SEMESTER TEST 2023

QUESTION 1:

ABC Traders applied for the sequestration of Abe Gnube’s estate. Abe was a sole proprietor
who conducted a taxi business travelling between the Kruger National Park and Mbombela.
ABC Traders approached the Gauteng Division of the High Court in Pretoria because most
of Abe’s creditors’ main places of business were in Pretoria.
ABC Traders brought the application because Abe had neglected to pay the last three
instalments in terms of an instalment agreement regulated by the National Credit Act 34 of
2005. In terms of the instalment agreement, Abe bought the taxi for R250 000 from ABC
Traders. The instalment agreement between Abe and ABC Traders further provided that
ABC Traders would retain ownership until the full purchase price had been paid. At the time
of the application, R80 000 was still outstanding.
→ ANSWER THE FOLLOWING QUESTIONS
QUESTION 1.1 [1 MARK]
Name the type of sequestration application relevant to the set of facts. Provide a
reason for your answer.
Compulsory sequestration application – brought by creditor against debtor
→ ABC Traders is the creditor.
→ Abe Gnube is the debtor.
→ ABC brought compulsory sequestration against Abe

QUESTION 1.2 [1 MARK]

List one substantive allegation (NOT a formality) set out in the Insolvency Act that the
application identified in question 1.1 above must comply with.
Creditor has liquidated claim of R100 + advantage to creditors; debtor is insolvent or
committed an act of insolvency.
QUESTION 1.3 [5 MARKS]
Assume for purposes of this question 1.3., that Abe is a thirty-year old male, who
resides in Mbombela. He is married in community of property to Letitae, who is an
elementary school teacher. Draft the citation paragraph(s) of the debtor(s) (also
indicating whether he/she/they is/are applicants, plaintiffs, respondents, or
defendants) that must appear in the founding affidavit of the sequestration application
referred to in question 1 above. Add any additional information that must reflect and
that is not noted in this paragraph
→ The first respondent is Abe Gnude, ID number, a major male taxi owner/driver,
residing at 123 MB Road, Mbombela. The first respondent is married in community of
property to the second respondent.
→ The second respondent is Letitae Gnude, ID number, a major female elementary
school teacher, residing at 123 MB Road, Mbombela.
Note: students will have to make up own surname, ID number, residential address. This may
thus differ from student to student. Students may add date of birth, but this is implied in the
ID number. NO marks if student merely listed the information that must be cited.

Example:
→ The first respondent is Kenny Botha, born on 26 February 1999,
9902266808623, a major male taxi driver/owner residing at 63A Cuckoo
Avenue, Nina park. The first respondent is married in community of
property to a second respondent.
→ The second respondent is Christina Botha, born on 06 December 2001,
0112068449956, a female high school teacher, residing at 63A Cuckoo
Avenue, Nina Park.
QUESTION 1.4 [2 MARKS]
Discuss whether the ground for jurisdiction stated in the set of facts (the reason for
the choice of jurisdiction according to the applicant’s representative deposing to the
affidavit) is a valid ground recognised by the Insolvency Act of 1936. Provide a reason
for your answer.
No, this is not a ground for jurisdiction as set out in section 149 of the Insolvency Act. The
grounds are domiciled within the jurisdiction of the court, owns, or is entitled to property in
the jurisdiction of the court, ordinarily lived or conducted business at any time in the past
twelve months in the jurisdiction of the court. Student may also note that the court in
Mbombela must be approached but must indicate the ground (conducting
business/domicile)
Note: convenience is not a separate ground – it only becomes applicable once more than
one of the grounds set out in section 149 is present and there is concurrent jurisdiction.

QUESTION 1.5 [2 MARK]

Explain the difference between the encumbered asset accounts and the free residue
account.
ENCUMBERED ASSET
Section 89-costs (initial costs) (encumbered
asset)
→ Used for assets over which there is a
security (recognised security, with a
clear link to a specific creditor), secured
creditors and section 89 costs are paid.
FREE RESIDUE
Section 97-costs (free residue assets)
(unencumbered assets)
→ Used for assets that are unencumbered
and remainder from secured assets,
statutory preferent and concurrent
creditors are paid together with section
97 costs.

