Question 1 1 .

W h i c h a c t s r e l a t e s t o s e q ue s t r a t i o n o f n a t u r a l p e r s o n s a n d
winding up of juristic persons? (2)
Insolvency Act The old Companies Act The new Companies Act Close Corporations Act
2. How has the legislati ve position changed since 1.5.11?
There is now the new Companies Act which has been implemented. This Act replaces the provisions of
the old Companies Act and the Close Corporations Act pending the new consolidated insolvency
legislation to come into effect.
3. Define insolvency in respect of natural persons (2)
According to V en t e r v V o l k s k a s Ltd, insolvency is when debtors liabilities (fairly valued) exceed his
assets (fairly valued). The court in R e a l i z a t i o n s L t d v A g e r held that Proof of an inability to pay
debts is only prima facie evidence of insolvency not necessarily insolvency.

4. The difference between voluntary and compulsory sequestration as regards

to the advantage to creditors.

The distinction lies in who bear the burden of proof and who must discharge it. In voluntary sequestration,
debtor must show that sequestration is going to advantage the creditors. In compulsory sequestration, the
creditor must show only a reasonable belief of advantage from sequestration.
5. What did the court in R v Meer held?
[T]he Insolvency Act was passed for the benefit of creditors and not for the relief of harassed debtors
6. Explain the main purpose of a sequestration order
The main purpose of a sequestration order is to ensure the orderly and fair distribution of a debtor's
assets if his assets are not sufficient to pay all his creditors in full.

7. 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
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 sufficient 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.
8. Explain whether a debtor whose estate is under sequestration may obtain
a new estate which does not form part of the sequestrated estate .

Because some assets which a debtor has or acquires do not form part of his insolvent estate, it is indeed
possible to build up a new estate which does not form part of the estate under sequestration.
9. State the basic difference between voluntary surrender and compulsory
sequestration
In the case of voluntary surrender, the debtor himself applies for the sequestration of his estate. In the
case of compulsory sequestration, a creditor applies for the sequestration of the debtor's estate.

10. Explain whether one of the partners or one of the spouses respectivel y
may apply for the sequestration of a partnership estate or the joint
e s t a t e o f p e r s o n s m a r r i e d i n c o m m u n i t y o f p r o p e r t y.
In terms of section 3(2) of the Insolvency Act, all the partners (except partners en commandite) must
apply for the surrender of the partnership estate. In terms of section 17(4) of the Matrimonial Property Act
88 of 1984, in a marriage in community of property both spouses must apply for the surrender of their joint
estate
11. Describe what the court must be convinced of prior to granting an
o r d e r f o r t h e v o l u n t a r y s u r r e n d e r o f Ten z a ' s e s t a t e .
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); (b) Tenza's estate is indeed insolvent; (c) there is
sufficient realisable property in the free residue of Tenza's estate to defray the costs of sequestration; and
(d) it will be to the advantage of Tenza's creditors if his estate is sequestrated.
12. What is the "free residue" of an insolvent estate?

The free residue of an insolvent estate is that part of the estate which is not subject to any right of
preference by reason of a special mortgage, legal hypothec, pledge, or right of retention.
1 3. S u p p o se Ten z a' s b r o t h e r Al f a p pl i es f o r t h e vo l u n t a r y su r r e n de r o f
h i s estate. It appears that his wife receives a good income and that from t h i s
she contributes a substantial amount towards the payment of his debts,
b u t t h a t sh e w il l d e f i n i t e l y n o t c o n t i n u e t o d o so i f Al f ' s es t a t e i s
sequestrated. Should the court dismiss the application merely because it
w ould be more to the ad vantage of Al f's creditors if Al f'sw ife w ere to
continue helping to pa y his ( Al f's) debts? Gi ve reasons for you r answ er
This question relates to the decision of the court in
Ex parte Henning 1981 (3) SA 843 (O). In the Henning case it was decided that this factor is too vague or
uncertain to take into account in evaluating whether sequestration will be to the advantage of the
creditors. The court will therefore not dismiss the application merely because the creditors will be in a
better position if Alf's wife continues to assist him in paying his debts.

