brings application and debtor disappears just before service of court order, which
result in return date being extended numerously until genuine creditors have lost interest.
May be brought with sole purpose of getting a stay of civil proceedings / of a sale in execution.
Debtor can use it to free himself from his debts: Where granted and free residue doesn’t cover
costs of sequestration any creditor who has proved a claim is obliged to contribute. They’re
made to believe that there is a risk that they will be called to contribute should they prove their
claim, thus they refrain. Where no claims proved within 6 months after the sequestration, the
debtor can apply for rehabilitation and be released from his debts.
Courts must scrutinize friendly sequestrations to ensure the requirements of the Act aren’t
undermined and the interests of the creditors aren’t prejudiced. Court should require the
following from the sequestrating creditor:
- Full details of claim;
- Documentary evidence establishing that he has actually performed as alleged;
- Full details of debtor’s realisable assets, including convincing evidence of likely realisation;
- If another creditor has already attached debtor’s property in execution, proof that prior notice
of the application has been given to that creditor; and
- If he requires an extension of the return date of the rule nisi, an affidavit setting out proper
reasons for the extension.
3.2. Application for sequestration
(1) Form and content of application
5
Application is brought by way of a notice of motion . It is supported by a founding affidavit:
Why To set out sufficient facts to establish the requirements for a sequestration order
Contain • Full name, status, occupation and address of sequestrating creditor. His locus standi should reflect
and in case of an agent, his authorisation
• Full names, date of birth, identity number and marital status of the debtor and, if married in
community of property, that of his/her spouse – Section 17(4)(b) of the Matrimonial Property Act:
application to sequestrate joint estate must be made against both spouses
• Amount, cause and nature of claim - if secured, the nature and value of the security
• The act(s) of insolvency committed by debtor and/or his de facto insolvency
• An averment that sequestration will be to the advantage of creditors explaining why
• Any other relevant facts which might influence Court’s discretion
5
IN THE HIGH COURT OF SOUTH AFRICA
(…………………… Division)
Case number: …………
In the matter of
…………………… Applicant
and
…………………… Respondent
NOTICE OF MOTION
TAKE NOTICE that application will be made on behalf of the above applicant on the …… day of …………… 20… at 10h00 or as
soon thereafter as Counsel may be heard for an order in the following terms:
1. That this application be regarded urgent and that usual rules as to notice and service in terms of Rule 6(12) are dispensed with.
2. That the estate of the Respondent is provisionally sequestrated.
3. That a rule nisi is issued calling on the Respondent and any other interested parties to show cause to this Court on the …… day
of …………… 20… at 10h00 why the Respondent should not be finally sequestrated.
FURTHER TAKE NOTICE that the affidavit of ……………………, annexed hereto, will be used in support of the application.
KINDLY place the matter on the role for hearing accordingly.
DATED at ………………… this …… day of …………… 20…
XYZ
Applicant’s Attorney
…………………
TO: THE REGISTRAR OF THE HIGH COURT, ………………………
THE MASTER OF THE HIGH COURT, ………………………
THE RESPONDENT, ………………………

• Statement that security will be furnished to Master and his certificate obtained as required by
Section 9(3)
• Statement that copy of papers will be lodged with Master to obtain report i.t.o. Section 9(4)
• A statement confirming that copies of the application will be furnished to interested parties
Confirm It must be sworn in and signed before a commissioner of oaths independent of the office in which it
was drawn.
(2) Steps prior to adjudication on application

i) Security for costs
Applicant bound to prosecute at own costs until a trustee or a provisional trustee has
been appointed and is required to deposit security for payment of all fees with Master.
ii) Search of Master’s records
In Western Cape HC (formerly CPD), applicant’s attorney must file an affidavit stating
that he searched Master's records and it doesn’t appear that debtor’s estate already
under sequestration.
6
iii) Filling of application at court with the Registrar
iv) Master’s report
Master makes a written report to the court of any facts which would justify the court in
postponing the hearing or dismissing the application.
v) Copy of papers to debtor and other interested parties
Applicant also required furnishing copy to:
o Every registered trade union that represents any of debtor’s employees;
o Debtor’s employees themselves; and
o SARS.
(3) Provisional sequestration
Creditor must approach the court twice:
i) To obtain a provisional order of sequestration
At this stage there must be prima facie (at first sight) satisfaction of the requirements
and the following must be before court:
o Notice of motion
o Master’s certificate that security has been given
o Affidavit of search through records by applicant’s attorney
o Master’s report
o Applicant’s affidavit responding to Master’s report (if any)
o Affidavit setting out manner in which others were informed
After considering these, the court may make an order:
o Sequestrating provisionally – simultaneous rule nisi (order calling upon debtor to
show cause, on day mentioned, why his estate should not be finally sequestrated)
o Dismissing application
o Postponing hearing
ii) To have the provisional order confirmed and made final
At this stage the requirements are proved on a balance of probabilities.
(4) Service of rule nisi
Rule nisi must be served on debtor, with application papers if not already served therewith.
If debtor is absent for 21 days from usual place of residence and business, court may direct
it to be attached to the door of the courthouse and published in the Gazette. Also copies to:
Any registered trade union that represents the debtor’s employees;
The employees themselves; and
6
Notice of motion, founding affidavit and supporting documents

SARS.
(5) Opposition of application
After granting of the rule nisi, debtor and other interested parties may oppose application by
filing affidavits with Registrar setting out grounds of opposition and serving applicant in suffi-
cient time to enable him to reply before the return day.
(6) Anticipation of return date
On application of debtor, court may anticipate return day of rule nisi for purpose of dischar-
ging provisional order, provided 24 hours’ notice of application has been given to applicant.
Court must be satisfied that all creditors received notice and none has valid objection.
(7) Intervention by another creditor
Fullard v Fullard: Creditor entitled to intervene to have provisional order set aside or to
obtain a fresh sequestration order. If latter, first order must be set aside and a new order
must be issued. Intervening creditor must imply case for sequestration, furnish security as if
original applicant without restating facts appearing from records in existing proceedings.
(8) Final sequestration
On return day, court must have in addition to provisional stage:
Sheriff’s return of service of rule nisi;
Any opposing affidavits of the debtor and/or other interested parties;
Replying affidavit of applicant; and
Any affidavit by the provisional trustee
Court may confirm provisional order if it’s satisfied applicant has established requirements on
a balance of probabilities. If not satisfied, it must either dismiss application and set aside the
provisional order or require creditor to produce further proof of allegations in his application
and postpone the hearing for a reasonable period.
3.3. Court’s discretion
Even if the court is satisfied that the requirements have all been established on a balance of
probabilities, it’s not bound to grant the final order of sequestration.
3.4. Costs of proceedings
Trustee must, from first available funds from estate, reimburse sequestrating creditor for his taxed
costs in sequestrating the estate. Costs of opposition not part of sequestration costs.
3.5. Unwarranted or vexatious proceedings
As safeguard court may, when satisfied that application is abuse of court’s procedures or is mali-
cious or vexatious, allow debtor to prove damage suffered and award compensation it deemed fit.
3.6. Setting aside sequestration order
Any person aggrieved by a final order of compulsory sequestration, or by an order setting aside an
order of provisional sequestration may appeal against the order. The aggrieved person must first
obtain leave to appeal from the appropriate court. No appeal lies against the granting of a
provisional sequestrating order or the refusal of such an order.
4. THE LEGAL POSITION OF THE INSOLVENT
Sequestration of a debtor’s estate imposes on him a form of reduction in status, which limits his
capacity to contract, earn a living, litigate and hold office.
4.1. Contracting
The debtor retains a general competency to make binding agreements, but certain restrictions are
imposed to protect creditors.
(1) Prohibited contracts
The debtor may not make a contract which:
purports to dispose of any property of his insolvent estate; or
adversely affects (or is likely to) his estate or any contribution (moneys earned by the
insolvent due to trustee only once the Master indicated that it is not necessary for the

support of the insolvent or his dependants) which he is obliged to make towards his
estate, without written consent of the trustee.
Mervis Brothers v Hannekom: M sued H, an insolvent, for the amount of a debt incurred
before sequestration based on an undertaking given by H after sequestration without the
trustee’s consent. MC held that undertaking likely to affect any contribution which H would
be obliged to make, if called upon to do so, and therefore not binding. On appeal the court
found that at time of contracting, H was not obliged to make a contribution as Master hadn’t
assessed a contribution so consent was not necessary and the undertaking binding.
(2) Effect of contract which is not prohibited
Where trustees’ consent is not necessary or has been given, the contract is valid and binding
between the parties. However, according to De Polo v Dreyer, insolvent may not enforce
performance in his favour unless the Act specifically gives him the right to do so. If the Act is
silent, the trustee is the proper person to enforce the claim.
(3) Effect of prohibited contract
Contract is voidable at option of the trustee or remains binding on the parties. Same rules
apply regarding performance for a contract which is not prohibited. Section 24(1) provides
protection to third parties who contract with debtor, ignorant of his insolvency. If an insolvent
purports to alienate, for valuable consideration and without consent, property he acquired
after sequestration, to a person who proves he was not aware, and had no reason to suspect
that his estate was under sequestration, the alienation is nevertheless valid. This Section:
applies only to new assets which came into insolvent’s possession after sequestration.
Wessels v De Klerk: Insolvent sold immovable property that formed part of insolvent
estate and received two promissory notes in part payment. He endorsed these to a
bona fide purchaser. Court held sale was not validated and therefore voidable;
places the onus on third party to prove his unawareness.
4.2. Earning a livelihood
Insolvent is allowed to follow any profession or occupation or enter into any employment and he
may make whatever contracts which are reasonably necessary for this purpose. But insolvent may
not, without written consent of the trustee, carry on, be employed in any capacity or have any direct
or indirect interest in, the business of a trader who is a general dealer or a manufacturer – farmer
not a trader for purposes of Act. S v Van der Merwe: General dealer is someone who trades at a
fixed and recognised place in all sorts of wares, not just in 1 kind or a few particular kinds – eg milk
depot (Ex parte Du Plessis) or a restaurant (R v Papangelis). If trustee gives or refuses to
consent, any of the creditors or insolvent may appeal to Master.
4.3. Instituting and defending legal proceedings
Proceedings which may be brought/defended personally by insolvent
An insolvent may sue or be sued in the matters relating to:
status, eg divorce;
a right which does not affect the insolvent estate, eg to receive maintanence from the insolvent;
recovery of remuneration or reward for work done;
a pension to which he is entitled for services rendered;
compensation in respect of loss or damage suffered by reason of defamation or personal injury;
a delict committed by him after sequestration of his estate.
When there is an irregularity or the bona fides of the trustee or the creditors is under suspicion, the
insolvent may interfere with the administration of his insolvent estate.
Security for costs
An insolvent who enters into legal proceedings may be obliged to give security for costs of action
MC HC Factors in HC
Case flows from the Plaintiff compelled if defendant Cannot claim security May claim if action will
Act claims security probably not succeed
Case doesn’t flow Plaintiff completed if defendant Plaintiff not compelled to May claim security if action is
from the Act requires security lodge security reckless or vexatious

Entitlement for costs

When insolvent obtains an award of costs in his favour in a matter in which he is entitled to litigate,
the judgment for costs belongs to him personally and may dispose of it as he likes - Schoeman v
Thompson. Damages for maladministration on the part of trustee accrue to insolvent estate, but
an award of costs against trustee is for the benefit of the insolvent - Ecker v Dean.
4.4. Holding Office
An unrehabilitated insolvent is disqualified from being a trustee of an insolvent estate and, if he’s
one when his estate is sequestrated, he must vacate office. He is not capable of being a member
of the National Assembly, National Council of Provinces or the Provincial Legislature. The insolvent
can’t, except with permission of court, be a director of a company or take part in the management
of a close corporation.
5. VESTING OF THE ASSETS OF THE INSOLVENT
5.1. Vesting of estate in trustee
The function of trustee is to collect assets in estate, realise them and distribute proceeds amongst
creditors in the order of prefrence laid down by the Act. Estate will remain vested in trustee until:
the discharge of the sequestration order by the court;
the acceptance by creditors of an offer of composition (an offer to creditors of an amount in final
payment of insolvent’s debts which will discharge the sequestration) made by insolvent which
provides that insolvent’s property will be restored to him; or
an order for the insolvent’s rehabilitation is granted in terms of Section 124(3) on the following
grounds:
- no claims have been proved against the estate;
- insolvent has not been convicted of any offence with regard to his insolvency; and
- insolvent’s estate has not been sequestrated before.
If a trustee vacates his office, is removed from office or dies, the estate revests in the Master until a
new trustee is appointed or in the co-trustee, if there is one.
5.2. Property which falls into estate
The insolvent estate comprises of:
all property of insolvent at date of sequestration, inculding property (or proceeds) in the hands
of a sheriff under a writ of attachment;
all property which insolvent acquires or which accrues to him during sequestration, including
any property he recovers for the benefit of estate where trustee fails to take necessary action.
Property may be movable or immovable property wherever situated in South Africa and includes
contingent interests in property, excluding contingent interests of a fideicommissary (a person
who receives a gift of property, usually by will, to be held on behalf of another who cannot receive
the gift directly) heir or legatee.
Whenever insolvent has acquired property which is claimed by the trustee, it’s deemed to belong to
the insolvent estate until the contrary is proved. However, if a person who became a creditor of the
insolvent after sequestration alleges that an asset does not belong to the estate and claims a right
to the asset it is deemed to not belong to the estate until the contrary is proved.
Du Plessis v Pienaar: Sequestration of a joint estate makes both spouses ‘insolvent’ for purposes
of the Act resulting in the property of both of them vesting in trustee and being available to meet
claims of creditors. Property inherited by a spouse to a marriage in community of property forms
part of insolvent estate, even if the will contains a provision excluding property from any community
of property – Badenhorst v Bekker. Property inherited by an insolvent during his insolvency falls
into his insolvent estate, notwithstanding a contrary provision in the will - Vorster v Steyn.
The reasoning and decision in Badenhorst v Bekker was approved by the Supreme Court of
Appeal (“SCA”) in Du Plessis v Pienaar and it was held that a debtor, not the estate of the debtor,
incurs the debt. So where spouses are married in community of property their creditors may
recover debts from both of them: not only from each spouse's undivided interest in the joint estate,
but also from his or her separate estate outside the joint estate. Once the joint estate is
sequestrated both spouses are insolvent and property owned by each of them (including separate
property) becomes available to the creditors.