QUESTION 1.6 [2 MARKS]

Explain the difference between a secured creditor who relies solely on its security and
a secured creditor who does not rely solely on its security.
RELIES SOLELY ON SECURITY DOES NOT RELY SOLELY ON
SECURITY
→ They are satisfied with proceeds of → They are not satisfied with proceeds of
secured asset secured asset, lodges concurrent claim
→ (claims only from encumbered asset) for unpaid portion of debt
 → (claims from encumbered asset and
also puts in claim against free residue)

QUESTION 1.7 [5 MARKS]

1.7.1. Explain which type of creditor (secured, statutory preferent, or concurrent) ABC
Traders is. Provide a reason for your answer.
→ Secured creditor
→ Section 84 of the Insolvency Act would apply
→ In the case of the instalment agreement, ownership transfers to the insolvent estate
upon sequestration irrespective of the reservation of ownership clause and the
creditor obtains a hypothec over the asset for the outstanding purchase price

1.7.2. Explain whether your answer in 1.7.1. above would change if the contract
between Abe and ABC Traders determined that ownership of the taxi would transfer
to Abe upon delivery of the vehicle, subject to a right to repossess the vehicle, should
Abe fail to honour the agreement. Provide a reason for your answer.
Yes, my answer would change because ABC Traders would now be a concurrent creditor as
section 84 of the Insolvency Act would not apply, ownership transferred to the insolvent
estate upon delivery (prior to sequestration) and ABC Traders hold no security – only if
reservation of ownership clause.

QUESTION 1.8 [2 MARKS]

Explain whether ABC Bank will be liable for contribution if the free residue is
insufficient to pay the costs of sequestration payable from the residue. Provide a
reason for your answer and cite relevant case law or legislation.
→ ABC Bank is not a creditor of the estate only creditors who prove claims become
liable to contribute with the exception of the applicant-creditor sections 44, 106 and
14(3).
→ ABC Traders – yes, applicant-creditor is always liable section 14(3) of the Insolvency
Act

→ Firstrand Bank v The Master (SCA)

 QUESTION 2 [15 MARKS]
Assume for purposes of this question 2, that Abe’s estate was sequestrated on 1 December
2022. Bill is appointed as the trustee of the insolvent estate and, upon an investigation of the
affairs of the estate, discovers the following:
o Abe is a director, together with his wife, Laetitia, of a non-profit company that
supports low-income families with school supplies for their children.
o In January 2020, Abe purchased a house in Mbombela. Registration and transfer of
ownership took place on 1 June 2020. Abe informed Bill that he did not want to lose
this property because it is his family’s only home. There is also a small garden flat on
this property, which Abe leases to Casey. If the house is sold, this may impact
Casey.
o Abe borrowed R40 000 from Casey to expand his taxi business and the two (Abe and
Casey) agreed that Casey would receive R5 000 per month until the R40 000 was
repaid. When Casey realised that Abe was nearing insolvency, he approached Abe
with an offer to accept R30 000 in full and final settlement of the debt owed by Abe to
Casey. Abe accepted Casey's offer and paid the agreed R30 000 to Casey on 1
October 2022.
ANSWER THE FOLLOWING QUESTIONS:

QUESTION 2.1 [3 MARKS]

Critically discuss the implications of sequestration for Abe’s position as director of
the non-profit company. You must also discuss any constitutional challenges that
may arise due to the effect of sequestration on Abe’s position as director.
An unrehabilitated insolvent is disqualified from being a company director and ceases to
continue to act as such immediately upon being disqualified (ss 69(8)(b)(i) and 69(4) of the
Companies Act 71 of 2008). Therefore, Abe and his wife Laetitia cannot continue acting as
directors of the non-profit company. The disqualification stems from the attitude that
insolvent debtors are considered untrustworthy. Constitutional challenges can arise in terms
of s 22 (the right to choose their trade, occupation, and profession freely) and s 10 (the right
to dignity) of the Constitution.
QUESTION 2.2 [5 MARKS]
Explain whether the family home forms part of the insolvent estate and refer to
authority to support your answer. Further, advise Bill on the manner(s) in which he
could deal with the lease contract between Abe and Casey, and any claims that Casey
may have against the insolvent estate.
Forms part of the estate due to the provisions of section 2 of the Act – definition of “property”
immovable property situated in South Africa. Casey is protected by the huur gaat voor koop
rule, the house must be sold together with the lease contract then Casey should not have
any claim against the estate where the house is sold free of the lease (due to the limited
value that would be obtained if the property is sold with the lease; mortgage), Casey would
have an unliquidated concurrent claim for damages.