14. What is the time period allowed to for publishing a notice if intention
t o surrender in a case of voluntary surrender (2)
Not less than 14 days but not more than 30 days. The purpose is to alert the creditors about the intended
application.
1 5 . W h a t w a s t h e a p p r o a c h o f t h e c o u r t i n E X Parte H a r m s e w i t h r e g a r d t o
non-compliance?
Failure to comply is a formal defect or irregularity, which does not invalidate the application unless it has
caused a substantial injustice ha which in the opinion of the court cannot be remedied by any court order
16. What is a c o n c u r s u s c r e d i t o r u m ?

Coming together of a general body of creditors for the purpose of sequestration. The concept entails that
the rights of the creditors as the group are preferred to the rights of individual creditors. It is created as
soon as the order of sequestration has been granted. The purpose of it is to ensure fair payment of all
creditors according to a predetermined procedure and to ensure that no creditor benefit ahead of other
creditors and that whatever follows is to advantage the the body of all creditors. Walker case
17. Define friendly sequestration
An application for compulsory sequestration brought by a creditor who is not at arms length with the
debtor. Courts look on it with a sceptical eye because it raises possibility of collusion between parties to
abuse process for benefit of insolvent rather than creditors. Craggs v Dedekind- A friendly petitioner
should supply the court with sufficiently detailed evidence to satisfy a sceptical court that he/she indeed
has a claim against the respondent.
1 8 . As i d e n t i f i e d b y S a t c h w e l l J i n E s t e r h u i z e n v S w a n e p o e l , F r i e n d l y
sequestrations seem to share certain characterics. These are
Debtor is in financial straits
There is an agreement with a 3rdparty to initiate sequestration proceedings to aid the debtor
Te 3rd party masquerades as a creditor claiming a non-existent debt

An act of insolvency is the basis of the application

Why going the friendly sequestration route instead of the voluntary
sequestration

According to Catherine Smith,

(i)

In voluntary sequetstion, there is a stricter burden of prove that sequestration is to the

advantage of the creditors (ii) Formalities must be complied with eg, notice to creditors and
the accessibility for inspection of a statement of affairs.

1. What is the definition of a debtor in terms of the Insol venc y Ac t 24

o f 1936? (4)
A debtor means a person or a partnership or the estate of a person or a 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.

2. What is the purpose of a notice of surrender? (2)

The purpose of the notice of surrender is to alert creditors as to the intended application in case they
wish to oppose the application.
3. State the requirements which must be proved before the Court will
g r a n t a v o l u n t a r y s e q u e s t r a t i o n o r d e r. ( 4 )

1. The preliminary formalities have been observed. 2. The debtors estate is in fact insolvent. 3. The
debtor owns realizable property of sufficient value to defray all costs of the sequestration. 4.
Sequestration will be to the advantage of creditors.
4. What is the meaning of the term spouse for the purposes of the term
solve nt spouse under section 21 of the Insol venc y Ac t? (3)

For the purpose of section 21, spouse has an extended meaning and includes a wife or a husband
married according to any law or custom, and also a person living with a member of the opposite sex,
although not married to her or him (s 21(13)).
According to C h a p l i n N O v G r e g o r y , on the insolvency of a married man or woman who is living with
a third person (i.e., not the legal spouse), the property of only the legal spouse, and not that of both the
spouse and the third person, vests in the trustee.
5. State the two maximum limits (in time and in money) to the
employees preferent claim for arrear salary or wages in terms of section
9 8 A o f t h e I n s o l v e n c y Ac t . ( 2 )
Salary or wages due to an employee, for a period not exceeding three months and to a maximum of
R12 000.
6. State three grounds on which the Master may remove a trustee from office.
(3)
Any three of the following: 1. he was not qualified for appointment or that his election or appointment was
illegal or he has become disqualified ; 2. he has failed to perform any of his duties satisfactorily or comply
with a lawful demand of the Master; 3. he is mentally or physically incapable of performing satisfactorily
his duties as trustee; 4. the majority of creditors have requested in writing that he be removed; 5. he is no
longer suitable in the opinion of the Master, to be the trustee of the estate concerned.
7. Name three circumstances in which the Master may refuse to confirm the
appointment of a person nominated as a trustee. (3)
Any three of the following: 1. he was not properly elected; 2. he is disqualified from being a trustee; 3. he
has failed to give the required security; 4. if in the opinion of the Master, he should not be appointed as
trustee to the estate in question.