The effect of these decisions must now be considered in the light of the decision in Wessels NO v
De Jager: Insolvent has a competence or power to accept the bequest or nomination and he
acquires no right to property or benefit until he has accepted. Repudiating the right to property or
benefit will result in it not vesting in his estate and will ensure that it passes to someone other than
the trustee and the creditors of his insolvent estate.
5.3. Property which does not fall into estate
Wearing apparel, bedding, household furniture, tools and other means of subsistance as the
creditors may determine;
Remuneration for work done less the portion the Master is of the opinion is not necessary for
the support of the insolvent and his dependants due to the trustee;
Any pension to which he may be entitled for services rendered by him;
Compensation for any loss or damage by reason of defamation or personal injury;
Compensation for occupational injuries or diseases (loss/damage due to personal injury);
Benefits payable to a miner;
Unemployment insurance benefits (UIF);
Insurance policies
- Policies covering liability to third parties
If insolvent insured against liability to third persons prior to sequestration and incur liability
covered by the policy, his rights against the insurer pass, upon sequestration, directly to the
third party and not the insolvent estate. In terms of Section 156 of the Act, the third party
can claim directly against the liability insurer and does not have to rely on a concurrent claim
against the insolvent estate. The third party is also exposed to all the same defences which,
in the absence of Section 156, the insurer could have raised against the contracting party
(the insolvent).
It may be illustrated with the decision in Canadian Superior Oil v Concord Insurance
where insolvent incurred liability towards the Plaintiff, who wished to claim the damages
directly from the insurer in terms of Section 156. The insurance contract between insolvent
and the insurer stated that the insurer would be liable to compensate the insured only for
moneys already paid by the insured (the insolvent) and, because the insolvent (as a result of
the intervening insolvency) had not made any payments towards his liability, the insurer was
therefore also not obliged to make any payments to the insolvent. The same defence could
therefore be raised against the third party (the Plaintiff).
- Life policies
Section 63(1) of the Long Term Insurance Act, 52 of 1998, excludes certain insurance
benefits from the insolvent estate, namely:
policy benefits provided (or to be) to insolvent under an assistance, life, disability or
health policy, which has been in force for at least 3 years and in which insolvent or
spouse is the life insured; and
any assets which insolvent acquired exclusively with such policy benefits within a
period of 5 years from the date on which they were provided.
The policy benefits or assets are excluded to an aggregate of R 50,000.00, eg if insolvent is
named the beneficiary of policies totaling R 80,000.00, he is entitled to R 50,000.00 and
remaining R 30,000.00 vests in his insolvent estate.
Section 63(1) has no application if the policy benefits in question are payable to a third party
and not the insolvent as the rights to the benefit vests in the third party and will not become
part of the insolvent estate – Pieterse v Shrosbree. A life policy taken out by insolvent in
favour of a third person is an asset in insolvent estate to the extent that the trustee is vested
with any right that insolvent had to surrender the policy prior to his death and obtain payment
of the surrender value.
Share in accrual;
Trust property or funds
- Assets in a trust will not usually form part of the personal estate of the trust trustee if that
trustee's personal estate is sequestrated. Assets in a trust are therefore protected assets.
Right of labour tenant to land or right in land;
Property acquired with money from above sources.

5.4. Disposal of estate property by insolvent

An insolvent cannot dispose of any property and if he unlawfully disposes of immovable property,
the trustee may recover compensation from:
the insolvent personally;
the person who acquired the property knowing that its part of the insolvent estate; or
a person who did not know, but who acquired it without giving sufficient value in return.
Exceptions to the rule that insolvent may not deal with property falling within the insolvent estate:
Section 25(3): If insolvent brings about any act of registration (mortgage or transfer) in respect
of immovable property in his estate after expiry of every caveat (entered on the deeds of the
immovable property of the insolvent estate to prevent an insolvent from transferring the property
or registering any right over it) entered against that property by the Registrar of Deeds, the act
of registration is valid.
Section 24(1): If an insolvent purports to alienate, for valuable consideration and without
consent, property he acquired after sequestration, to a person who proves he was not aware,
and had no reason to suspect that his estate was under sequestration, the alienation is
nevertheless valid.
5.5. Acquisition of new estate during insolvency
The insolvent may, during the course of his insolvency, acquire a new estate and hold it with a title
adverse to the trustee, due to the fact that various property does not vest in the trustee. This
property can in turn be sequestrated.
6. VESTING OF THE ASSETS OF THE SOLVENT SPOUSE Out of community of property
Marriage in community of property
As there is only 1 joint estate, if one of the spouses is declared insolvent, the other automatically
becomes insolvent and both spouses are under sequestration Section 21 doesn’t apply
Marriage out of community of property
Each spouse continues to have a separate estate consisting of assets and liabilities and there is no
joint estate of the spouses Section 21 applies
6.1. Vesting of assets in trustee
Section 21(1): Additional effect of a sequestration order (including provisional order) is to vest the
separate property of the spouse of the insolvent in the Master and subsequently the trustee, as if it
were property of the insolvent estate, and to empower the Master or trustee to deal with the
property accordingly. Transfer is not intended to be permanent since the solvent spouse may
secure the release of assets falling within categories set out in Section 21(1), but until the release
the solvent spouse has none of the ordinary powers of ownership.
Section 21 was introduced to prevent, or at least hamper, collusion between spouses to the
detriment of creditors of the insolvent estate by making it difficult for insolvent and spouse to
deprive the estate of assets to which it is entitled by pretending that they are the separate property
of the solvent spouse.
In Harksen v Lane it was contended that Section 21 is invalid for violating the solvent spouse’s
constitutional rights. The majority of the Constitutional Court (“CC”) rejected this argument as:
It doesn’t expropriate solvent spouse’s property since it doesn’t contemplate permanent transfer
to the Master and trustee;
It differentiates between the solvent spouse and other persons, but this differentiation does not
infringe the right to equality and is legitimate as it has a rational connection; and
It does not amount to unfair discrimination.
Meaning of ‘solvent spouse’
Married out of community of property (otherwise both insolvent and Section 21 doesn’t apply.
Section 21(13) of the Act defines "spouse" as 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 a man living with a woman as her husband, although they are not
married to one another.

Since the commencement of the Civil Union Act (“CUA”), the definition of the term "spouse" in the
Act has by implication been amended to include persons of the same sex or of the opposite sex
who have entered into a civil union. The CUA was introduced in order to accord same-sex couples
the same family law rights and obligations, and the same status, benefits and responsibilities
accorded to opposite-sex couples and Section 1 thereof defines "civil union" as the voluntary union
of two persons who are both 18 or older, which is solemnised and registered by way of either a
marriage or a civil partnership, according to the procedures described in the CUA, to the exclusion,
while it lasts, of all others. Furthermore, a "civil union partner" means a spouse in a marriage or a
partner in a civil partnership, as the case may be, concluded in terms of the CUA and the CUA
applies to civil union partners joined in a civil union.
A consequence of a civil union is that the legal consequences of a marriage in terms of the
Marriage Act, 25 of 1961, apply, with relevant contextual changes, to a civil union. Furthermore, a
reference to marriage in any other law, including common law, includes a civil union. In addition, a
husband, wife or spouse in any law includes a civil union partner
Accordingly, for the purposes of Section 21(13) of the Act, this alteration to the law would mean
that a civil union partner falls within the definition of the word "spouse" and that Section 21 of the
Act will now apply with equal force to such partners in a civil union.
Duty of solvent spouse to lodge statement of affairs
Sheriff must serve a copy of the order on solvent spouse if she has a separate estate that has not
been sequestrated and she must, within 7 days of service, lodge with the Master a statement of her
affairs in the correct form and verified by an affidavit.
Postponement of vesting
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 exclude her property or part of it from
the operation of the order.
The sort of contingencies against which the insolvent state must be protected are alienation or
fraudulent abandonment of the assets by the solvent spouse, malicious or accidental damage to
the property by the solvent spouse or a third person, and theft of assets by a third person.
6.2. Release of solvent spouse’s property by trustee
The trustee is obliged to release property of the solvent spouse which is proved to fall in any of the
following categories:
Property owned before the marriage to the insolvent
Property acquired under a marriage settlement
Property acquired by valid title during the marriage
- 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.
Property protected under certain other provisions
- Section 21(2)(d) provides for the release of property protected by various other provisions,
but this section has become obsolete.
Property acquired with proceeds of the above
Clear distinction between the release of property in terms of Section 21(2) of the Act and the
setting aside of an impeachable disposition: Property acquired in terms of a marriage settlement
must be released in terms of Section 21(2)(b). Dispositions in terms of an antenuptial contract will
usually be dispositions without value under Section 26 of the Act. Although trustee must initially
release the property to the solvent spouse under Section 21(2) of the Act, the trustee will still be
able to set aside such a disposition as a disposition without value if the requirements of Section 26
are proved and the solvent spouse cannot prove the requirements of Section 27 of the Act.
Section 21 of the Act used to be especially important in the case of donations made by the
insolvent spouse to the solvent spouse. At common law, donations between spouses (except
donations in terms of an antenuptial contract) were void. The solvent spouse could therefore not
obtain the release of such a donation, because the donated asset had not been acquired by a valid
title as against the creditors of the insolvent spouse. Now, however, donations between spouses
are valid. The release of the donated item may therefore be obtained, subject to the possibility of

the trustee's challenging the donation and having it set aside as a disposition without value in terms
of Section 26 of the Act.
7. UNCOMPLETED CONTRACTS AND LEGAL PROCEEDINGS NOT YET FINALISED
7.1. Contract completed by insolvent but not by other party
If insolvent has carried out his side and only the other party’s performance is outstanding, that right
to performance is an asset in the insolvent estate and vests in the trustee. The trustee may either
sell it or enforce performance and then sell the subject-matter of the performance.
7.2. Contract not completed by insolvent
Continuance of contract
General rule - Sequestration does not suspend or put an end to the contract.
The trustee’s election
Trustee may elect to perform in terms of the contract or not and the only power he has is to exclude
7
the right of the other party to invoke the remedy of specific performance . Once trustee has
elected to repudiate or continue the contract, he cannot change his mind. If he fails to reach a
decision within a reasonable time, it is assumed that he does not intend to perform in terms of the
contract.
Repudiation is a breach of contract in that the repudiating party indicates by words or conduct that
he does not intend to perform his obligations under the contract. Repudiation gives the other party
to the contract (aggrieved party) the right to claim the appropriate remedies for breach of contract.
Statutory controls on the exercise of the trustee’s election
Regarding certain contracts, the Act lays down when and how trustee should exercise his election:
(1) Contract to acquire immovable property Section 35 Immovable
Section 35: Where insolvent contracted to acquire immovable property and property has’t
8
been transferred to him, trustee must make his election within 6 weeks after receiving
written notice from the other party calling upon him to do so. If he fails, the other party may
9
apply to court for cancellation of contract thus providing for a procedure that the seller must
follow in order to prevent the immovable property from falling into the insolvent estate. The
10
other party may also prove a concurrent claim for loss suffered due to non-fulfilment .
If immovable property has, however, been transferred to the estate of the insolvent by being
registered in the name of the acquirer in the Deeds Office and the acquirer is then declared
insolvent before making his performance under the contract, the situation is not dealt with
under this section and the seller is in an weak position at common law. He no longer owns
the immovable property and merely has a personal right under the law of contract to claim
the insolvent debtor's performance. As the remedy of specific performance won’t be granted
in favour of this creditor against trustee of the insolvent estate, his claim against the insolvent
estate will be an ordinary, concurrent claim for damages for breach of contract and he will,
therefore, rank for a dividend.
(2) Hire of property
Trustee may only repudiate the lease by giving written notice to the lessor. If he doesn’t
notify the lessor of his desire to continue the lease on behalf of the lessee’s estate within 3
7
The Plaintiff seeking this remedy requests the court to order the contracting party who is in breach of contract to carry out his
obligations under the contract; in other words, to do what he promised. Usually, the court would exercise its discretion to grant or to
refuse the order of specific performance, but where sequestration has occurred before the insolvent has performed his contractual
obligations, the court would refuse to grant specific performance in favour of the creditor who requests the order of specific
performance. If the court were to grant specific performance in favour of this particular creditor, this creditor would thus be granted
an unfair advantage over the other creditors in the concursus creditorum. This particular creditor awarded the order of specific
performance would be entitled to receive full performance from the trustee under the terms of the original contract, whereas the
other creditors in the concursus creditorum would have to be content with less than full performance.
8
Until transfer by the registration of the relevant title deed in the appropriate Deeds Office, the seller is still the registered owner of
the immovable property and, accordingly, the property is part of the estate of the seller, not the purchaser. If the purchaser's estate
is sequestrated, the immovable property does not automatically fall into the insolvent estate.
9
Cancellation puts an end to the contract and when it’s cancelled the parties are usually also obliged to return what they can of
each other's performances to each other. Duty of restitution may, however, be excluded by a forfeiture clause (see Consequences
later), which prevents the party who is in breach of contract from claiming the restitution of his or her own performance.
10
The purpose is to put the aggrieved party, so far as this aim can be achieved by an award of money, in the position that he would
have been if the contract had been performed. Damages claimed will be a non-preferent claim against the insolvent estate.