QUESTION 2.3 [7 MARKS]

Advise Bill on the manner in which he should deal with the payment of R30 000 that
Abe made to Bill. You must discuss both options available to Bill and highlight the
advantages and disadvantages of each option.
Option 1:
→ voidable preference, within six months of sequestration
→ liabilities must exceed assets after the transaction, effect is that one creditor receives
preference over another
→ advantage: trustee has to prove effect and creditor has to prove absence of intent
→ disadvantage: creditor has defence
Option 2:
→ undue preference at any time before sequestration
→ already insolvent
→ advantage: no defence for creditor (other than normal civil procedural countering of
claims by trustee)
→ disadvantage: trustee must prove intent (which may prove difficult)
Note: there is no indication of collusion – both parties must work together to collude
 WEEK 1: INTERACTIVE LECTURE
QUESTION AND ANSWERS:
Which statement is CORRECT?
• Sequestration is not a process, but pre-liquidation is. This means that all debtors
must be liquidated before they can be sequestrated.
• Sequestration is an ordinary debt relief process primarily intended to discharge the
debtor’s pre-sequestration debts.
• None of the mentioned statements is correct.
• Sequestration is an ordinary individual debt enforcement process because it has no
adverse consequences for the debtor personally.
• Sequestration is neither a collective nor an individual process but is sui generis
because it has no elements of a process.

Which of the following is not a debt relief mechanism available (by choice) to South
African debtors?
• All of the mentioned options
• Debt review
• Compulsory sequestration
• Voluntary negotiations
• Voluntary surrender
• Section 74-administration procedure

Which of the following is not available as a debt relief mechanism in South Africa:
• Administration in terms of section 74 of the Magistrates’ Courts Act 32 of 1944.
• Voluntary surrender in terms of the Insolvency Act 24 of 1936.
• The individual debt collection process.
• Voluntary agreement with creditors in terms of which the parties agree to a
repayment plan.
• Debt review in terms of section 86 of the National Credit Act 34 of 2005.
Which statement is correct?
• The South African insolvency law is creditor-orientated.
• The South African insolvency law is debtor-orientated.
• The South African Insolvency Act is based on the Constitution.
• The debt review, administration and sequestration processes all result in a discharge of pre-
process debts.
• Only the debt review and administration processes provide for in a discharge of pre-process
debts.
** The aim is to initiate a process that will be to the advantage of creditors and will result in some
payment (some monetary benefit) to the creditors. All benefits to the debtors are seen as
consequences of the process.

Which statement is correct when it comes to the concursus creditorum?

• The general interest of the creditors as a group ranks in priority over the interests of the
individual creditors.
• The interests of the individual creditors rank in priority over the general interest of the
creditors as a group.
• The interests of the individual creditors rank in priority over the general interest of the debtor.
• The interest of the debtor ranks in priority over the general interest of the creditors as a group.
• The general interest of the debtor ranks in priority over the interests of the individual creditors.
• None of the mentioned options.
** Walker v Syfret

Which statement is correct when it comes to sequestration proceedings?

• The applicant creditor applies for an order where he or she asks the court to accept
the voluntary surrender of the debtor's estate.
• The applicant debtor applies for an order where he or she asks the court to accept
the voluntary surrender of his or her estate.
• The applicant creditor applies for an order when he or she asks the court to accept
the voluntary surrender of his or her estate.
• The applicant debtor applies for an order where he or she asks the court to accept
the voluntary surrender of the creditor's estate.
• The Master of the court applies for an order when he or she asks the court to accept
the voluntary surrender of the debtor's estate.
** When a creditor applies to court for an order to place the estate of the debtor in
sequestration, it is referred to as compulsory sequestration. When a debtor applies to court
for an order to place his or her estate in sequestration, it is referred to as voluntary
surrender.
Which statement is correct?
• The insolvent's estate is sequestrated, and the insolvent (person) is rehabilitated.
• The insolvent (person) is sequestrated, and the insolvent's estate is rehabilitated.
• The insolvent (person) is sequestrated, and the insolvent (person) is rehabilitated.
• The insolvent's estate is sequestrated, and the insolvent's estate is rehabilitated.
• None of the mentioned options.
** The estate vests in the trustee and the trustee sells the assets in the estate and pays the
creditors of the estate. The estate does not revest in the debtor upon rehabilitation - the
debtor is "freed" of the debts in the estate and the limitations placed on him or her due to
sequestration.