8. When will a disposition made in compliance with a court order qualify

as a disposition under section 2 of the Insol venc y Ac t? (3)
The disposition will qualify as a disposition under section 2 if the creditor obtained the court order by
fraud or collusion with the insolvent and with the intention of prejudicing other creditors (Sackstein &
Venter NNO v Greyling).
The onus of proving fraud or collusion lies on the party seeking to set aside the disposition (Dabelstein &
Others v Lane & Fey NNO).
9. A provisional order for the winding up of Bafana (Pty) Ltd has been
granted by the High Court. A provisional liquidator has to be appointed
at the same time. Name two of the most important obligations of a
provisional liquidator. (2)
1. The provisional liquidator must give security to the satisfaction of the Master for the proper
performance of his duties. 2. He is required to hold office until the appointment of a liquidator.
10. Name two grounds on which a close corporation may be wound up by
t h e court. (2)
Any two of the following: 1. resolution of the members; 2. failure to commence business or continue with
business; 3. inability to pay debts
4. just and equitable.
11. What the meaning of property is as defined in section 2 of the
I n s o l v e n c y Ac t 2 4 o f 1 9 3 6 ? ( 5 )
Property means movable or immovable property wherever situated in the Republic and includes
contingent interests in property but excludes the contingent interests of a fidei commissary heir or legatee.
12. Under what circumstances may a court having jurisdiction over a
debtor refuse (or postpone) the surrender or sequestration of the
d e b t o r s e s t a t e ? (3)
If it appears equitable or convenient that the estate should be sequestrated in another court within the
Republic; or

the debtor is domiciled in a state which has not been designated in terms of the Cross- Border Insolvency
Act 42 of 2000 and it appears to the court equitable or convenient that the estate should be sequestrated
by a court outside the Republic.
13. Discuss Epstein v Epstein i n r e s p e c t o f f r i e n d l y s e q u e s t r a t i o n s . ( 6 )
This is an example of a friendly sequestration.
The applicant was the respondent's mother. He committed an act of insolvency by notifying her in a letter
that he was unable to repay her a loan of R6000.
The court pointed out that the purpose of the Insolvency Act is to effect a just and orderly distribution of a
debtors estate to his creditors. Therefore it is important that the requirement of advantage to creditors
must be proved before a sequestration order may be granted. This requirement is even more important in
a friendly sequestration where a creditor applies for the sequestration of a debtors estate with the sole
aim of providing relief for the debtor. This aspect was emphasised by the courts view that friendly
sequestrations should not be automatically refused, but they should be carefully scrutinised.
Therefore particular emphasis is placed on the requirement of advantage to creditors.

14. State the requirements which must be proved before the Court will grant a
v o l u n t a r y s e q u e s t r a t i o n o r d e r. ( 4 )
1. The preliminary formalities have been observed. 2. The debtors estate is in fact insolvent. 3. The
debtor owns realizable property of sufficient value to defray all costs of the sequestration. 4.
Sequestration will be to the advantage of creditors.

1 5 . N a m e b r i e f l y a n d w i t h o u t d i s c u s s i o n a n y t w o a c t s o f i n s o l v e n c y. ( 2 )
Any two of the following: 1. Absence from the Republic or dwelling. 2. Failure to satisfy a judgment. 3.
Disposition prejudicing creditors or preferring one creditor. 4. Removal of property with intent to prejudice
or prefer. 5. Offer of arrangement. 6. Failure to apply for surrender. 7. Notice of inability to pay. 8. Inability
to pay debts after notice of transfer of business.

