INS311

2023
WEEK 5: Lecture 1
Effects of sequestration on the legal position
of the insolvent.

Professor Michel Koekemoer

 TOPICS FOR THIS WEEK
The ability of the insolvent to acquire property.
The ability of the debtor to enter into contracts.
The ability of the debtor to earn a living.
The ability to institute and defend legal proceedings.
Lecture 2
Vesting of the estate in the trustee.
o Property falling into the estate.
o Property not falling into the estate.
 OUTCOMES FOR THIS WEEK
Make a distinction between the contracts prohibited and those
the insolvent can enter into.
Indicate which contractual rights the insolvent can enforce to his
own benefit.
Describe what the consequences would be when concluding a
prohibited contract.
Explain the meaning of ‘manufacturer’ and ‘general dealer’ within
the Insolvency Act, and apply this understanding to case
scenarios.
List and discuss those legal proceedings which the debtor can
institute in his own name.
 OUTCOMES FOR THIS WEEK
Discuss the instances in which the insolvent would have to furnish
security.
List the offices an insolvent may not hold, and provide a discussion on
the reasoning for this prohibition.
Distinguish between the assets which fall inside and outside the
insolvent estate.
Determine when section 63 of the Long-term Insurance Act 52 of 1998
will apply and be able to apply this provision within the context of
insolvency law.
Discuss when the insolvent can validly dispose of goods forming part
of the insolvent estate.
 Ability of the insolvent to
enter into contracts
The restrictions on the debtor’s contractual capacity are imposed to
protect creditors.
Certain contracts are completely prohibited and others the debtor may
conclude BUT with the trustee’s consent (consent submitted within a
week to the Master).
Prohibited: contracts which dispose (wide meaning) of estate property.
Consent of trustee: contracts which affect or which may likely affect the either
his estate or contribution he must make.
– The contribution relates to the debtor’s income.
– This income only forms part of the estate if the Master believes it is not necessary to
sustain the debtor and dependants.
Effect if the contract is not prohibited or there is trustee consent: contract is
valid and binding.
 Ability of the insolvent to
enter into contracts
Enforcement of the performance by whom?
The debtor must be specifically authorised by a statutory
provision to enforce performance.
If there is no such provision, it is the trustee who must enforce the
contractual performance.
 Ability of the insolvent to
enter into contracts
What is the effect of a prohibited contract?
Voidable at the instance of the trustee (it is not void).
So, the trustee can decide whether to keep the contract in place
Effect if the trustee sets aside the contract:
– Claim back any performance the third party received from the debtor; and
– Restore to the third party any benefits the debtor received from the transaction.
– Restitutio in integrum is the contractual remedy
What if the third party was unaware that the debtor was insolvent?
– This contract could remain valid, but only if:
• It is new assets. Assets coming into the debtor’s possession after sequestration.
• The third party must prove that he was unaware or that there was no reason to suspect the
debtor to be insolvent.
• This is a prohibited contract which can be valid
 This Photo by Unknown Author is licensed

Ability of the insolvent to

under CC BY-SA

earn a living
Section 23(3) of the Insolvency Act does not extinguish the insolvent's capacity to earn
a living while his estate is under sequestration.
BUT, the trustee must consent if the debtor is to carry on the business, or is employer
or have a direct or indirect interest in the business of a trader who is:
A general dealer (no definition in Act, so look to case law).
Manufacturer(no definition in Act, so look to case law).
2 elements, a trader and either a general dealer or a manufacturer
The Act defines trader as:
"...any person who carries on any trade, business, industry or undertaking in which property is sold, or is bought,
exchanged or manufactured for the purpose of sale or exchange, or in which building operations of whatever
nature are performed, or an object of which is public entertainment, or who carries on the business of hotel-
keeper or boarding-house keeper, or who acts as a broker or an agent of any person in the sale or purchase of
any property or in the letting or hiring of immovable property..“
Excluding a farmer from the definition of a trader.
 Ability of the insolvent to
earn a living
General dealer
‘Jack of all trades’, so who trades at a fixed and recognised place in all
sorts of wares, and not just one kind or a few particular kinds (see S v
Van der Merwe). For example, a milk depot only selling milk is not a
general dealer
In a modern age, courts are interpreting this definition restrictively.

Manufacturer
Owner or entrepreneur of a factory, responsible for manufacturing a
manufactured object. See AJ Ferreira Beleggings (Edms) Bpk v Swart
1969 (2) SA 170 (E). This could include a person making clothes.
 Ability of the insolvent to
earn a living
Consequence where insolvent pursues vocation without trustee
consent:
Criminal offence
Contracts concluded voidable at the instance of the trustee.
 Ability of the insolvent to ability to
institute and defend legal proceedings
Section 23(6)-(10) provides specific instances where the debtor may sue
and be sued in his own no (so not reference to the trustee of his estate).
any matter relating to status (eg divorce)
any matter not affecting his insolvent estate (eg maintenance from the
insolvent)
Make a list of the other instances contained in this section.
The debtor is divested of his estate but retains a reversionary interest
in the estate. Meaning that a residue or surplus of the realised estate
could accrue to him.
Thus, he may litigate to ensure that the estate is properly administered.
The proceedings must only relate to where the administration causes
an injustice due to an irregularity or lack of good faith of the trustee.
 Holding office

What positions can the insolvent not hold?

If you are an unrehabilitated insolvent, this could influence
whether you can be a legal practitioner.
How? Make your own summary and bring this to the lecture to
discuss.

What then if you are appointed as a Chartered Accountant

(CA)?
–This relates to your assignment question.
–Did you find the by-laws regulating this matter?
 Vesting of assets in the trustee

Can you remember the main object of the Insolvency Act?

The trustee fulfils this object when he collects the assets, realise them,
and distribute the proceeds amongst the creditors.
The trustee can only do this if the debtor is divested of his estate.
The debtor’s estate vests in the trustee, but there are specific
exceptions.

Remember also that I told you that the debtor gets to start building up a
new estate?

We look at this in the next lecture tomorrow.

Thank You.

Questions?