months of his appointment, he is deemed to have repudiated it. Repudiation deprives the
insolvent estate of any right to compensation for improvements, other than those made in
terms of any agreement with the lessor. The lessor has:
a preferent claim for rent payable from date of sequestration to date of determination
of lease (included in cost of administration);
if the property is immovable, a secured claim by reason of his tacit hypothec, for rent
owed at time of sequestration; and
a concurrent claim in respect of any other loss sustained because of the non-
performance of the lease.
Consequences of repudiating contract
If trustee elects to repudiate the contract, the opposite party is precluded from obtaining an order
for specific performance even if he has performed his obligation in full. If he decides to accept the
repudiation and cancel the contract, he may use other remedies for breach of contract:
he may recover any property handed over in performance and still owned by him;
he is obliged to make restitution in accordance with normal principles of law of contract unless
there is a forfeiture clause in the contract; and
he has a concurrent claim in respect of property which he has transferred, and payments which
he has made, to the debtor, and for loss which he suffered because of the breach.
Consequences of abiding by contract Section 36 Movable
If trustee elects to complete the contract, he ‘steps into the shoes’ of insolvent. He may insist on
receiving performance owed by other party and he is bound to carry out the counter-performance
owed by insolvent.
Bryant & Flanagan: When trustee upholds the contract, he must uphold the contract in full. He
can’t uphold in part and repudiate in part. He and the other party must then perform the contract in
full. Exception is if the contract is divisible, where the contract may be upheld and repudiated in
part.
11
Section 36 regulates the position in a cash sale of movable property where the buyer’s estate is
sequestrated before he has paid the full purchase price, but after the property has been delivered
to the buyer. ≠ apply to instalment sale agreements
This section recognises that the seller of movable property under a cash sale remains the owner
thereof until the purchase price is paid. It, nevertheless, places some limitations on that principle
by limiting the right of the other party to exercise an accrued right of cancellation where the sale is
a cash sale of movable property. Seller of movable property for cash, who has delivered property,
but who has not been paid, cannot reclaim it from trustee of buyer’s insolvent estate unless:
he has given notice in writing to the buyer or his trustee within 10 days after delivery (not
sequestration) that he reclaims the property; and
if the trustee disputes his right to reclaim the property, he institutes legal proceedings within 14
days after receiving notice of the trustee’s objection.
Contracts which are suspended or terminated on sequestration
(1) Employment contract Section 38 Contract of service
The sequestration of an employer’s estate suspends the employment contract between him
and his employee with immediate effect. During the period of the suspension:
the employee isn’t obliged to render services and isn’t entitled to his salary or wage;
11
A contract of sale is a cash sale if the purchase price is to be paid on delivery of the property and is the case when it was
expressly agreed that the purchase price were to be paid on delivery or when there was no agreement as to time of payment. In a
credit sale, on the other hand, parties expressly agree that property will be delivered, but that payment will only be made on an
agreed later date. Difference between a cash sale and a credit sale relates to passing of ownership: Cash sale ownership
passes to buyer only when property has been delivered to him and he has paid full purchase price; Credit sale ownership passes
already when property is delivered to buyer, unless parties expressly agree that ownership will pass only at a later stage. If buyer
has to pay purchase price against delivery, but seller still allows buyer to take possession of the property without simultaneously
paying the purchase price, contract remains a cash sale, eg cheque dishonoured. Ownership of the movable property sold passes
only when the purchase price is paid and as the seller remains the owner till then, he should be able to recover the possession of
that property from the buyer.

no employment benefits accrues to the employee, although he may receive unemploy-

ment benefits from the date of suspension.
Subsequently, the contract of employment may be terminated by:
the decision of the trustee provided he has engaged in consultation aimed at reaching
consensus on appropriate measures to rescue the whole or part of the insolvent
employer’s business; or
the expiry of the period of 45 days after the appointment of the trustee if no measures
have been adopted which result in the continuation or end of the contract.
On termination of contract, the ex-employee is entitled to recover any resultant loss he has
suffered plus severance benefits in accordance with Basic Conditions of Employment Act, 75
of 1997. He will have a preferent claim against the insolvent estate, but if he is entitled to an
amount of arrear remuneration which exceeds the limits of preference, he must prove an
ordinary concurrent claim for that remuneration. A concurrent claim may be proved for loss
which he has sustained because of the premature termination of his employment contract.
Sequestration of an employee’s estate doesn’t terminate his contract of employment unless
he is precluded from holding his position or office while insolvent by statutory provision.
(2) Mandate
12
In Goodricke & Son v Auto Protection Insurance it was held that a contract of mandate
ipso iure (by operation of law) comes to an end on the insolvency of the mandatory, thus not
being suspended but terminated, and the Roman-Dutch authority found in Voet confirms this
proposition. However, this proposition probably needs to be qualified:
A mandate to perform a juristic act (eg conclude a contract) shouldn’t terminate since
any juristic act performed by a mandatary is deemed to have been concluded between
mandatory and other person, and mandatary isn’t party to resultant legal relationship.
If mandate doesn’t call for any special skill or expertise and could be satisfactorily
executed by the trustee, there seems to be no cogent reason to denying the trustee
the option of enforcing the contract – Natal Law Society v Stokes.
Contracts which trustee cannot repudiate
(1) Lease of immovable property
13
Due to the principle of “huur gaat voor koop” , trustee cannot repudiate a lease of immova-
ble property concluded by the insolvent as a lessor. However, trustee may be compelled to
repudiate lease if property is subject to a real right (eg mortgage bond) which was registered
prior to lease. Trustee is then required to put property up for sale subject to lease. If highest
bid isn’t sufficient to cover amount due to holder of the real right, trustee must, at the request
of the holder, sell the property free of the lease. The lessee then has a concurrent claim for
damages in respect of loss suffered because of the breach of contract.
(2) Sale of land on instalments
The trustee’s right to repudiate may be excluded where the insolvent has:
sold land on instalments; or
alienated land which has subsequently been sold on instalments; and
the land has not been transferred pursuant to the transaction(s) in question.
14
This is a sale of land on instalments in which the purchase price is payable in 2 or more
instalments over a period exceeding 1 year. To provide for the case where land is disposed
of under successive transactions without being transferred, Chapter II of Alienation of Land
15 16
Act, 68 of 1981 (“ALA”), uses the concepts of an ‘intermediary’ and a ‘remote purchaser’ .
The main effect of Chapter II is:
12
An agreement to perform some task or render a professional service to another, ie between attorney and client
13
According to that rule, a lessee of immovable property establishes a real right to the subject of the lease
14
Used, or intended to be used, mainly for residential purposes and exclude agricultural land
15
A person who sells land to a remote purchaser or a person who has alienated land which, after alienation, is sold by another
person to a remote purchaser and which, at time of sale, has still to be transferred to the first-mentioned person.
16
A person who purchases land in terms of a contract from another person who is not the owner of the land

Where insolvent sold land, buyer may compel trustee to pass transfer in his favour,
provided he arranges to pay all transfer costs plus whichever is the larger of:
o the total amount outstanding under the deed of alienation; or
o the sum: administration costs; any endowment, betterment or enhancement levy;
and the amount required to discharge the mortgage bond.
Where insolvent has alienated land to an intermediary, the intermediary is in the same
position as the buyer under contract and can compel transfer in his favour.
Where insolvent alienated land and it was subsequently alienated to an intermediary
or remote purchaser, the latter are entitled to transfer if:
o they fulfil or undertake to fulfil the obligations in terms of their own deed of
alienation; and
o the obligations of every intermediary between owner and themselves are fulfilled.
If transfer is not claimed by any persons entitled to it and trustee abandons agreement
made by the insolvent and realises the land for creditors, the purchaser of the land
under a contract which has been recorded against the title deed of the land has a
preferent claim in respect of the proceeds of the realisation.
The ALA aims at making sure that every party who has right to transfer is aware of his right
and can exercise it. A remote purchaser is required to notify owner of the land immediately of
the conclusion of the contract, of his address and of contract itself. Owner must pass these
details on to trustee. Trustee is under a duty to notify every person who he has reason to
believe purchased the land in terms of a contract, or is an intermediary, of his right to take
transfer thereof. If land is sold on instalments, but does not fall within ALA, common law is
applicable. Trustee becomes owner of property and must decide whether to perform or not,
having regard to the best interests of creditors.
(3) Sale of goods in terms of instalment agreement
Where seller of goods under an instalment agreement is declared insolvent before full price
has been paid and ownership has passed to buyer, trustee isn’t entitled to repudiate and
vindicate the goods, provided that buyer continues to fulfill his obligations in terms of the
contract. There is no clear case authority for this view.
(4) Resale of immovable property not yet acquired
The trustee’s right to repudiate is excluded where he obtains transfer of immovable property
which the insolvent bought and resold (without receiving transfer) prior to the sequestration.
On receiving transfer, he is bound to pass transfer of the property to the purchaser against
payment of the price, if not already paid. Thus he is not entitled to, having upheld the first
contract, to repudiate the second.
Purchase of goods in terms of instalment agreement Section 84 Purchaser insolvent
Special rules apply where insolvent has purchased goods in terms of an agreement failing within
paragraphs (a), (b) and (c)(i) set our below:
Section 1 of the National Credit Act (“NCA”), 34 of 2005 – Definitions
"instalment agreement" means a sale of movable property in terms of which –
(a) all or part of the price is deferred and is to be paid by periodic payments;
(b) possession and use of the property is transferred to the consumer;
(c) ownership of the property either-
(i) passes to the consumer only when the agreement is fully complied with; or
(ii) passes to the consumer immediately subject to a right of the credit provider to re-
possess the property if the consumer fails to satisfy all of the consumer's financial
obligations under the agreement; and
(d) interest, fees or other charges are payable to the credit provider in respect of the agreement,
or the amount that has been deferred;
Section 84(1) of the Act provides that, on sequestration of buyer’s estate, the seller automatically
acquires a hypothec over the res vendita (the thing sold), whereby the balance outstanding under
the agreement is secured. No one may have a hypothec over his own property, thus owner-ship in
the res vendita passes from the seller to the insolvent estate.

The effect of sequestration of buyer’s estate is that the seller loses his right of ownership in the
property and simultaneously becomes a creditor with a hypothec over the property. Trustee must,
if required by seller, deliver the res vendita to the seller who holds it as security for his claim and
has the right to realise his security as prescribed by the Act. The type of agreement envisaged is a
sale of movable property in terms of which:
all or part of the price is deferred and is to be paid by periodic payments;
possession and use of property is transferred to the buyer;
ownership of property passes to buyer only when the agreement is fully complied with.
A transaction meeting these requirements will be governed by Section 84(1), even if it falls outside
the ambit of the NCA. Section 84(1) presupposes that an agreement is still in force and that the
seller is the owner of the res vendita. It will, however, not apply in cases of physical impossibility
and the possessor’s ability to assert a right which defeats the trustee’s right – Venter NO v Avfin.
In terms of Section 82(2), if debtor returns property to seller within 1 month before sequestration,
the trustee may demand that seller to deliver to him the property or its value at the date of return,
subject to payment to creditor by trustee or to deduction by creditor from value of property of
difference between total amount payable and total amount actually paid. The legislature clearly
intended to enable trustee to reclaim the property for the benefit of concurrent creditors.
Difference:
Section 84(1): Hypothec created by statute arises automatically by operation of law, no choice.
Section 84(2): Trustee may elect to demand return of the property
Transaction on exchange
In terms of Section 35A, these special rules apply in regard to a transaction to which the rules of an
17 18
‘exchange’ apply and in which the insolvent was a ‘market participant’ :
The exchange or any other market participant may, in respect of the obligations owed to it,
terminate transaction in accordance with the rules of the exchange, and trustee is bound by it;
Any resultant claim is limited to amount due upon termination under the rules of the exchange;
Trustee is bound by the rules and practices of the exchange if the transaction is to be settled on
a date after sequestration or settlement is overdue on that date.
Agreement on informal market
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Section 35B makes special provision where insolvent was party to a ‘master agreement’ . All
unperformed obligations arising out of agreement terminate automatically on sequestration. The
market values of obligations as at date of sequestration must be netted and this amount is payable.
8. MEETINGS OF CREDITORS AND PROOF OF CLAIMS
8.1. Meetings of creditors
By means of a system of meetings, the insolvent’s creditors establish their claims, elect the trustee
and give directions to the trustee on the winding up of the estate.
(1) First meeting
When Immediately on receipt of final sequestration order
Convene by The Master
Notice In Gazette not less than 10 days prior to meeting
Purpose To enable creditors to prove claims and elect a trustee
(2) Second meeting

When After first meeting and appointment of the trustee on a date fixed by Master
17
An ‘exchange’ means an exchange as defined in Section 1, and licensed under Section 10, of the Securities Services Act, 36 of
2004, and includes a central securities depository as defined in Section 1 of that Act and which is also licensed as a clearing house
under Section 66 of that Act, or a clearing house as defined in Section 1 of that Act;
18
A ‘market participant means an authorised user, a participant, a client or a settling party as defined in Section 1 of the Securities
Services Act, 36 of 2004, or any other party to a transaction.
19
A ‘master agreement’ includes, inter alia, an agreement in accordance with standard terms published by the International Swaps
and Derivatives Association, the International Securities Lenders Association, the Bond Market Association or the International
Securities Market Association

Convene by The trustee

Notice In Gazette and 1 or more newspapers circulating in the district in which the insolvent resides or
has principal place of business in Afrikaans and English
Purpose To enable creditors to prove claims, receive trustee’s report on affairs and condition of estate
and to give trustee directions on administration of estate
(3) Special meeting

Proof of claim
When After second meeting when trustee is called upon by any interested party tendering payment of
expenses to be incurred in connection with meeting
Notice In Gazette
Purpose To enable creditors to prove claims
Interrogation of the insolvent
When At any time, provided Master gives consent, trustee may and must if so required by creditor
who has proved claim against estate
Notice In Gazette
Purpose Interrogating the insolvent
(4) General meeting

When At any time or when required to do so by Master or creditors representing ¼ of the value of all
claims proved
Notice In Gazette and 1 or more newspapers circulating in the district in which the insolvent resides or
has principal place of business in Afrikaans and English and must state matters to be dealt
with
Purpose Giving trustee instructions concerning administration of estate, also for considering offer of
composition
(5) General provisions relating to meetings

i) Date and venue of meetings
Master determines first, trustee the rest. Every meeting must be held at a place which
is accessible to the public, such as the Master’s office.
ii) Presiding officer at meetings
In a district where there is a Master’s Office, the Master (or officer in public service
designated by him) must preside over the meeting. In another district, meeting must
be held in accordance with directions by the Master, by the magistrate of the district
(or officer in public service designated by him).
iii) Record of proceedings
The presiding officer must keep a record of the proceedings at every meeting, certify it
at conclusion and transmit it to the Master. The minutes constitute prima facie proof.
iv) Statement privileged
The publication of any statement at a meeting is privileged to same extent as the
publication of a statement made in a court of law.
9. THE ELECTION OF THE TRUSTEE
9.1. Election and appointment
Election
At the first meeting, the creditors who have proved their claims may elect 1 or 2 trustees. If more
than 1 person is nominated, the person who obtains a majority of votes in both number and value
must be elected sole trustee. If 1 person obtains a majority in value and another person majority in
number, both must be elected sole trustee. Where the trustee is eleced at a meeting not presided
over by the Master, the election is not valid until confirmed by the Master.