16. Explain the concept "liquidated claim" and state three examples of such a
claim. (6)
A liquidated claim is a claim for money, the amount of which is fixed by agreement, judgment, or
otherwise.
The examples of such a claim given by Hockly include the following: 1. a claim for the price of goods sold
and delivered; 2. a claim based on judgment for provisional sentence; and 3. a claim for the return of the
price paid under a sale which has been cancelled because of the sellers repudiation.
1 7 . D i s c u s s Vor s t e r v S t e y n e n a n d e r e r e s p e c t o f a s s e t s i n h e r i t e d b y t h e
insolvent whilst his estate is under sequestration. Do not discuss the
i s s u e o f a d e c l a r a t o r y o r d e r. ( 6 )
Facts: A testator attempted to place the property bequeathed to his heir out of reach of the heirs
creditors by providing that a trust should hold the inheritance if the heir is insolvent, until his rehabilitation;
The case thus deals with the vesting of property inherited by the insolvent while his estate is under
sequestration and he is not yet rehabilitated.
The court decided that a clause of this nature is void and that the assets vested in the trustee. A testator
could validly state that the insolvent heir is substituted with another heir, for example, by stating that if his
heir is an unrehabilitated insolvent at the time of his death then the assets would go to his brother.
Another possibility is the creation of a discretionary trust which gives the trustee the exclusive discretion
to name a substitute heir if the intended heir is insolvent at the death of the testator.
18. Name one of the w ays in w hich a sequestration order can be brought
about. (1)
Voluntary surrender (or debtor applies) OR
Compulsory sequestration (or creditor/s applies).
19. Under what circumstances may a court having jurisdiction over a
debtor refuse (or postpone) the surrender or sequestration of the
d e b t o r s e s t a t e ? (3)
If it appears equitable or convenient that the estate should be sequestrated in another court within the
Republic; or

the debtor is domiciled in a state which has not been designated in terms of the Cross- Border Insolvency
Act 42 of 2000 and it appears to the court equitable or convenient that the estate should be sequestrated
by a court outside the Republic.
be appointed as trustee to the estate in question
20. Name one consequence of a composition in terms of section 119 of the
Insolvenc y Ac t 24 of 1936. (1)
Any one of the following:
all concurrent creditors are bound ;
restoration of property to insolvent;
restoration of property to solvent spouse;
trustee to frame accounts, administer composition, and report to creditors; or
right to prompt rehabilitation
21. Name one of the requirements that must be met before a company may be
placed under judicial management by the court. (1)
In terms of section 427(1), the court may grant an order placing a company under judicial management
where:
the company, because of mismanagement or any other cause, is unable to pay its debts or is probably
unable to meet its obligations;
the company has not 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 -- in other words there
must be a reasonable probability, and not merely a possibility, that the company will recover; and
it appears just and equitable to grant a judicial management order.
2 2 . E x p l a i n t h e e f f e c t t h a t t h e I n s o l v e n c y Ac t h a s o n t h e c o n t r a c t u a l c a p a c i t y
o f t h e d e b t o r. ( 2 )
The Insolvency Act does not deprive the debtor of his contractual capacity generally. He retains a general
competency to make binding agreements, but the Act protects creditors by imposing certain restrictions
on the debtors capacity to contract.

23. Name three persons who are relatively disqualified from being a trustee
in respect of a particular estate.(3)
The following persons are disqualified in respect of a particular estate:
a person related to the insolvent in blood or by marriage within the third degree;
a person having an interest opposed to the general interest of the creditors;
a person who acted as the bookkeeper, accountant, or auditor, of the insolvent at any time during a
period of 12 months immediately preceding the date of sequestration; or
24. What is the purpose of a notice of surrender? (2)
The purpose of the notice of surrender is to alert creditors as to the intended application in case they wish
to oppose the application.
25. State the requirements which must be proved before the Court will grant a
v o l u n t a r y s e q u e s t r a t i o n o r d e r. ( 4 )
The preliminary formalities have been observed.
The debtors estate is in fact insolvent.
The debtor owns realizable property of sufficient value to defray all costs of the Sequestration.
Sequestration will be to the advantage of creditors.