Which statement is correct for the principle of concurcus creditorum?

• The interests of the individual creditors rank in priority over the general interest of the
debtor.
• The interest of the debtor ranks in priority over the general interest of the creditors as
a group.
• The interests of the individual creditors rank in priority over the general interest of the
creditors as a group.
• None of the mentioned options.
• The general interest of the debtor ranks in priority over the interests of the individual
creditors.
• The general interest of the creditors as a group ranks in priority over the interests of
the individual creditors

Concursus creditorum means:

• All of the mentioned options.
• The interests of the creditors who are statutory preferent creditors enjoy preference
above the interests of the creditors as a group.
• The right of creditors to payment of their claims are done away with.
• The interests of the creditors as a group enjoy preference above the interests of the
individual creditors.
• The interests of the creditors as individuals enjoy preference above the interests of
the creditors as a group.
In order to find the necessary provisions to liquidate an insolvent company, the
following modus operandi must be followed:
• Start with Insolvency Act and Item 9 of schedule 5 will refer you to chapter 14 of the
1973 Companies Act. If a matter is not provided for in chapter 14, section 339 of the
1973 Companies Act allows the provisions of the common law to apply mutatis
mutandis.
• Start with the Close Corporations Act and section 66 will refer you to the 1973
Companies Act. Item 9 of schedule 5 of the 1973 Companies Act will refer you to
chapter 14 of the 2008 Companies Act. If a matter is not provided for in chapter 14,
section 339 of the 2008 Companies Act allows the provisions of the insolvency law
(Insolvency Act and common law) to apply mutatis mutandis.
• Start with the 2008 Companies Act and Item 9 of schedule 5 will refer you to chapter
14 of the 1973 Companies Act. If a matter is not provided for in chapter 14, section
339 of the 1973 Companies allows the provisions of the insolvency law (Insolvency
Act and common law) to apply mutatis mutandis.
• Start with the 2008 Companies Act and Item 9 of schedule 5 will refer you to the
provisions of the insolvency law, which applies to insolvent companies right from the
start.
• Start with the 2008 Companies Act and Item 9 of schedule 5 will refer you to section
66 of the Close Corporations Act. If a matter is not provided for in section 66 of the
Close Corporations Act, section 339 of the Close Corporations Act allows the
provisions of the insolvency law (Insolvency Act and common law) to apply mutatis
mutandis
 COMPULSORY SEQUESTRATION
QUESTION 1
Thembi approaches you for advice. She informs you that Tim owes her R1250 for cleaning
services rendered by her company. Thembi explains to you that despite various attempts to
get Tim to pay his debts (by way of telephone calls as well as notices sent via registered
post), he has yet to make any payment. Thembi further informs you that she has recently
become aware of the fact that Tim has Informed one of his other creditors, Zebra, that he is
unable to pay his debts and therefore offered to pay Zebra 25 cents in the Rand.
Thembi wants to know from you whether she can apply for the Compulsory Sequestration of
Tim's estate, specifically because he informed Zebra that he is unable to pay his debts and
because he has arranged with Zebra to pay 25 cents In the Rand. Discuss the requirements
to apply for a Compulsory Sequestration order to answer Thembi's question.

MODEL ANSWER
This question deals with the requirements to apply for a CS order & an “act of insolvency” in
terms of the Insolvency Act
The court may grant an application for the sequestration of a debtor’s estate if it is satisfied
that:
• The applicant has established a claim which entitles him, in terms of s 9(1), to apply
for the 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.
• The legislature has designated certain acts or omissions by a debtor as “acts of
insolvency.”
• If the creditor can establish that the debtor has committed one or more of the “acts,”
he may seek an order sequestrating the debtor’s estate without having to prove that
the debtor is actually insolvent.