Appointment
The Master may refuse to accept the person the creditors elected as trustee. If he accepts, once
the person has given satisfactory security for the proper performance of his duties as trustee, the
Master must confirm the election and appointment by delivering a certificate of appointment. The
trustee must then give notice of his appointment and his address in the Gazette.
Refusal to appoint
The Master may refuse to confirm the election of a person elected as trustee if:
he was not properly elected;
he is disqualified from being a trustee;
he has failed to give the required security; or if,
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in the opinion of the Master, he should not be appointed as a trustee to the estate in question .
If the creditors have elected a trustee unlawfully, the Master is obliged not to confirm the election
and to convene a new meeting to elect another trustee. If the Master declines to confirm, he must
notify the party in writing and state the reasons for declining.
Objection to appointment or refusal to appoint
Any person aggrieved by:
the appointment of a trustee; or
refusal to confirm the election of, or to appoint, a trustee;
may, within 7 days from the date of appointment or refusal, request the Master, in writing, to submit
his reasons for the appointment or refusal to the Minister. The Master must comply with the request
within 7 days, submitting along with his reasons any relevant documents, information or objections
which he has received. The Minister may then give appropriate directions in this regard and his
decision is final.
Joint trustees
If more than 1 trustee has been appointed or the Master has appointed a co-trustee, the trustees
must act jointly and are jointly and severally liable for every ac they perform jointly. If one acts
unlawfully without the knowledge or consent of the other, the latter is not liable. Disagreements
must be referred to the Minister for his directions.
9.2. Persons disqualified from being trustee
Certain persons are not competent to be appointed trustee in any estate, while others are merely
disqualified from being the trustee of a particular estate.
Absolute disqualification
The following persons may not be a trustee in any estate:
an insolvent;
a minor or other person under legal disability;
a person who reside residing outside South Africa;
a company, close corporation or other corporate body;
a former trustee disqualified under Section 72;
a person declared by the court under Section 59 to be incapacitated for election while it lasts, or
any person removed by the court from an office of trust on account of misconduct;
a person who has been convicted of theft, fraud, forgery, uttering, or perjury and who has been
sentenced to a term of imprisonment without option of a fine, or to a fine exceeding R 2,000.00;
a person who was at any time party to an agreement with a debtor or creditor whereby he
undertook that he would, while acting as a trustee, grant or obtain for a debtor or creditor a
benefit not provided for by law.
a person who has, by misrepresentation, rewarded, or the direct or indirect offer of reward,
induced or attempted to induce, a person to vote for him as a trustee or to assist him in
becoming elected.
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The Master exercised a subjective discretion in deciding suitability and he should consider the person’s personality, experience,
age and diligence, as well as the complexity or otherwise of the problems presented by the estate.

Relative disqualification
The following persons are disqualified in respect of a particular estate:
rd
a person related to the insolvent in blood or by marriage within the 3 degree;
a person having an interest opposed to the general interest of the creditors;
a person who acted as a bookkeeper, accountant or auditor of the insolvent at any time during a
period of 12 months immediately preceding the date of sequestration;
an agent authorised to vote on behalf of a creditor at a meeting and who acts or purports to act
in terms of that authority.
9.3. Vacation or, or removal from, office
Vacation of office
A trustee must vacate his office if:
his estate is sequestrated;
an order is issued for his detention under the Mental Health Act, or if he is declared by the court
to be incapable of managing his own affairs;
he is convicted of an offence and senteced to imprisonment without the option of a fine; or
he is convicted of theft, fraud, forgery, uttering a forged document, or perjury.
Removal from office by Master
The Master may remove a trustee from office on the grounds that:
he was not qualified for appointment, or that his election or appointment was illegal, or that he
has become disqualified;
he has failed to perform his duties satisfactorily or to comply with a lawful demand of Master;
he is mentally or physicaly incapabe of performing his duties as trustee satisfactorily;
the majority of the creditors has requested in writing that he be removed; or
he is no longer suitable, in the opinion of the Master.
Disqualification or removal from office by court
On application of an interested party, court may declare that the person appointed or propossed as
trustee is:
disqualified from holding the office; and
incapable of being elected or appointed trustee during his lifetime or such other period as the
court may determine.
The court may make this order if the person:
has accepted, or expressed his willingness to accept, a benefit from someone who performs
work on behalf of the estate; or
in order to obtain the vote of any creditor for his appointment as trustee, has:
- wrongfully omitted or included the name of a creditor from any record required by the Act;
- given or offered consideration of any kind;
- offered to abstain from investigating previous transactions of the insolvent; or
- split claims for the purpose of increasing the number of votes.
The effect of Fey NO and Whiteford NO v Serfontein is that there are two ways in which to
remove a trustee from office on the grounds of misconduct, namely:
The Master may remove the trustee from office in terms of Section 60(e) of the Act; or
The court may remove the trustee from office in terms of the common law. The Act itself does
not grant the court the authority to remove a trustee on the grounds of misconduct.

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10. IMPEACHABLE DISPOSITIONS
10.1. Meaning of ‘disposition’
'disposition' means any transfer or abandonment of rights to property and includes a sale, lease,
mortgage, pledge, delivery, payment, release, compromise, donation or any contract therefor, but
does not include a disposition in compliance with an order of the court.
Term Explanation
Property Movable or immovable property wherever situated within SA, including contingent interests in property
other than those of a fidei commissary heir or legatee and property situated outside SA.
Sale A contract by which one party agrees to transfer or deliver a thing to another party in return for the
payment of a sum of money.
Lease A contract by which one party provides the use of a thing to another party in return for the payment of
a sum of money.
Mortgage Mortgagor provides security to mortgagee (bank) for performance of mortgagor's obligations under
loan by passing a mortgage bond over his immovable property. This bond is registered against
property in Deeds Office and if mortgagor doesn’t perform his obligations as promised under the loan
agreement, mortgagee may have it sold and recover amount of outstanding debt from proceeds of
property.
Pledge As security for the repayment of a loan, a person may agree to provide the lender with movable
property as pledge and if the loan is not repaid, the lender can recover the outstanding amount owed
from the proceeds of the pledged item.
Delivery The transfer of possession of a movable item.
Payment Payment may take various forms and is often used in the sense of paying a debt.
Release Parties agree that a pre-existing duty is discharged before it’s performed in full.
Compromise Parties to the agreement of compromise settle a dispute or an uncertain issue.
Donation A non-obligated party agrees to give another party something for free.
The following should be noted:

A beneficiary has competence or power to accept or repudiate inheritance (bequest or legacy)
or an insurance benefit and it is not part of the estate until he accepts. Thus, repudiating the
inheritance or insurance benefit, is not a transfer or abandonment of any right;
A “disposition” includes a contract providing for the alienation or abandonment of rights to
property, which is sometimes referred to as an “uncompleted disposition”, and also suretyship;
If the creditor obtained a court order by fraud or by collusion with the insolvent and with the
intention of prejudicing other creditors, the exclusion does not apply as for other court orders.
10.2. Dispositions which may be set aside
The dispositions which may be set aside are those:
made not for value;
having the effect of preferring one creditor above another (“voidable preferences”);
Voidable
intended to prefer one creditor above another (“undue preferences”);

made in collusion with another person and having the effect of prejudicing creditors or preferring
one above another; and
made in fraudem creditorum (in fraud of creditors) may be set aside in terms of common law
Until a disposition is set aside by the court, it remains valid and binding and only disposition made
by the insolvent are impeachable under the Act.
Dispositions made not for value
(1) What must be proved Section 26 Disposition without value
Section 26(1) allows the court to set aside a disposition made for no value. The onus is on
the trustee to prove:
21
Juristic acts which the insolvent executed prior to the sequestration of his estate, and which had the effect of adversely disturbing
the contemplated equitable treatment of the creditors, or which had the effect of unfairly prejudicing the general body of creditors.
The Act and the common law of insolvency empower the trustee to set aside these juristic acts in order to restore the balance.

that the insolvent made the disposition;

when the insolvent made the disposition; and
that he received no value for it.
It’s not necessary to prove that the insolvent intended to prejudice the creditors, the object of
Section 26 is simply to prevent a person in insolvent circumstances from impoverishing his
estate by giving away assets without receiving any appreciable advantage in return. Section
26(1) will apply if the disposition was made:
more than 2 years before sequestration, court can only set it aside if trustee proves
that, immediately after it was made, the liabilities of the insolvent exceeded his assets;
within 2 years of sequestration, the court must set it aside unless the person claiming
under or benefited by it can prove that, immediately after it was made, the assets of
the insolvent exceeded his liabilities.
For a disposition to have “value”, the mutual benefit need not be monetary or tangible, but it
must be adequate (not a trifling amount) - eg being allowed to remain a member of Tattersall
(Estate Wege v Strauss) or payment of a lawful debt where the payer receives counter-
value in the discharge of his liability (Estate Jager v Whittaker). To establish “value”, due
consideration is given to all the circumstances in which the transaction was made.
If it’s proved that the liabilities at any time after making a gratuitous disposition, exceeded
assets by less than the value of property disposed of, the disposition may be set aside only
to that extent – eg gift of R 5,000.00 causes insolvent’s liabilities to exceed his assets by
R 10,000.00, he then acquired assets which reduced his margin of insolvency to R3,000.00
– disposition may only be set aside to the extent of R 3,000.00.
(2) Exception to Section 26 – disposition in terms of ANC Section 27 ANC
Section 27 provides that the settlement of property under an antenuptial contract by a
husband to his wife or any child to be born of the marriage is not liable to be set aside as a
disposition without value on the insolvent’s insolvency if these requirements are met:
22
The disposition must be an “immediate benefit” ;
23
The disposition must have been given in good faith ;
The antenuptial contract must have been duly registered at least 2 years prior to the
sequestration.
(3) Beneficiary’s rights to share in estate limited Section 26 Disposition without value
In terms of Section 26(2), the beneficiary to a disposition which has been set aside by the
court has no right to claim in competition with creditors of the insolvent estate. Same applies
if it hasn’t been set aside, but hasn’t been completed by the insolvent.
One exception: Where uncompleted disposition was made by way of suretyship, guarantee
or indemnity In this event the promisee may compete with the creditors of the estate for
an amount not exceeding the amount by which the value of the insolvent’s assets exceeded
his liabilities immediately before the disposition was made.
Suretyship and similar contracts are usually regarded as dispositions without value (Lange-
berg Koöperasie v Inverdoorn), thus Section 26(2) used to create problems, especially for
banks. As a result this section was amended at their insistence and its provisions are now
qualified as far as they pertain to dispositions without value "by means of suretyship,
guarantee or indemnity". Therefore, a careful creditor who ensured that the surety's assets
sufficiently exceeded his/her liabilities at the time of granting the suretyship will still have a
provable claim against estate of insolvent surety if principal debtor doesn’t pay. It’s merely a
wise practical precaution for that creditor to take. If he/she does ascertain that the surety’s
assets will sufficiently exceed his/her liabilities when the suretyship is granted, the creditor
can be confident of being able to rely on Section 26(2) should the surety subsequently be
declared insolvent, and thus the creditor can be confident of being allowed to compete with
the other creditors of the insolvent surety's estate in respect of the amount not exceeding the
22
“Immediate benefit” means a benefit given by a transfer, delivery, payment, cession, pledge, or special mortgage of property
completed before the expiration of a period of three months as from the date of the marriage.
23
“Good faith” in this context refers to the absence of any intention to prejudice creditors in obtaining payment of their claims or to
prefer one creditor above another.

amount by which the value of the insolvent's assets exceeded his liabilities immediately
before the making of the disposition.
Dispositions which prefers one creditor above another: voidable preference
(1) What must be proved
Section 29 Voidable preferences
Section 29(1) allows the court to set aside a disposition meeting the following requirements
and the onus is on the trustee to prove them:
not more than 6 months before the sequestration of his estate or his death; and
if the disposition had the effect of preferring one of the insolvent’s creditors above
another and immediately after the disposition was made, the liabilities of the insolvent
exceeded the value of his assets.
The policy behind this section is to prevent a person on brink of insolvency to select one or a
few of his creditors for full payment and to disregard the rest. Disposition doesn’t have to be
made directly to the creditor concerned - it must merely have had the effect of preferring him.
Test whether a creditor was preferred: Were the proper distribution of assets as envisaged in
the Act defeated or has the creditor benefited more or was he paid earlier than would have
been the case if he had been paid in accordance with the Act?
(2) Exception to Section 29 – disposition in course of business and not intended to prefer
Section 29 enables the trustee to set aside transactions made and assets alienated by the
insolvent while being close to insolvency, unless it was made in the ordinary course of
business and it was not intended to prefer one creditor over another. The beneficiary must
prove both of the following elements in order to defeat the trustee’s claim:
i) Ordinary course of business
An objective test is applied in deciding whether a disposition was made in the ordinary
course of business: Was disposition 1 which would normally be entered into between
solvent business persons (Hendriks NO v Swanepoel); or is it in conformity with
ordinary business methods adopted by solvent persons of business (Van Zyl &
others NNO v Turner)?
ii) No intention to prefer
Insolvent won’t be held to have intended to prefer if it is established that, when he
made disposition, he didn’t contemplate or expect sequestration; or his main purpose
in making the disposition was something other than conferring of an advantage on the
24
creditor concerned ; or to comply with a contractual obligation to give possession of
his movable property to creditor concerned to perfect latter’s security under a general
notarial covering bond – Cooper & another NNO v Merchant Trade Finance. It has
been held in Swanepoel NO v National Bank of SA that proof that the insolvent
entertained the hope of tiding over his financial difficulties is not sufficient to prove the
intention to prefer.
Disposition intended to prefer one creditor: undue preference
(1) What must be proved Section 30 Undue preference to creditors
Section 30 allows the court to set aside a disposition meeting the following requirements and
the onus is on the trustee to prove them:
at any time before sequestration;
with the intention of preferring one of his creditors above another; and
when he made the disposition, his liabilities exceeded his assets.
If proved, judgment must be given in the trustee’s favour as there are no defences available
to beneficiaries of such dispositions.
24
Eg to shield himself from criminal prosecution or to cover up a misappropriation of assets and save himself from exposure –
Pretorius’ Trustee v Van Blommenstein.