SECTION B
A client, Mr Rusty Auld-Carr, carried out a major overhaul of a bakkie belonging to a customer,
Mr Wrench, the sole proprietor of a local plumbing business, trading as U-Bend Plumbing
Services. The cost of the overhaul was R30 000, of which Mr Wrench paid a deposit of R10 000 by
means of a post-dated cheque in his own name. Payment of the balance was due on completion of
the job, but on taking possession of the vehicle, Mr Wrench asked to be given a month to settle
the account. This Mr Auld-Carr agreed to. Mr Wrenchs cheque was later dishonoured and three
months later, despite repeated promises by Mr Wrench, no payment has been received. Mr AuldCarr is now in desperate need of the money but has just been informed by Mr Wrench that he is in
a hopeless financial position and is intending to hand his affairs over for debt-management. He
has dropped off a note with the latest account that was submitted to him advising that all future
enquiries relating to the outstanding account should be referred to his debt counsellor in due
course. Mr Auld-Carr mentions that he cannot believe that Mr Wrench is in such financial straits
because, apart from his home in Grahamstown, he owns a holiday home at the sea at which he

regularly entertains friends very lavishly. He also owns a luxury vehicle and a Harley-Davidson
motorbike. Mr Wrenchs wife, to whom he is married in community of property, also has her own
hairdressing business, which appears to be doing very well.
(a) Ad vise Mr Au ld-Carr as to the possibility of successfull y appl yin g for
the compulsory sequestration of Mr Wrenchs estate. (10)
A compousory sequestration is a second way of bringing an application of sequestration by the creditor.
The court may grant an application if it has been satisfied that (i) The applicant has established a claim
that entitles him to apply for a sequestration order.
In terms of section 9(1) of the act,, a single creditor must prove a liquidated claim of R100 whilst R200 for
two or more creditors (ii) The debtor must have committed an act of insolvency or must be an insolvent.
Removal of property with intent to prejudice is a good example of an act of insolvency. De Villiers v Maursen Properties
(iii) The reason to believe that it will be to the creditors advantage if the estate is sequestrated.
Onus of proving the above elements as stated in V en t e r v V o l k s k a s rests upon the applicant. The
debtor is not required to prove any element.
On the facts of this question, it is clear that the applicant will succed in proving a liquidated claim as the
debtor owes more than 100 rand. Secondly, he might succeed in proving that sequestration is to his
advantage as the debtor seems unable to pay on time. However, there is no a clear indication that the
debtor has committed an act of insolvency. Although he has indicated that he is not able to pay, it must be
noted that In R e a l i s a t i o n v Ager , the court held that the proof of inability to pay is only a prima facie
proof of insolvency but does not necessarily denotes a state of insolvency. Something more like a written
notice of inability is required to satisfy this element- O p t i m a F e r t i l i z e r s v T u r n e r
. On this question, no written notice has been issued. However In Van R o o y e n v S a l z m a n n the court
held that clear intentions to evade or delay payment constitute an act of insolvent.
If he the issuing of the cheque by Mr Wrench was fraudulent then there court will be satisfied that there
is an act of insolvency, the application will succeed.
In my view, the application will not succeed because there is no an act of insolvency that has been
committed.
( b ) As s u m i n g t h a t t h e a p pl i ca t i o n i s s u cc es s f u l , w ha t i s t h e s o o n es t t h a t
Mr Wrench could be rehabilitated, and under what circumstances could
he make such an application? (3)