→ The “Act of Insolvency” in this question deals with s 8(e): “Offer of arrangement”
→ This means when the debtor makes, or offers to make, any arrangement with any of
his creditors for releasing him wholly or in part from his debts
→ An arrangement or an offer qualifies as an act of insolvency in terms of this
subsection only if it is indicative of the debtor’s inability to pay his debts
 → If the debtor offers by way of settlement a lesser amount than that claimed, and
denies liability altogether, or disputes the amount of the debt, he does not commit an
act of insolvency, because it does not appear from his offer that he cannot pay the
debt
→ On the other hand, if the debtor offers a lesser sum in settlement and expressly or by
implication admits that he owes the full debt, then he commits an act of insolvency,
because he tacitly acknowledges that he cannot pay the debt
→ Conclusion: Since Tim offered to pay 25 cents in the Rand because he does not
have the ability to pay his debts, it would therefore constitute a s 8(e) act of
insolvency and therefore Thembi can apply for his compulsory sequestration

QUESTION 2:
Tim owes R40 000 to Thembi and R30 000 to Thathi, and both debts should have been paid
a year ago. Tim’s sole asset of any value is a motorcar worth R80 000. Tim sells it to Theo
for R50 000. On these facts, determine whether Tim has committed an act of insolvency,
and give reasons for your answer.

MODEL ANSWER
→ 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.
→ Tim’s sale of the motorcar falls within the definition of a “disposition” in section 2 of
the Insolvency Act. In the examination of the effect of this disposition (not the
intention with which it was made) it is relevant that more than one of Timd’s debts
have fallen due and have not been paid.
→ Either Thembi or Thathi would be entitled to apply for the compulsory sequestration
of Tim’s estate, on the ground that the sale of the motorcar to Theo has prejudiced
them.
→ The applicant creditor could allege that the sale of the motorcar for R50 000
(manifestly below its market value of R80 000) falls within the ambit of section 8(c)
because it has rendered Tim insolvent. Previously, his assets (worth R80 000)
exceeded his liabilities (R40 000 and R30 000), but now those liabilities exceed his
assets (the R50 000 received for the motorcar).
→ Therefore, Tim has committed an act of insolvency in terms of section 8(c).
QUESTION 3:
Compare section 8(c) with section 8(d) of the Insolvency Act by pointing out two differences
between them.

MODEL ANSWER:
→ Firstly, section 8(c) requires a disposition of property, but a mere removal of property
is sufficient under section 8(d).
→ Secondly, in section 8(c) the effect of the debtor’s disposition or attempted
disposition is important, but in section 8(d) the intention of the debtor to prejudice his
creditors or to prefer one of them above another is important.

QUESTION 4:
Tim publishes a notice of surrender of his estate. The statement of affairs which he lodges
with the Master does not state that one of his creditors, Thembi, has a claim for R30 000.
Advise Tim on the implications of these facts.

MODEL ANSWER
Under section 8(f), a debtor commits an act of insolvency if he files a substantially incorrect
or incomplete statement of affairs. The omission of a claim for R30 000 is sufficiently
important to have influenced Tim’s creditors in deciding whether to oppose Tim’s application
for voluntary surrender. It follows that C has committed an act of insolvency.

QUESTION 5
Any, Bob, and Cynthia are partners in a plumbing business. The partnership owes R10 000
to creditor David for pipes supplied (partnership business), and Bob owes R20 000 to
creditor Emily for home furnishings (private matter, debt not incurred in his capacity as a
partner) which he ordered as a wedding present for Mrs Bob. Any writes David a letter
stating that the partnership cannot pay the R10 000 debt. On the other hand, Emily takes
judgment against Bob for payment of the debt, but the judgment remains unpaid. Discuss
whether the partnership estate may be compulsorily sequestrated because of Any’s letter to
David, or Emily’s judgment against Bob, or both?