A subjective test is applied in deciding whether the insolvent had the intention to prefer: Was
his dominant, operative or effectual intention in making the disposition to disturb the proper
distribution of assets on insolvency? It stands to reason that the insolvent must have applied
his mind and if he didn’t actually consider whether he was conferring a preference, he could
not have intention to prefer. Court must weigh up all relevant facts and decide on a balance
of probabilities.
The following factors are relevant in determining whether the insolvent’s dominant intention
was to confer preference:
Whether the insolvent contemplated insolvency when making the disposition;
Whether the insolvent was, at time of disposition, in a position to exercise free choice;
Whether there is any relationship between the insolvent and the creditor.
(2) Differences between trustee’s powers under Sections 29 and 30
Section 29 Section 30
Voidable preference Undue preference
Time Within 6 months before sequestration of the At any time before sequestration of the estate
estate or insolvent’s death
Solvency Debtor may be solvent when he makes it, Debtor must be insolvent
provided he is insolvent immediately after
Onus Trustee to prove that disposition had the effect Trustee to prove that the debtor intended to
of preferring 1 creditor above others prefer 1 creditor above the others
Defences 1 defence with 2 elements No defendances
Collusive disposition which prejudices creditors or prefers one creditor

Section 31
Section 31 provides that the court may set aside a transaction entered into by the debtor before
sequestration in terms of which he, in collusion with another, disposed of his property in a manner
which had the effect of prejudicing his creditors or preferring one above another. To succeed, the
trustee must prove that:
the insolvent made a disposition of his property;
disposition was made “in collusion with another person” - both knew that one was insolvent and
expected disposition to have effect of prejudicing creditors or preferring one above another; and
the disposition had the effect of prejudicing creditors or preferring one above another.
The trustee may also recover from any person who was party to the disposition:
any loss which the disposition caused to the insolvent’s estate; and
a penalty determined by the court, but not exceeding the amount by which the party would have
benefited if the disposition was not set aside.
This may be recovered from the costs of setting aside and if the other party is a creditor, he forfeits
any claims he may have had against the estate.
Disposition in fraud of creditors (actio Pauliana)
The Act doesn’t deprive the creditors of their right under common law to have a disposition set
aside as being in fraudem creditorum. The common law action is known as the actio Pauliana and
the Plaintiff must prove the following to succeed:
the transaction diminished the debtor’s estate;
the person who received from the debtor did not receive his own property;
there was an intention to defraud and
25
the fraud took effect.
Creditors may invoke the actio Pauliana to recover not only the assets disposed of, but also any
benefits accruing from the insolvent’s fraud.
10.3. Exemptions of certain dispositions from Act
In certain instances, the provisions of the Act governing dispositions don’t apply:
25
Not criminal-law connotation: test is simply whether the object of the transaction was to give one creditor an unfair advantage
over the others in insolvency – Trustees Estate Chin v National Bank of SA.

Sections 26, 29 or 30: To property disposed of in accordance with the rules of an exchange or
property disposed in terms of a master agreement;
Sections 29, 30 or 31: If a prosecution of an offences has been instituted against the defendant,
proceedings haven’t been concluded and the estate of the defendant who has made an affected
gift to another person is sequestrated - Section 35(2)(a) of the Prevention of Organised Crime
Act, 121 of 1998.
10.4. Transfer of business without prescribed notice Section 34 – Voidable sale of business
26
Section 34(1) provides that, if a trader, without giving notice as prescribed by Act, transfers in
27
terms of a contract a business belonging to him, or its goodwill , or any goods or property forming
part of it (except in ordinary course of that business or for securing payment of a debt), the transfer
is void as against his creditors for 6 months thereafter, and it is void against his trustee if his estate
is sequestrated at anytime within that period.
The notice referred to is a publication of a notice of intended transfer in the Government Gazette
and two issues of both an Afrikaans and English newspaper circulating in the district in which that
business is carried on. It must appear not less than 30 days and not more than 60 days before the
date of transfer.
The following should be noted in regard to the scope and effect of Section 34(1):
It is designed to protect the creditors of a business;
28
It applies only to traders ;
It applies to the transfer of part of a business or the goodwill, goods or property forming part of
the business;
It doesn’t apply to the transfer of goods or property of a business if the transfer is “in the
ordinary course of that business”;
It doesn’t apply where the transfer is to secure the payment of a debt;
If a trustee alleges that a transfer falls within the section, he must prove that the goods formed
part of the insolvent’s business at time of transfer and that it wasn’t in the ordinary course of the
insolvent’s business;
An unadvertised transfer is not void in any absolute sense, only against the trustee.
10.5. Transfer of business after proceedings instituted Section 34 – Voidable sale of business
Where a trader transfers his business after another person has instituted proceedings against him
for the purposes of enforcing a claim against him in connection with the business, Section 34(3)
renders transfer void as against the person concerned for purpose of such enforcement if either:
transferee is aware, at time of transfer, that proceedings have been instituted; or
proceedings have been instituted in a HC or MC having jurisdiction in the district in which the
business is carried on.
The following should be noted in regard to Section 34(3):
The section applies irrespective of whether the trader gives notice of transfer;
The creditor is protected if he has instituted proceedings prior to the transfer;
Protection is not limited as to time;
To apply section, claim sought to be enforced must be one “in connection with the business”;
Creditors not denied protection of section where agreement on which his claim is based has
been amended or superseded by another agreement, provided sufficient close connection
between the proceedings and second agreement;
The section only renders the transfer of the business void against the creditor who instituted
proceedings and to the extent of his claim.
26
“Transfer”, for these purposes includes the transfer of possession, actual or constructive. (I.e. the trader does not have to transfer
ownership to the other party).
27
"Goodwill" is an intangible asset pertaining to an established and profitable business, for which a purchaser of the business may
be expected to pay, because it is an asset which generates, or helps to generate, turnover and, consequently, profits.
28
See definition paragraph 3.1(2)(viii)

11. CREDITOR’S CLAIMS AND THEIR RANKING – THE DIFFERENT TYPES OF CREDITORS
11.1. Types of creditors
(1) Concurrent creditors
They don’t enjoy any advantage over other creditors of the insolvent;
29
They are paid out of the free residue after any preferent creditors have been paid;
Concurrent creditors all rank equal and, if the free residue is insufficient to meet their
claims, each receives an equal portion of his claim by way of a dividend, eg.
Calculating concurrent creditor’s dividends if the free residue is insufficient:
Free residue = Proportion of cents
Total amount of concurrent creditor’s claims in the Rand
Concurrent creditor’s claim X Proportion of cents in the Rand

100
= Dividend
(2) Secured creditors

A secured creditor holds security for his claims in the form of a special mortgage,
30
landlord’s hypothec, pledge or right of retention .
A secured creditor is entitled to be paid out of proceeds of the property under security,
after payment of certain expenses and any secured claim which ranks before his. If
proceeds of the encumbered property are insufficient to cover his claim, he then has a
concurrent claim for the balance.
A secured creditor may, when proving his claim, choose to rely exclusively on his
security and, in doing so, waives any right to participate in the free residue, but he is
less likely to be called upon to contribute towards the costs of sequestration than one
who elects to preserve his right to share in free residue.
(3) Preferent creditors
“preference”, in relation to any claim against an insolvent estate, means the right to payment
of that claim out of the assets of the estate in preference to other claims;
Strictly speaking, secured creditors are preferent creditors, but the term "preferent creditor"
is reserved for a creditor whose claim isn’t secured but nevertheless ranks above the claims
of concurrent creditors and whose preference is created in terms of the Act:
Section 96 Funeral and death-bed expenses
Section 97 Costs of sequestration
Section 98 Costs of execution
Section 98A Salaries or wages of former employees of insolvent
Section 99 Certain statutory obligations
Section 101 Income tax
Section 102 Claims of holders of general bonds and certain special bonds
Those unsecured, preferent creditors admittedly have a preference among themselves and
above concurrent creditors, but they are not secured creditors, because their claims are not
paid out of the proceeds of a specific asset.
A preferent creditor is entitled to payment out of the free residue of the estate, ie that portion
which is not subject to any security interest, and a predetermined order of preference, as
well as maximum amounts, is laid down by the Act. If a claim exceeds the statutory
maximum, the creditor concerned has a concurrent claim for the balance.
11.2. Types of security conferring preference
(1) Special mortgage Section 88 – Certain mortgages invalid
31
In terms of Section 2 of the Act, a special mortgage is:
29
See definition paragraph 2.2(2) - the unencumbered part of the estate
30
The definition in Section 2 contemplates real security only: a creditor whose claim is secured by suretyship is not secured

a mortgage bond hypothecating immovable property;

a notarial bond hypothecating specially described movable property registered after
7 May 1993 ito Section 1 of Security by Means of Movable Property Act 57 of 1993; or
a notarial bond hypothecating specially described movable property registered before
7 May 1993 in terms of Section 1 of the Notarial Bonds Act, 18 of 1932.
32
It excludes any other bond hypothecating movable property, thus a general notarial bond
doesn’t qualify as a special mortgage. However, it does confer a preference in respect of the
33
free residue. Section 88 lays down that a bond (other than a kustingbrief and including a
general notarial bond) gives no security or preference if:
the estate was sequestrated within 6 months after lodging of the bond with the
Registrar of Deeds for registration;
the debt was incurred more than 2 months prior to lodging of the bond; and
the debt was not previously secured.
Section 85 – Exclusion or limitation of
(2) Landlord’s legal hypothec preference under legal hypothec
A landlord who is owed rent has a hypothec over movable property brought on to the leased
premises for the use by the tenant. On insolvency, the landlord has a secured claim in
respect of all movable assets owned by the insolvent which are covered by the hypothec in
terms of Section 85(2). The claim is secured up to an amount of:
Rent payment interval Claimable amount
Monthly or shorter intervals 3 months’ rent

> 1 month, but < 3 months 6 months’ rent
> 3 month, but < 6 months 9 months’ rent
> 6 months 15 months’ rent
In respect of any excess, the landlord has a concurrent claim and he obtains no preference
in relation to goods belonging to third parties that are subject to the hypothec.
(3) Pledge
A valid pledge is constituted where there is delivery of movable property to a creditor on the
understanding that it will be retained by him until his claim has been satisfied.
(4) Right of retention
A party has a right of retention (or lien) over specific property belonging to another if he has
expended labour or incurred expenses in respect of the property and there are two types:
i) Enrichment liens
So called as they are based on unjustified enrichment and there are 2 kinds:
o Salvage liens
o Improvement liens
The holder of an enrichment lien may retain the property until compensated for his
expenses and labour, but cannot insist on payment of more than the amount by which
the owner has actually been enriched.
ii) Debtor and creditor liens
These are based on contract and a creditor who holds one is entitled to retain the
property as against the debtor until he has paid the amount due in terms of contract.
31
Provides security
32
A general notarial bond over movable property is a bond which binds all the mortgagor's movable property in general and merely
provides a (relatively weak) preference in terms of Section 102 of the Act. It’s not possible to register a general bond over all the
mortgagor's immovable property.
33
A "kustingsbrief" is a bond which is registered simultaneously with the transfer of the piece of land concerned, in order to secure
either the outstanding purchase price of the land, or the repayment of a loan made to the buyer to enable him to pay the purchase
price of the land. Example: A sells his farm to B. B pays half the purchase price against registration of transfer, and the rest of the
purchase price is secured by a bond over the land which is registered in favour of A simultaneously with the transfer to B.