The applicant may apply for rehabilitation after twelve months has lapsed, once the trustee has been
paid and his estate has been finalised.
If he has however been previously been sequestrated, he would be rehabilitated after three years.
If not rehabilitated for ten years, after ten years, automatic rehabilitation occurs.
(c) What would your answer be to the previous question if it transpired I
(i) that the issuing of the cheque by Mr Wrench was fraudulent
If he has been convicted of any fraudulent acts in terms of his insolvency, he may apply for the order of
rehabilitation after 5 years
(i ii) he was unco-operati ve with the Trustee during his insolvency
The application of rehabilitation will be rejected because it is a requirement that he should be cooperative
for the order to be granted.
d) What is the effect of Mr Wrenchs sequestration on pending litigation
against him, whether criminal or civil?
Criminal cases cannot be affected by the debtors insolvency
Sequestration will stop civil legal proceedings instituted by and against the debtor until the trustee is
appointed. He can however sue in those civil matters that falls outside the sequestrated estate eg in
divorce and maintenance of a child matters In those matters, he will be required to furnish security of
coste
) I f , d u r i n g h i s i n s o l v e n c y, M r W r e n c h r e c e i v e d a n i n h e r i t a n c e i n t e r m s o f a
will, would such inheritance become part of his estate for the purposes
of sequestration?
In terms of sec 20(2) of the Act, the insolvent estate shall include all the property at the date of
sequestration and those acquired during sequestration.
Inheritance acquired during sequestration will be included in the insolvent estate unless the testator has
made an express provision in the will that such inheritance must pass to the other person if the
beneficiary is insolvent at the time of will execution.

f ) M r W r e n c h i s m a r r i e d o u t o f c o m m u n i t y o f p r o p e r t y. H o w i s t h e e s t a t e
o f h i s solvent spouse, including a house she acquired before her marriage to
Mr W re n c h , af f e c t e d b y h e r h u s b a n d s i n s ol ve n c y?
The issue has been dealt by the court in D u p l e s i s v P i e n n a r in which the court held that Matrimonial
Property Act created the existence of separate property in a relationship between two spouses but it does
not affect the rights of the third parties.
Held further is that the Act does not allow sequestration of only part of the debtors estate but rather the
entire estate.
The rationale behind this is the desire of our courts to prevent collusion between spouses to the
detriment of creditors. The house in question will also be affected.
g) The term spouse has an extended definition for the purposes of
i n s o l v e n c y. E x p l a i n .
For the purpose of section 21, spouse has an extended meaning in that it includes
(i) a wife or a husband married according to any law or custom, (ii) Live in partners of opposite sex,
although not married to her or him (s 21(13))
h) Several employees of Mr Wrenchs business approach you. They are owed
their wages for a period of a month before his sequestration and for
services which they are continuing to render since his sequestration as
the y were on one-year contracts. Ad vise them as to their legal position
in so far as receiving payment for their outstanding wages is concerned,
and also whether they are still bound by their employment contracts, as
they have been invited to join another local plumbing concern.
Sequestration of an employee does not affect a contact of employment
However, if the employer has been sequestrated, all the employment contracts are suspended with effect
from the date on which the sequestration order has been granted.
In terms of sec 38 of the Act, employees whose contracts have been suspended are not entitled to
render service or remuneration in terms of these contracts.
The trustee may however, terminate the suspended employment contracts but only after consultation
with those employees or their trade union
Where business is sold, the employment contract continues with the new owner on the same terms and
conditions as with the insolvent employer
Employees have a preferrent claim against the insolvent estate.