MODEL ANSWER
→ The partnership estate may be sequestrated on the grounds of Any’s letter to Daivd:
the letter constitutes notice by a partner acting in his capacity as a partner that the
 partnership is unable to pay its debts, and its sending is therefore an act of
insolvency (s 8(g)).
→ By contrast, the partnership estate may not be sequestrated on the grounds of Bob’s
failure to satisfy the judgment in favour of Emily: although this failure also constitutes
an act of insolvency (s 8(b) of the Insolvency Act), Bob did not act in his capacity as a
partner when ordering the home furnishings as a wedding present for Mrs Bob,
because the purchase of those furnishings falls outside the sphere of the partnership
business.
 WEEK 5: CREDITORS CLAIMS AND
THEIR RANKING
QUESTION 1

Explain the difference between a secured claim and a preferent claim.

MODEL ANSWER
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.)

QUESTION 2

Which forms of real security require that the creditor must actually possess the
encumbered/secured asset?

MODEL ANSWER
Possession is a prerequisite for the existence of two types of security: a right of retention
(lien), and a pledge.

QUESTION 3

Indicate which type of claim – secured, preferent, or concurrent – arises from each of the
following types of bonds:
a) a special mortgage over immovable property
b) a special mortgage over specific movable property
c) a general bond over movable property

MODEL ANSWER
→ The bond in (a) grants a secured claim.
→ The bond in (b) grants a secured claim
→ The bond in (c) grants a preferent claim.
QUESTION 4

Indicate whether the following statement is true or false and provide an explanation.
“A secured creditor is always a preferent creditor, but a preferent creditor may not
necessarily be a secured creditor.”

MODEL ANSWER
This statement is true.
→ The first part of the statement in question is true, because it refers to the term
“preferent creditor” in the wide sense, as any creditor who is entitled to receive
payment before other creditors is a preferent creditor.
→ The second part of the sentence is also true, because a “preferent creditor” in the
narrow, more usual sense of the word is a creditor whose claim is not secured, but
nevertheless ranks above the claims of concurrent creditors. Because both parts of
the statement are true, the whole statement is true

QUESTION 5

Some of the preferences in terms of sections 96 to 102 of the Insolvency Act are subject to
limitations on the amount of the claim which enjoys preference, or on the time when the
claim must have arisen. These preferences are mentioned below.
Fill in the limitation or qualification in the available space.
1. funeral expenses with respect to the insolvent himself
2. funeral expenses with respect to the insolvent’s wife or his minor child
3. death bed expenses with respect to the insolvent himself
4. deathbed expenses with respect to the insolvent’s wife or his minor child
5. salary or wages of employees
6. leave payments to employees

MODEL ANSWER:
1) Funeral expenses with respect to the insolvent himself: if the insolvent died before
the trustee’s first account was submitted to the Master there is a preferent claim
limited to a maximum of R300.
2) Funeral expenses with respect to the insolvent’s wife or his minor child: if the
expenses were incurred within the three months immediately preceding
sequestration, there is a preferent claim limited to a maximum of R300.
3) Death bed expenses with respect to the insolvent himself: if the insolvent died before
the trustee’s first account was submitted to the Master there is a preferent claim
limited to a maximum of R300
4) Death bed expenses with respect to the insolvent’s wife or his minor child: if the
expenses were incurred within the three months immediately preceding
sequestration there is a preferent claim limited to a maximum of R300.
5) Salary or wages of employees: if salary or wages are due to an employee, there is a
preferent claim for a period not exceeding three months before sequestration, further
limited to a maximum of R12 000.
6) Leave payments to employees: if any payment in respect of any period of leave or
holiday due to an employee has accrued as a result of his or her being employed by
the insolvent in the year of insolvency or the preceding year, whether or not payment
is due at the date of sequestration, there is a preferent claim limited to a maximum of
R4 000
 CONSEQUENCES OF SEQUESTRATION
FOR THE DEBTOR’S SPOUSE
→ LET WEL, EK WENIE OF DIE QUESTIONS DEEL VORM VAN DIE ONDERWERP NIE,
MAAR DIE QUESTIONS EN ANSWERS IS DIRECT NA DIE WERK BEHANDEL.