(5) Instalment agreement hypothec

If movable property has been delivered to a debtor under an installment agreement, the
seller acquires, on sequestration, a hypothec over the property which secures his claim for
the balance outstanding under the contract in terms of Section 84(1).
11.3. Ranking of claims
Act lays down order in which claims against insolvent estate must be paid. The estate, for purposes
of distribution, consists of proceeds of both encumbered and unencumbered assets. The proceeds
of each encumbered asset are applied to pay the claim(s) secured by that asset. Any balance
remaining after payment of secured creditors is combined with proceeds of unencumbered assets
to pay the remaining creditors. The free residue is then used first to satisfy the preferent creditors in
full (in their order of preference) and thereafter to pay the claims of the concurrent creditors.
34
(1) Encumbered assets
i) Initial costs Section 89 – Costs to which securities are subject
In terms of Section 89(1), the proceeds of each encumbered asset must be applied to
the payment of certain costs before payment of the claim(s) secured by the asset.
The costs are the following:
o Costs of maintaining, conserving and realizing the asset in question;
o Trustee’s remuneration in respect of the asset;
o A proportionate share of costs incurred by trustee in giving security;
o A proportionate share of the Master’s fees;
o If the asset is immovable property, any tax which is, or will become, due on it for a
period not exceeding 2 years immediately preceding the date of sequestration; for
the period from the date of sequestration to the date of transfer of the property; and
together with any interest or penalty which may be due on the tax.
ii) Secured claims Section 95 – Application of proceeds of securities
After payment of the initial costs, balance of the proceeds of the encumbered asset,
including any interest earned on the price obtained for the asset, must be used to pay
all the claims secured by the asset, in proper order of preference – Section 95(1).
Secured claims rank among themselves in the following order:
o Immovable property
Enrichment lien;
Special mortgage bond(s) and contract recorded in terms of the ALA in the
order in which they were registered or recorded;
Debtor and creditor lien.
o Movable property
Enrichment lien;
Pledge;
Special notarial bonds in the order in which they were registered;
Debtor and creditor lien;
Instalment agreement hypothec;
Landlord’s hypothec.
Interest due on a claim for a period not exceeding 2 years immediately preceding the
date of sequestration is secured as if it were part of the capital sum. Interest from
date of sequestration to date of payment is also secured.
(2) Unencumbered assets (free residue) Listed in order of preference
i) Funeral expenses
Funeral expenses of the insolvent, his wife or minor child to a maximum of R 300.00.
ii) Death-bed expenses
Death-bed expenses of the insolvent, his wife or minor child incurred for medical
attendances, nursing and medical necessaries to a maximum of R 300.00.
34
An asset that serves as real security.

iii) Costs of sequestration

o Sheriff’s charges incurred since sequestration;
o Master’s fees;
o Miscellaneous charges comprising of the:
taxed costs of sequestration;
fee allowed by the Master to a person who assisted the insolvent or spouse in
drawing up a statement of affairs;
remuneration of curator bonis (if any);
remuneration of the trustee; and then
all other costs of administration and liquidation.
iv) Costs of execution
o The taxed fees of the sheriff in connection with any execution upon the insolvent’s
property and the proceedings leading to that execution; and
o Any other taxed costs in those proceedings, not exceeding R 50.00.
Amount paid mustn’t exceed proceeds of property in question if it was under attach-
ment or if proceeds of sale were in hands of execution officer at date of sequestration.
v) Salary or remuneration of employees
o Salary or wages due to an employee, for a period not exceeding 3 months, to a
maximum of R 12,000.00;
o Payment in respect of leave due to an employee, to a maximum of R 4,000.00;
o Payment in respect of paid absence, for a period not exceeding 3 months, to a
maximum of R 4,000.00;
o Any retrenchment pay due to an employee, to a maximum of R 12,000.00;
o Any contributions which were owing to any pension etc, maximum of R 12,000.00.
If an employee's claim for salary, wages, leave or other payments exceeds the limits
of the preference, he has a concurrent claim for the excess under Section 38(10) of
the Act as loss suffered because of the suspension or the termination of the contract
before its expiry.
vi) Statutory obligations
o Any amount due to the Compensation Commissioner in terms of the Compensation
for Occupational Injuries and Diseases Act, 130 of 1993;
o Any tax which the insolvent deducted or withheld from remuneration, royalties, but
did not pay to SARS;
o Any amount due to the Mines and Works Compensation Fund;
o Any customs, excise, sales duty, interest, penalty or fine due;
o Any amount provided to the insolvent by the State from the National Supplies
Procurement Fund;
o Any VAT, interest, fine or penalty due;
o Any contribution, penalty or other payment owed by the insolvent in his capacity as
employer to the UIF.
vii) Income tax
Any tax on income or profit and interest on tax for which insolvent is personally liable.
viii) Claim secured by general and special bond
Held over movable property registered before 7 May 1993 and the preference is not
limited to the proceeds of the bonded property, but extends to the entire free residue.
ix) Claims of concurrent creditors
o Concurrent creditors – Section 103(1)(a);
o Secured creditors whose claims exceed the sums payable to them from proceeds
of their securities and who didn’t state in their affidavits that they relied solely on
the proceeds of their securities – Sections 83(12) and 89(2);
o Preferent creditors for non-preferent balance of their claims – Section 103(1)(a);

o The balance must be distributed among the various creditors in proportion to the
amounts owing to each of them – Section 103(1)(a).
12. COMPOSITION Section 119 – Composition
A debtor who is in financial difficulty or whose estate has been provisionally sequestrated can avert
insolvency by entering into a compromise with his creditors. There are two forms of compromise:
Common-law compromise:
Based on a contract and requires approval of all creditors to be of any practical value. Creditors
may be in a better position, as they will get dividends earlier than in sequestration and it may be
higher due to savings of sequestration costs. For debtor advantage of a common law composition
is that he is released from his debts without having to suffer consequences of sequestration.
Statutory composition:
A Section 119 composition is a statutory mechanism under which the decision of the majority of
the creditors binds the dissenting minority. The disadvantage is that the sequestration order isn’t
discharged and debtor remains an unrehabilitated insolvent but can apply for early rehabilitation.
Difference Common-law compromise Statutory composition
Legal basis Law of contract Statutory

Acceptance Written consent of all concurrent creditors Majority of creditors binds the minority
12.1. Common-law compromise

After a provisional order of sequestration has been granted, or even before, insolvent may enter
into a written agreement with his creditors and the provisional trustee to pay certain dividends on
the creditors’ claims, on condition that he is released from his debts and any provisional order of
sequetsration is discharged.
12.2. Offer of composition in terms of Section 119
Submission of offer to creditors via trustee
At any time after first meeting, insolvent may submit a written offer of composition to trustee, who, if
of opinion that creditors will probably accept, must post it immediately in a registered letter or
delivered it. If trustee, however, sees no likelihood that they will accept, he informs insolvent that it
is unacceptable and that he doesn’t propose to send it to them. Insolvent may then appeal to the
Master, who may direct trustee to send it after consideration.
When it is sent to creditors, a meeting to consider the offer must simultaneously be convened -
date of the meeting must not be earlier than 14 days, and not later than 28 days, after posting or
delivery of notice. Notice must contain specific reference to offer of compensation as a matter to
be dealt with at the meeting
Terms of composition
An offer may contain any terms insolvent sees fit to incorporate init, including terms to the effect
that he should immediately be reinvested with his assets and that he should be released from
further liability in respect of his debts. Requirements and restrictions imposed by Act:
Where an offer of composition provides for the giving of security, the nature of the security
should be specified fully and, if the security is to consist of a surety bond or guarantee, every
surety should be named;
An offer of composition may not be accepted if it contains a condition entitling one creditor to
obtain, as against another creditor, a benefit to which former wouldn’t have been entitled upon
the distribution of the estate in the normal way;
A condition which makes an offer of composition subject to the rehabilitation of the insolvent is
of no effect.
12.3. Acceptance of Section 119 composition
To give rise to a binding composition, the offer must be accepted by the creditors whose votes
amount to not less than ¾ in value and ¾ in number of the votes of all proved creditors, and
payment in terms of the composition must’ve been made or security for the payment is given

Zulman & others v Schultz: Where creditors accept an offer of compromise, not in the honest
belief that compromise is in interests of the estate or for benefit of creditors generally, but from
feelings of pity or compassion, or with a view to benefit debtor, the acceptance is invalid.
12.4. Consequences of Section 119 composition
(1) All concurrent creditors bound
An offer which has been accepted is binding on insolvent and all creditors in so far as their
claims aren’t secured or otherwise preferent. Basis of liability isn’t contractual since creditors
may be held bound even though they voted against acceptance or weren’t able to as their
claims haven’t been proved. Liability of a surety for a concurrent debt of insolvent would fall
away when a composition is accepted, as composition has effect of discharging original debt
by replacing it with another. Exception to this general rule: Section 120(3) of Act expressly
states that the liability of a surety isn’t affected by acceptance of a composition.
Composition is best described as a statutory novation which discharges claims of concurrent
creditors, whose rights are thereafter determined by the provisions of composition itself.
(2) Restoration of property to insolvent
No transfer or delivery is necessary, revesting takes place by operation of law if it’s a term of
composition.
(3) Restoration of property to solvent spouse
A composition isn’t binding on creditors of solvent spouse and, on acceptance, property of
the solvent spouse which vested in the trustee must be restored.
(4) Trustee to frame accounts, administer composition and report to creditors
Trustee is obliged to frame a liquidation account and plan of distribution of assets which are,
or will become, available for distribution among creditors under composition. All provisions
of Act which relate to a liquidation account and plan of distribution are applicable. Any
moneys to be paid and anything done for benefit of creditors in pursuance of composition,
must be paid and done through trustee. He is, however, under no duty to a creditor who fails
to prove a claim before he has made a final distribution among proved creditors. Trustee is
obliged to investigate affairs and transactions of insolvent prior to insolvency and to report on
them to creditors in usual way, notwithstanding composition acceptance.
(5) Right to prompt rehabilitation
Insolvent must wait for a certain period of time before applying for rehabilitation. Where offer
of composition is accepted, however, insolvent may be entitled immediately to apply.
13. REHABILITATION
Section 124 – Application for rehabilitation
Rehabilitation enables insolvent to make a new beginning and discharges him from all disabilities
that flowed from the sequestration of his estate, and debts which arose before sequestration may no
longer be recovered from him, although creditors retain their rights against insolvent estate itself. It
takes place automatically, by lapse of a prescribed period of time, but insolvent usually asks court to
rehabilitate him before expiry of the prescribed period.
13.1. Automatic rehabilitation after 10 years
Insolvent not rehabilitated by court within period of 10 years from date of sequestration is deemed
35
to be rehabilitated unless court, on application by an interested person , orders otherwise before
expiry of 10-year period. If order is issued, Registrar must send a copy thereof to every Registrar of
36
Deeds, who must enter a caveat against transfer of all immovables, or cancellation or cession of
any bond belonging to or registered in name of insolvent. This remains in force until rehabilitation.
13.2. Rehabilitation by court within 10 years
The Act sets out circumstances under which rehabilitation may be sought prior to expiration of the
10-year period and the procedure to be followed to obtain an order of court.
35
Examples of reasons to apply: i) Just before the completion of the 10-year period, the trustee becomes aware of some possible
impeachable dispositions; ii) Insolvent's conditional rights as fideicommissary heir will probably become unconditional shortly after
the lapse of the period of 10 years.
36
See paragraph 5.4 for definition

(1) Circumstances in which rehabilitation may be sought

i) Composition of not less than 50 cents in the Rand
Insolvent may immediately seek order of rehabilitation if a certificate from Master has
been obtained that creditors accepted offer of composition and payment was made, or
security was given for payment of not less than 50 cents in Rand for every concurrent
claim proved. If less than 50 cents was accepted, only after lapse of prescribed period.
ii) Lapse of prescribed period after confirmation of first account
Subject to qualifications below, insolvent may apply for his rehabilitation after 12
months have elapsed from confirmation by Master of the first account in the estate:
o If estate has been sequestrated before, the period which must elapse before he
can apply is 3 years from the date of confirmation of the first account;
o If convicted of a fraudulent act in relation to insolvency, the period which must
elapse before he can apply is 5 years from the date of conviction;
o If Master has recommended rehabilitation, order may be obtained within 4 years.
iii) No claims proved after 6 months
An insolvent may apply for his rehabilitaion after a period of 6 months has elapsed
from the date of sequestration if:
o at the time of application, no claim has been proved against his estate;
o he hasn’t been convicted of any fraudulent act in relation to his insolvency; and
o his estate hasn’t been sequestrated before.
iv) Full payment of all proved claims
At any time after confirmation by Master of a plan of distribution providing for payment
in full of all proved claims with interest and all costs of sequestration, insolvent may
apply for sequestration.
(2) Court’s discretion
The rehabilitation of an insolvent is a matter which lies solely within court’s discretion and the
following is guidelines as to how the court will exercise its discretion:
i) Postponement of rehabilitation
Where further information is needed; where criminal proceedings against insolvent are
pending; or as a mark of disapproval of applicant’s conduct.
ii) Grant of rehabilitation subject to a condition
Ex parte Meine: Court won’t impose a condition on rehabilitation unless there is
something out of the ordinary to justify it. There must be special circumstances which
make it just and equitable to impose the condition and it must be properly motivated.
Ex parte Fowler: Court won’t impose a condition that insolvent pay unpaid claims
simply because he has managed to accumalate an estate during sequestration and is
in a position financially to discharge claims.
Section 127(3) provides that, among conditions that may be attached to rehabilitation,
court may require insolvent to consent to judgment being entered against him for
payment of unsatisfied balance of debt which was, or could be, proved against estate.
iii) Refusal of rehabilitation
Examples of factors which may persuade court to refuse an order of rehabilitation are
that insolvent:
o conducted his business in an improper and negligent manner;
o failed to keep proper books of account;
o ran up excessive debts prior to sequestration;
o was difficult and refused to co-operate with trustee in administration of estate;
o was highly obstructive in the administration of his estate and made numerous
unfounded allegations against trustee and Master’s staff;

o sidestepped the inhibitions of insolvency by living in luxury without making

contributions to creditors;
o failed to set out all circumstances relating to his insolvency in his application; and
o didn’t disclose anything to suggest that his learned his lesson in his application.
Court won’t ordinarily refuse rehabilitation merely because there was a large excess in
liabilities over assets, but it may influence if there are other unsatisfactory features.
iv) Considerations in favour of unconditional rehabilitation
Certain factors contribute to an unconditional rehabilitaion, such as:
o The insolvent only incurred very small debts;
o The insolvent wasn’t to blame for his sequestration, it came purley by misfortune;
o Neither creditors nor trustee bothered to take steps under Section 23(5) to obtain
part of insolvent’s earnings during his insolvency;
o No opposition from creditors, trustee or Master.
13.3. Effect of rehabilitation
Puts an end to sequestration and relieves insolvent of every disability resulting from sequestration
and discharges all debts which were due or cause of which arose before sequestration. It doesn’t
reinvest insolvent with his former estate, except where:
a compensation provides that the estate will reinvest in insolvent; and
the basis of rehabilitation was that no claims were proved within 6 months of the sequestration.
13.4. Declaratory order regarding property
If insolvent can show that neither trustee nor creditors laid claim to an asset in his estate, he may,
on applying for rehabilitation, or thereafter, ask for an order declaring that he is entitled to it. To
obtain the order, insolvent must comply with the following requirements:
Publish notice of intention to apply in the Government Gazette;
Service copy of notice to Master, trustee and all creditors whose claims haven’t been satisfied;
In application, he must show that trustee and creditors have full knowledge of the facts and he
must give full information to establish that the property was acquired adversely to the trustee.
14. PARTNERSHIP AND SEQUESTRATION Section 13 – Sequestration of partnership estate
Without specific provisions in Act it wouldn’t have been possible to sequestrate a partnership, as a
partnership isn’t considered to be a separate juristic person in eyes of law. It’s an established rule
that creditor of partnership must sue partnership for debt and must first attach partnership assets.
Only when proceeds of partnership assets are insufficient to satisfy, creditor may attach individual
partners' assets for execution. Rules to bring about a degree of separation between partnership and
individual partners are also found in Act.
14.1. Voluntary surrender of partnership estate
Application to surrender a partnership estate must be brought by all partners or their agents, but
the following need not apply:
a partner not residing in South Africa;
37
a partner en commandite (anonymous partner) ;
38
a special partner .
Simultaneously with an application for surrender of a partnership estate, each partner (except ones
stated above) must apply for the acceptance of the surrender of his private estate. Notice of
intention to surrender both can be done in one application with separate statements of affairs.
37
A partner en commandite, unlike an ordinary partner, doesn’t participate in the management and business of the partnership. He
merely makes an initial contribution (either money or goods) to the partnership assets and leaves it to the other partners to manage
the partnership. Although, like the ordinary partners, he shares in the profits of the partnership, he is not liable to the partnership
creditors for the partnership debts. The only risk which he runs is the loss of his initial contribution to the partnership property in the
form of money or goods. Because he cannot be held liable for partnership debts, there is no reason that his private estate should
be sequestrated when the partnership estate is sequestrated.
38
Because there’re probably no more partnerships under repealed Natal and Cape legislation, "special partnerships" are ignored.