2 (a) ( b ) D i s c u s s t h e e f f e c t o f i n s o l v e n c y o n a n i n s o l v e n t s c a p a c i t y t o
e a r n a n income as an employee.
It is not a purpose of the act to render the insolvent destitute
He is therefore allowed to follow any profession or occupation and make contracts necessary for that
purpose
Gerge v Lewe
However, in terms of sec 23 (3) he may not carry a business as a general dealer or a manufacture
If he is unrehabilitated insolvent, he is prohibited from earning a living as a trustee of another insolvent
estate.
The money earned by the insolvent in the course of his profession or employment is claimable by the
trustee of his estate. He cannot dispose such money without the trustees consent
(c) W h a t r i g h t d o e s t h e M a s t e r h a v e i n t e r m s o f s 2 3 ( 5 ) i n r e l a t i o n t o s u c h
earnings?
In terms of sec 23(5) of the Act, the insolvents earning became due to the trustee only once the master
has expressed that the view that such money is not necessary for the support of the insolvent and his
dependants.
(d) What is the effect of insolvency on an insolvents personal effects,
a n d w h a t d i s c r e t i o n , i f a n y, d o e s t h e i n s o l v e n t h a v e i n r e s p e c t t h e r e o f ?
Personal effects are protected by the act from being sequestrated.
However, the debtor himself may renounce them in favour of the creditors thereby waving the protection
that these assets have in terms of the Act.
( e ) An i n s o l v e n t , M r H O Tai r, i s r u n n i n g f o r e l e c t i o n f o r P a r l i a m e n t a t t h e
t i m e o f h i s i n s o l v e n c y. W i l l h e b e a b l e t o t a k e u p t h e o f f i c e , i f e l e c t e d ?
He is precluded by the constitution to hold any political office position in the National and provincial
government.
But he is allowed to participated in the local government
(f ) W ha t w o ul d be th e p o si ti o n i f Mr O Tai r h e l d a re p r e se n ta ti ve
position at local government level at the time of his insolvency?

he is allowed to participated in the local government. Only precluded in political office position in the
National and provincial sphere.
( g ) M r O Tai r o w n s a b l o c k o f f l a t s a t t h e t i m e o f h i s i n s o l v e n c y. H o w a r e t h e
r i g h t s o f h i s t e n a n t s a f f e c t e d b y h i s i n s o l v e n c y, a n d w h a t r i g h t s does the
Tru s t e e h a v e i n r e l a t i o n t o s u c h a g r e e m e n t s .
In terms of sec 37 of the Act, a lease may not terminate upon sequestration of his estate.
The trustee shall determine the lease either to terminate it or not.
He can terminate it upon notice in writing to the tenants
The tenants may have a claim in the insolvents estate for any loss incurred as a result of the termination
They can have a claim for improvements to the house against the insolvent estate provided that they
have enhanced its market value.
(h) What is the effect of insolvency on business premises occupied by
M r O Tai r a s a t e n a n t , a n d w h a t r i g h t d o e s t h e Tru s t e e h a v e i n r e l a t i o n t o
such a lease?
Insolvency of lease does not bring his lease to an end
But his trustee may if he decides to
Notice of termination must however be sent to the lessor
Until the notice has been sent, the contract remains valid and rent must be paid. However, rent cannot be
paid for more than 3 months in such cases.
Qn 3. If Mr Wrenchs plumbing business, U-Bend Plumbing Services, was a
compan y or a close corporation and it was liquidated on or after 1 Ma y 2011
:
(a) H o w d i d t h e s t a t u t o r y p o s i t i o n o f s u c h b u s i n e s s e n t i t i e s c h a n g e a s o f
that date
winding-up of solvent companies is regulated in terms of the new Companies Act of 2008
This Act replaces the provisions of the old Companies Act and the Close Corporations Act
However, the court in H B T C o n s t r u c t i o n & P l a n t H i r e
held that old Act is still applicable in our law thus the applicant had to prove that company was insolvent
not just that the liquidation will be just and equitable.
Explain the purpose of the Business Rescue provisions of the new
legislation and its effect on judicial management proceedings
.