QUESTION 1
Zuko, an insolvent, gives private music lessons to T. (Shortly before his estate was
sequestrated, Zuko took music classes in the evenings at the Noise Academy and qualified
as a part-time music teacher).
With the consent of the trustee of the insolvent estate, Zuko entered into a partnership
agreement with S. The partnership sells cosmetics.
Zuko also entered into an agreement with L, one of his clients, that L would buy his (Zuko’s)
spa bath for R3 000. L is unaware that Zuko is insolvent.
T is in arrears with two months of her tuition fees for the music lessons.
Zuko also has not received his share of the profits in the partnership as agreed on in the
partnership agreement.
Zuko wishes to stand as a candidate in the coming provincial elections and to act for the
Fight party. His trustee is of the opinion that he should not begin his political career at this
stage.
Zuko approaches you for legal advice.
a) He requests that you recover the outstanding tuition fees and his share of the
partnership profits due to him. May he collect these debts for his personal benefit?
b) Explain to Zuko whether he must inform his trustee that he (Zuko) has sold his spa
bath to L.
c) Argue, giving reasons, whether it would make a difference to your answer in (b)
above if Zuko had received the spa bath as a birthday present after the date of
sequestration of his estate.
d) Explain whether Zuko’s trustee may interfere with Zuko’s intended political career.

MODEL ANSWER
a) An insolvent may exercise his or her trade or profession (s 23(3) of the Insolvency
Act). Zuko may therefore give music lessons. The insolvent may for his or her own
benefit recover remuneration for professional services which he rendered after
 sequestration (s 23(9)). Zuko may therefore give instructions in his own name for the
recovery of the arrear tuition fees. A contract concluded by an insolvent is valid and
binding on the parties. However, the insolvent may claim fulfilment of the contract
only if the Insolvency Act or another Act specifically empowers him or her to do so.
Because there are no statutory provisions that grant it, Zuko has the right to claim
outstanding partnership profits for his own personal benefit, but he may not give
instructions for the recovery of this debt.
b) An insolvent may not conclude a contract for the alienation of assets belonging to the
insolvent estate (s 23(2)). If the insolvent concluded a prohibited contract, it will be
voidable at the option of the trustee. The trustee may decide that the contract is
binding on both parties (by not setting it aside), or he may withdraw from the contract.
If the trustee sets the contract aside, he may recover the performance already
rendered by the insolvent, but he also has to return any benefit that the insolvent
obtained from the contract. The contract that Zuko concluded with L is therefore
voidable. Zuko’s trustee may therefore either uphold the contract or withdraw from
the contract and reclaim the spa bath. Zuko’s trustee will then have to return the R5
000 that L paid for the spa bath.
c) Yes, it would make a difference to the answer. Section 24(1) governs the situation
where an insolvent purports to alienate, for valuable consideration, without the
consent of the trustee of his or her estate, any property which he or she acquired
after the sequestration of his or her estate. If the other person proves that he or she
was not aware and had no reason whatsoever to suspect that the estate of the
insolvent was under sequestration, the alienation will nevertheless be valid. L may
therefore retain the spa bath if she can prove that she was not aware that Zuko was
insolvent and that she purchased the spa bath for value.
d) An unrehabilitated insolvent may not be a member of the provincial legislature (s
106(1)(c) of the Constitution). The trustee’s opinion that Zuko cannot now begin his
political career is therefore correct.
QUESTION 2

Zuko and Thandi are married out of community of property and profit and loss. On the birth
of their first child, Zuko donates his old Mercedes Benz motor vehicle to Thandi, and then
buys himself a very flashy new BMW motor vehicle. The following year, Zuko’s estate is
sequestrated. Explain the position regarding the Mercedes Benz that Zuko donated to Mpho.

MODEL ANSWER
Under section 21(1) of the Insolvency Act, the property of the solvent spouse (Thandi) 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. Donations between spouses are allowed (s 22 of
the Matrimonial Property Act). Accordingly, Thandi 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.)

QUESTION 3

Indicate whether the following statement is true or false and provide an explanation.
“A solvent wife will not be able to obtain the release of property which was donated to her by
her husband while she knew that he was going to apply for the voluntary surrender of his
estate.”

MODEL ANSWER
This statement is true. The solvent wife will not be able to prove that she acquired the
property by valid title during the marriage (s 21(2)(c)). She will not be able to prove that she
acquired the property in good faith because an important factor in determining the question
of good faith is whether the parties, at the relevant time, were aware of the alienator’s actual
or imminent insolvency. If the husband, to the knowledge of his wife, was intending to apply
for the voluntary surrender of his estate, it is probable that he was actually insolvent at the
time that he donated the property to his wife