14.2. Compulsory sequestration of partnership estate

If court sequestrates estate of a partnership, it’s bound to sequestrate private estate of every
member of partnership simultaneously, except for:
a partner not residing in South Africa;
a partner en commandite (anonymous partner);
a special partner.
Partnership itself never becomes an “insolvent”, simultaneous sequestration of partners’ estates
isn’t just procedural, but vital. Court won’t sequestrate private estate of a partner if he undertakes
to pay partnership debts within a period fixed by court and gives security for such payment.
Where private estate of partner is unable to meet costs of sequestration payable out of that estate
fully, balance must be paid out of assets of partnership, but opposite doesn’t apply. A partnership
estate may be compulsory sequestrated on the grounds of an act of insolvency committed by a
partner, only if he acted in his capacity as a partner.
14.3. Sequestration of partner’s estate
If estate of a partner is sequestrated, it isn’t necessary for partnership estate or private estates of
other partners to be sequestrated. However, it terminates the partnership, ipso iure, which must be
wound up as a result. When the partnership is dissolved, partnership assets are divided among
partners in terms of the partnership contract or common law and the insolvent partner’s share vests
in the trustee. Remaining partners may then form a new partnership.
14.4. Composition
(1) Composition by partnership
Some suggest a partnership can make a valid composition and be reinvested with its assets
even though it ceases to exist in terms of common law. It’s probably more correct that a new
partnership takes the place of the old one, which dissolved.
(2) Composition by partner
When partnership and private estates are simultaneously under sequestration, acceptance
of an offer of composition doesn’t take effect until 6 weeks expired as from date of written
notice of acceptance given by trustee of private estates to trustee of partnership estate in
terms of Section 121(1).
Because trustee of partnership estate is entitled to any surplus out of partner's estate after
payment to that partner's private creditors, interest of partnership creditors must be protected
if a partner has entered into a composition with his private creditors. Protection is that trustee
of partnership estate has a choice of taking over all private assets of the partner, provided
that trustee is prepared to carry out composition.
14.5. Proof of claims
Principle: partnership assets are applied to payment of partnership debts; separate estate assets to
payment of separate estate debts – Section 49(1). Therefore, if partnership and individual estates
are sequestrated simultaneously, creditors of partnership aren’t entitled to prove against separate
estates of partners and creditors of individual estates aren’t entitled to prove against partnership
estate. However, SARS may prove claims for income tax and interest against a partnership estate
for amounts due by partners – Section 49(2).
14.6. Separate administration of estates
Administration of partnership and partner estates must be kept entirely separate and separate
accounts must be framed for each estate – Section 92(5).
14.7. Surplus of either estate
If, after all estates have been administered, surplus remains in a partner’s separate estate, trustee
in partnership estate is entitled to this surplus for benefit of partnership creditors – Section 49(1).
Similarly, trustee of an individual estate is entitled to share in any surplus in partnership estate to
which the partner would’ve been entitled.
14.8. Rehabilitation
As a partnership is ipso facto (by the mere fact) terminated on sequestration of its estate, a
partnership estate can never be rehabilitated – Section 128. Court won’t refuse rehabilitation of a

partner merely because there is a deficiency in the partnership estate or because the partnership
estate hasn’t been finalised.
15. WINDING-UP OF COMPANIES
“Winding-up” means the procedure by which a company’s assets are sold, its debts are paid and any
money left over is divided amongst members (shareholders) according to their rights. Both solvent
and insolvent companies may be wound up. After completion of winding-up process, the company is
dissolved and Registrar of Companies (“RC”) publishes a notice to this effect. The Act expressly
excludes the sequestration of companies, but the Companies Act, 61 of 1973 (“CA”) extends many
of the principles of insolvency to companies.
15.1. Modes of winding-up Section 343 of CA
Winding-up by the court (compulsory winding-up) - initiated by an application to court; or
Voluntary winding-up may be either a creditors’ or a members’ voluntary winding-up and both
are initiated by a special resolution of members.
On application by a creditor, member or Master, court may convert a voluntary winding-up into a
compulsory one and confirm any steps already taken in die voluntary winding-up.
15.2. Winding-up by court
(1) Jurisdiction of court Section 12(1) of CA
Court which has jurisdiction is Provincial or Local Division of the HC having jurisdiction over
the area in which the company has its registered office or main place of business. If register-
red office or main place of business is in different areas, both courts have jurisdiction.
(2) When company may be wound up by court
Section 344 of CA
Section 344 of CA sets out the various grounds on which a company may be wound up.
i) Special resolution
Court may wind up a company if it has passed a special resolution to be wound up by
court at a general meeting of members and lodged it with the RC for registration within
6 months after it was adopted. If this isn’t done, resolution lapses and may no longer
serve as a ground for winding-up, unless court orders otherwise. Apart from this requi-
rement, a special resolution acquires legal force only when it has been registered and
application for winding-up on this ground may therefore not be brought immediately
after resolution has been adopted, but only after its registration.
ii) Premature Commencement of business
Court may wind up a company if it has commenced business before the RC has
certified that it was entitled to do so.
iii) Failure to commence or continue with business
Court may wind up a company if it hasn’t commenced business within a year from its
incorporation or if it has suspended its business for a whole year.
iv) Public company’s members less than seven
Court may wind up a public company if the number of its members has fallen below 7.
This ground for winding-up of the company is contained in Section 66 of the CA, which
stipulated that a member of a public company (except a wholly-owned subsidiary) is
personally liable for the company's debts if company carries on business for a period
of more than 6 months while it has fewer than 7 members. Such a member is then
liable for the debts incurred after expiry of the period of 6 months if he knew that the
company carried on business while it had fewer than 7 members. This being the case,
such a member must be enabled to prevent his becoming liable for the company's
debts and this he may do by applying for the winding-up of the company.
v) Loss of capital
Court may wind up a company if 75% of its issued share capital has been lost or
become useless for its business.

vi) Inability to pay debts Section 345 of CA

Court may wind up a company if it’s unable to pay its debts as described in Section
345 of CA, which determines that a company is deemed unable to pay its debts in the
following cases:
o A creditor, to whom at least R 100.00 is due, has left a demand for payment which
39
has been neglected for 3 weeks ;
o A warrant of execution issued on a judgment against company has been returned
by sheriff with endorsement that he couldn’t find disposable property sufficient to
satisfy judgment or that the property he found didn’t, upon sale, satisfy the process;
o It is proved to the satisfaction of court that the company is unable to pay its debts.
vii) Dissolution of external company
Court may wind up an external company if it has been dissolved in country in which it
was incorporated, or has ceased to carry on business, or is carrying on business only
for purpose of winding up its affairs. It may be liquidated as if it were an independent
entity, even if the foreign company to which it is ‘related’ isn’t liquidated or dissolved.
viii) Just and equitable
Court may wind up a company if it appears that it is just and equitable that it should be
wound up. However, “just and equitable” ground is not regarded as some limitless
ground for winding up a company and court only resorted thereto in specific cases as
they are reluctant to extend its application. The following instances have been held as
just and equitable by the court:
o Where main object for which company was formed isn’t possible of being attained.
o Where company’s objects are illegal.
o Where there is a justifiable lack of confidence in the conduct and management of
the company’s affairs.
o Where a voting power deadlock cannot be resolved except by winding-up.
40
o Where the company is a “quasi-partnership” and circumstances exist which
would be good grounds for dissolving a partnership.
o Where minority shareholders are oppressed by controlling shareholders
(3) Parties who may apply Section 346 of CA
Onus in each case is on applicant to establish that he has locus standi to bring application.
i) The company
When general meeting of members has resolved that company be wound up by court,
the special resolution is a ground for winding-up as well as an authority to the directors
to make application. If a different ground for winding-up is relied upon, authority will
have to be given to make application by a general meeting of members. However,
there is a measure of uncertainty on whether the board of directors may, on their own
authority, decide to apply for winding-up on behalf of the company.
ii) One or more creditors
Application may be brought by one or more creditors, including contingent or prospec-
tive creditors. The claim need not be equal or exceed a particular amount.
iii) One or more of its members
Application may be brought by one or more of company’s members, or by a person
appointed as executor, trustee, liquidator, curator or guardian in respect of a member
who is deceased, insolvent or under a disability. However, a member may not apply
unless he has been registered as such in register of members for at least 6 months
prior to the date of the application or his shares devolved upon him through the death
39
In Rand Air v Ray Bester Investments it was decided, inter alia, that a summons is not a demand as contemplated in Section
345(1)(a). A summons is a document in which sheriff is ordered to convey certain information to debtor. It isn’t a demand to pay
addressed to debtor himself. Further, on proof of inability to pay debts by means of a return by sheriff to effect that he couldn’t find
sufficient disposable property to comply with a judgment, it would’ve been unnecessary if summons already qualified as a demand.
40
Founded on personal relationship of confidence and trust similar to partners in partnership. Usually requires members to act
reasonably and honestly towards each other and with friendly co-operation in running company’s affairs. If 1 or more members acts
contrary to spirit of this relationship and, in so doing, effectively destroys it, court may hold it just and equitable to wind up company.

of a formed holder. Further, a member may not apply on the grounds of special
resolution, inability to pay debts or dissolution of external company. The various ways
of initiating the winding-up of a company:
o Members may resolve by special resolution to proceed with a members’ voluntary
winding-up of the company.
o Members may resolve by special resolution to proceed with a creditors’ voluntary
winding-up of the company.
o Members may resolve by special resolution that the company should apply to the
court for a winding-up order.
o One or more members (who meet certain requirements) may apply to court for a
winding-up order.
iv) Any or all of the above
Application may be brought jointly by some or all of the parties mentioned above (ie,
the company, creditors and members).
v) The Master
Master may apply to convert a voluntary winding-up into a winding-up by court. The
reason usually being to make available the procedure for examination and enquiry
under Section 417 and 418 of the CA.
vi) A provisional or final judicial manager
A provisional judicial manager may bring the application where the provisional order of
judicial management is discharged.
(4) Steps prior to application
Section 346 of CA
i) Security for costs
Party applying for winding-up must give sufficient security for payment of all fees and
charges.
vii) Master’s report
Before presenting his application to court, applicant must serve a copy on Master, who
may report to court any facts which he has ascertained which may justify postponing
or dismissing the application.
viii) Notification of certain interested parties
When presenting application to court, applicant must also furnish a copy of it to the
following:
o Every registered trade union which represents any of the company’s employees;
o The employees themselves;
o SARS; and
o The company, unless application was made by the company
(5) Powers of court Section 347 of CA
Court may grant or dismiss any application for winding-up. In practice, court usually doesn’t
make a final order immediately, but makes a provisional winding-up order and issues a rule
nisi. Court’s power to grant application for winding-up is discretionary, but is limited where
creditor has proved that company is unable to pay its debts, in which event, creditor is entit-
led to a winding-up order and court needn’t be satisfied that winding-up will be to advantage
of company’s creditors.
The reason for refusing is essentially that the application amounts to abuse of the winding-up
procedure. Where application is brought by members of company, court won’t make a
winding-up order if some other remedy is available and they act unreasonably in seeking to
have company wound up instead of pursuing the remedy.
Where application is founded on fact that company commenced business before the RC
certified that it was entitled to, court may, instead of granting a winding-up order, direct the
company to obtain the certificate from the RC.

15.3. Voluntary winding-up

A company may be wound up voluntarily if it has adopted a special resolution to that effect and that
resolution has been registered by the RC.
(1) Members’ voluntary winding-up Section 350 of CA
A members’ voluntary winding-up can take place only if company is unable to pay its debts in
full. In terms of Section 350(1) of the CA, a resolution to proceed with a members’ voluntary
winding-up is void unless, prior to registration of the resolution, either:
security is furnished to Master’s satisfaction for payment of the debts of company
within 12 months from commencement of winding-up; or
Master dispenses with the security on production of both an affidavit by the directors
of company that it has no debts and a certificate by the auditor of company that, to his
best knowledge and belief, and according to the records of company, it has no debts.
This is a clear example of a case where a solvent company can be wound up. The winding-
up is simply the process used to distribute the assets of company among the shareholders,
after provision has been made for the payment of outstanding debts
(2) Creditors’ voluntary winding-up
May be resorted to where the company is unable to pay its debts and because an application
to court is avoided, voluntary winding-up may bring about a saving of costs. Master may
intervene and convert the voluntary winding-up into a winding-up by the court.
15.4. Consequences of winding-up
(1) Commencement of winding-up Section 348 of CA
A winding-up by the court is deemed to commence at the time of the presentation to court of
the application for winding-up. A voluntary winding-up commences when the relevant
special resolution of members is registered with the RC.
Determining the precise time of commencement is important because various consequences
of winding-up come into effect when the winding-up commences, as opposed to when the
court makes a provisional or final winding-up order.
(2) Directors divested of powers and control
Winding-up establishes a concursus creditorum, which is aimed at ensuring that company’s
property is collected and distributed among creditors in the prescribed order of preference.
Company doesn’t lose its corporate identity, nor does it lose its assets unless so ordered.
From the moment winding-up commences, the following consequences ensue:
Powers of directors cease and directors become functus officio (no longer in office).
Company’s property is deemed to be in custody and under control of the Master until a
provisional liquidator has been appointed.
Company may not continue with its business except in so far as may be necessary for
its beneficial winding-up.
(3) Subsequent unauthorised dispositions void
After winding-up has commencement:
any transfer of shares without the liquidator’s permission is void; and
if company is unable to pay debts, every disposition of its property not sanctioned by
court is void.
(4) Stay of proceedings
Once a winding-up order is made or special resolution for voluntary winding-up is registered,
all civil proceedings by or against company are suspended until appointment of liquidator.
Any attachment or execution put in force against the assets is void.
After appointment of liquidator, civil proceedings may continue or commence, including
execution proceedings put in force before commencement of the order.
(5) Notice of winding-up
Master must, on receipt of a winding-up order, give notice of the winding-up in Government
Gazette and transmit a copy thereof to certain sheriffs and Registrars of Deeds.

A company which has passed a resolution for its voluntary winding-up must, within 28 days
after registration of resolution, give notice in Gazette and lodge a certified copy of resolution
to Master together with the following:
In the case of members’ voluntary winding-up: A certified copy of any resolution
passed by the company nominating a liquidator
In the case of creditors’ voluntary winding-up: Two certified copies of a statement
setting out affairs of the company.
A copy of the winding-up order must also be served on::
Every registered trade union which represents any of the company’s employees;
The employees themselves;
SARS; and
The company, unless application was made by the company
15.5. The liquidator
(1) Appointment of provisional liquidator
After the winding-up order has been made, or a special resolution has been registered, the
Master may appoint any suitable person as the provisional liquidator, who must give security
to the satisfaction of the Master for the proper performance of his duties.
(2) Appointment of liquidator
The Master must appoint as liquidator(s):
in the case of members’ voluntary winding-up, the person nominated in resolution;
in the case of creditors’ voluntary winding-up and a winding-up by the court, the
person(s) nominated by first meeting of creditors and initial meeting of members.
Master may decline to appoint nominee who wasn’t properly nominated, is disqualified from
being appointed or fails to give security timeously and the Master may, at any time, appoint a
co-liquidator. Any person aggrieved by Master’s refusal or appointment may call upon him to
submit his reasons to the Minister, who may confirm or set aside the Master’s decision
(3) Persons disqualified from being liquidator Section 372 of CA
The following persons are disqualified from being nominated or appointed as a liquidator:
An insolvent;
A minor or any other person under legal disability;
A person declared to be incapable of being appointed as a liquidator for dishonesty or
abuse of his position;
A person who has been removed from an office of trust by court or who has been
disqualified from being a director;
A body corporate;
A person who has been convicted of theft, fraud, forgery, uttering a forged instrument
or perjury and has been sentenced to imprisonment without the option of a fine or a
fine exceeding R 20.00;
A person who, by misrepresentation or reward, induced or attempted to induce any
person to vote or to nominate him;
A person not residing in South Africa;
A person who has acted as director, officer or auditor of company within 12 months
before winding-up;
An agent authorised to vote for or on behalf of a creditor at a meeting who acts or
purports to act under such authority.
(4) Removal of liquidator from office
The liquidator may be removed from office by the Master if:
he isn't qualified, or has become disqualified
he has not performed his duties satisfactorily;
if his estate has become insolvent or he has become mentally or physically incapable;

the majority in number and value of creditors or members, has requested the Master
in writing;
if the Master is of the opinion that the liquidator is no longer suitable;
If Master doesn’t remove, court may, but only if it’s satisfied that removal of the liquidator will
be to the general advantage and benefit of all interested in the winding-up
15.6. Impeachable transactions Section 340 of CA
In terms of Section 340(1) of CA, every disposition by a company of its property which, if made by
an individual, could, for any reason, be set aside in the event of his insolvency, may, if made by a
company, be set aside in the event of the company being wound up and unable to pay all its debts,
and the provisions of the law of insolvency apply, mutatis mutandis, to the disposition.
16. JUDICIAL MANAGEMENT AND COMPROMISE
A company unable to pay its debts has two alternatives to winding-up: judicial management and
compromise between company and its creditors.
16.1. Judicial management
Judicial management is resorted to where a company is in financial trouble but has the potential to
recover. The independent judicial manager (appointed by court) will observe and rectify financial
maladies of company and enable the company to become a successful concern, although desired
result is not always achieved.
Judicial management may be seen as a half-way house between a healthy company and winding-
up. Because it costs money which will be wasted if the company eventually has to be wound up in
any event, court will have to be satisfied that there is a reasonable probability that the company will
become successful again if it is placed under judicial management.
(1) When company may be placed under judicial management Section 427 of CA
In terms of Section 427(1) of CA, court may grant an order placing a company under judicial
management where:
company, because of mismangment or any other cause, is unable to pay its debts or
unable to meet its obligations;
company hasn’t become or has been prevented from becoming a successful concern;
there is a reasonable probability that, if the company is placed under judicial
management, it will be enabled to pay its debts or meet its obligations and become a
successful concern; and
it appears just and equitable to grant the judicial management order.
The onus is on the applicant to establish a proper basis for judicial management. A judicial
management order is a special concession and is granted only in exceptional circumstances.
(2) Who may apply
Same parties who may apply for winding-up of a company may apply for judicial manage-
ment – Section 427(2) of CA (see paragraph 15.2(3)). In an application, court may also mero
motu (motion of a party’s own free will) order judicial management if circumstances permit.
(3) Impeachable dispositions
If company under judicial management is unable to pay its debts, the judicial manager may
apply to court for the setting aside of any disposition which, in the case of insolvency of an
individual, could have been set aside under the Act – Section 436(1) of CA.
A winding-up is deemed to commence at moment at which application is filed with the RC.
The same principle applies with respect to a judicial manager who wishes to have a
disposition set aside. For purposes of application of relevant provisions of the Act, the date
on which the application for judicial management is filed is deemed to correspond to the date
of a sequestration order – Section 436(2) of the CA.
16.2. Compromise
The CA sets out procedure by which a company may conclude a compromise with its creditors. It is
also possible for a company which cannot pay its debts to conclude a common-law compromise
with its creditors, but this procedure is seldom used in practice because of the difficulty of securing
consent of each creditor.

(1) Procedure for compromise

Where a compromise is proposed between a company and its creditors, the court may, on
application, order a meeting of creditors. Before a court will order a meeting, it must be
satisfied that the offer of compromise is prima facie fair and reasonable and that it should be
placed before the creditors for their consideration.
If the compromise is agreed to by majority in number representing ¾ in value of creditors,
court may sanction the compromise or arrangement. However, court retains a discretion to
refuse it even if the required majority voted in favour of it. An important factor in this regard
is whether the company will be able to trade successfully after the compromise.
(2) Effect of compromise
If the compromise is approved by court, it binds all creditors, even those who rejected it. It
also binds the liquidator or judicial manager.
17. WINDING-UP OF CLOSE CORPORATIONS
Winding-up of close corporations is dealt with by the Close Corporations Act, 69 of 1984 (“CCA”), but
it effectively incorporates many of provisions of the CA on winding-up and makes them applicable to
close corporations
A close-corporation (“CC”) may be wound up voluntarily or by court and such a voluntary winding-up
may be either a members’ winding-up or a creditors’ winding-up. Although a CC is capable of being
wound up, it cannot be put under judicial management and cannot conclude a statutory compromise,
but however, may enter into a composition.
17.1. Voluntary winding-up
A CC may be wound up voluntarily if all its members so resolve at a meeting called to consider the
winding-up. The members must sign a written resolution, a copy of which must be lodged with the
Registrar of Close Corporations (“RCC”), in duplicate and in the prescribed form, together with the
prescribed fee. This resolution only takes effect once it’s registered and lapses if not registered
within 90 days.
17.2. Winding-up by court
(1) Jurisdiction of court
Although only a HC has jurisdiction to wind up a company, both a HC and MC have jurisdic-
tion to wind up a corporation determined by CC’s registered office or main place of business.
(2) When corporation may be wound up by court Section 68 of CCA
Section 68 sets out the grounds on which a court may wind up a CC.
i) Resolution of members
Court may wind up a CC if members having 50% or more of total of votes at a meeting
called for the purpose of considering the winding-up of the CC. Members must adopt
and sign a written resolution that the CC be wound up by court.
ii) Failure to commence or continue with business
Court may wind up a CC if it hasn’t commenced business within a year from its Regis-
tration or if it has suspended its business for a whole year.
iii) Inability to pay debts
Court may wind up a CC if it’s unable to pay its debts. A CC is deemed unable to its
debts in terms of Section 69(1)(a) if any of the following are complied with:
o A creditor, with a claim of at least R 200.00, has left a demand for payment which
the CC has neglected for 21 days thereafter.
o Any process on a judgment against the CC has been returned by sheriff with an
endorsement that he didn’t find disposable property sufficient to satisfy judgement
or that the property he found didn’t, upon sale, satisfy the process.
o It is proved to the satisfaction of the court that the CC is unable to pay its debts
iv) Just and equitable
Court may wind up a CC if it appears that it is just and equitable that it should be.

17.3. Appointment of liquidator

Master must, in accordance with policy determined by Minister, appoint a suitable natural person
as a liquidator as soon as practicable after the provisional order has been made or resolution has
been registered. Master may decline to appoint a nominee if he wasn’t properly nominated or is
disqualified from being appointed. Any person aggrieved by Master’s appointment or refusal to
appoint may, within 7 days, request Master in writing to submit his reasons to Minster. Master may
appoint a person as co-liquidator if he was nominated as such at first meeting of creditors and
gives security to the satisfaction of Master for proper performance of his duties.
17.4. Impeachable dispositions
Provisions of the CA relating to unauthorised dispositions made after the commencement of
winding-up and impeachable dispositions made before winding-up, apply mutatis mutandis to the
winding-up of a CC that is unable to pay its debts.
17.5. Setting aside of payments to members
In the winding-up of a CC unable to pay its debts, members may be compelled to repay money
which they received from the CC prior to liquidation.
(1) Payments by reason of membership
A member who received a payment by reason of his membership (eg a distribution of profit),
within 2 years before commencement of the winding-up, must repay the amount concerned
to the CC unless he can prove that:
after the payment was made, the CC’s assets exceeded its liabilities;
the payment was made while the CC was able to pay its debts as they became due in
the ordinary course of its business; and
payment, in particular circumstances, didn’t in fact render CC unable to pay its debts.
(2) Salary or remuneration
A member may be required to return a salary or other remuneration paid to him within 2
years prior to commencement of winding-up. Master must consider the payment and if, in
his opinion, it was not bona fide or reasonable in the circumstances, he must direct that it, or
part of it which he may determine, be repaid by the member.
(3) Liquidator’s duty to investigate personal liability of members
The liquidator has a duty to establish whether any member, former member is jointly and
severally liable with the corporation for one or more debts.
17.6. Composition
At any time after commencement of liquidation of a CC unable to pay its debts, any person may
submit a written offer of composition to liquidator. If liquidator considers that creditors will probably
accept offer, he must send a copy of the offer, together with his report thereon and an explanation
of the effect of the composition, to every known creditor and Master. If the liquidator considers that
creditors are unlikely to accept the offer, or that he has insufficient information at his disposal to
make a recommendation, he must inform offeror in writing that the offer is unacceptable and that
he doesn’t propose circulating it to the creditors. When circulating an offer of composition, the
liquidator must notify creditors of the meeting at which the offer will be considered. Such a meeting
may only be held once a final winding-up order has been made. Once accepted, the composition
binds every person who had notice and was entitled to vote at the meeting, provided that:
2
it was accepted by /3 in number and value of creditors who proved claims against the CC;
payment under the composition is made or secured as specified in the offer;
the rights of secured or preferent creditors are not prejudiced unless in writing.
Composition may provide for winding-up to be set aside by court and, if so, the offeror may apply to
court for the relevant order. He must, at least 3 weeks before application, advertise his intention in
the Gazette and serve copies of application on Master, RCC and liquidator. Offeror’s application
may be opposed by a creditor or interested person on the goruns that:
the composition unfairly harms the interests of the creditor;
the meetings for considering the composition involved a material irregularity;
insufficient or materially inacurate information about the composition was disclosed; or
there is another ground which the court may deem sufficient.


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Solutions, Explanations, workings, and references

+27 81 278 3372

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May / June 2023

First examiner: Mrs Z Taljaard

INSTRUCTIONS FOR A TAKE-HOME EXAM ON MYEXAMS

PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE ANSWERING THE

THIS PAPER CONSISTS OF 9 PAGES.

The QR code is below:

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7.2. Note the file requirements such as:

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1.1 Explain the purpose of a sequestration order. (5)

TOTAL QUESTION 1: [50]

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TOTAL QUESTION 2: [25]

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TOTAL QUESTION 3: [25]

TOTAL MARKS: [100]

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There will be no conflicting interests between creditors which must be equitably

The compulsory sequestration of an individual's estate is a legal process where the

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Furthermore, it is crucial to note that applying for compulsory sequestration is a serious

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In conclusion, the Harksen v Lane judgment is of great significance as it affirmed the

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Furthermore, the application of section 27 could disproportionately affect vulnerable

Therefore, it is important that section 27 is applied in a manner that does not

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A secured claim is a claim that is secured by collateral or property owned by the

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To succeed in this action, the plaintiff must prove that:

1. The transaction diminished the debtor’s assets.

3. There was intention to defraud.

4. The fraud took effect.

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These requirements are as follows:

Juristic persons, such as companies or trusts, may also be appointed as members of

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May / June 2023

First examiner: Mrs Z Taljaard

INSTRUCTIONS FOR A TAKE-HOME EXAM

PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE ANSWERING THE

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THIS PAPER CONSISTS OF SIX (6) PAGES.

1. The examination question paper counts 100 marks.

SUBMISSION OF YOUR EXAMINATION ANSWER FILE

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