BR means proceedings to facilitate the rehabilitation of a company that is financially distressed

Financially distressed is defined in s 128 (i) Reasonably unlikely that the co will be able to pay all of its
debts as they become due and payable within the immediately ensuing six months. (j) Reasonably likely
that the co will become insolvent within the immediately ensuing six months
Qn 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.
Q n . I n t e r m s o f s 4 2 7 ( 1 ) o f t h e C o m p a n i e s Ac t 6 1 o f 1 9 7 3 , t h e c o u r t m a y g r a n t
an order placing a company under judicial management where:
the company, because of mismanagement or any other cause, is unable to pay its debts or is probably
unable to meet its obligations;
the company has not 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 able
to pay its debts or meet its obligations and become a successful concern; there must be a reasonable
probability, not merely a possibility, that the company will recover; it appears just and equitable to grant a
judicial management order qn.
What happens at the first meeting?
At the first meeting of creditors, creditors who have proved their claims may elect one or two trustees. If
more than one person is nominated, the individual who obtains a majority of votes in both number and
value must be elected as sole trustee.
If one person obtains a majority in value, and another person a majority in number, both must be elected
trustees. 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.
See section 54 of the Insolvency Act

REVISION TEST TWO 1 . S u p p o s e t h a t Ten z a p u b l i s h e s a n o t i c e o f i n t e n t i o n t o

surrender his estate 33 days before the advertised date on which the

application will b e m a d e . E x p l a i n w h e t h e r t h e c o u r t w i l l g r a n t h i s
a p p l i c a t i o n f o r s u r r e n d e r.
Authority on this question is now divided. According to most of the authority in case law it is a fatal defect
if the advertisement is published more than 30 days before the advertised date of the application (see, for
example, Ex parte Oosthuysen
On this authority the court will therefore dismiss the application. However, in Ex parte Harmse
, it was held that such a failure is a formal defect or irregularity as envisaged by section 157(1) of the
Insolvency Act.
It does not therefore invalidate the application unless it has caused an injustice that cannot be remedied
by a court order.
On this authority the court will therefore not dismiss the application. So the answer to this question
depends on whether the relevant application takes place in the jurisdiction of the Transvaal Provincial
Division of the High Court (which follows the authority of its Full Bench in Ex parte Oosthuysen) or
whether it takes place in the jurisdiction of the Natal Provincial Division of the High Court (which follows
the authority of its Full Bench in Ex parte Harmse

2.
E x p l a i n w h e t h e r Ten z a , a s t h e a p p l i c a n t f o r v o l u n t a r y s u r r e n d e r, i s o b l i g e d
to obtain an independent valuation of his assets for the purposes of his
statement of affairs, or whether he may value his assets himself
Unless the Master orders otherwise, Tenza is not obliged to have his assets valued by an independent
valuer. If he nevertheless does so, the costs of the valuation will not form part of the sequestration costs.
3. Suppose that the court authorises the sale of attached assets after a
notice of intention to surrender has been published. What order will the
court usually make with respect to the proceeds of the sale?
The court will order that the proceeds of the sale be kept by the Master or the sheriff, pending the
outcome of the application for voluntary surrender. If the application succeeds, the proceeds will be paid
to the trustee for distribution under the provisions of the Insolvency Act. If the application is dismissed, the
proceeds will be applied in paying the judgment creditor(s).
4. State when a notice of intention to surrender lapses

A notice of intention to surrender lapses if the court dismisses the application, if the notice is properly
withdrawn, or if the debtor fails to apply for surrender of the estate before the lapse of 14 days after the
day mentioned in the notice.
5. Explain whether the court is obliged to grant an application for voluntary surrender after the
applicant has proved the requirements set out in section 6(1) of the Insolvency Act.
Even if the requirements concerned are proved, the court still has a discretion to dismiss the application.
6 . W h a t i s t h e s i g n i f i c a n c e o f t h e c a s e R v Meer i n o u r l a w
Holmes J in R v Meer , who laid down two ways of guarding against the abuse of proceedings for
sequestration.
First, 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 Determine which
requirements must be satisfied before the court may grant a final order for the compulsory sequestration
of a debtor's estate
Under section 12(1), the court must be satisfied that the applicant creditor has established a liquidated
claim entitling him to apply in terms of section 9(1) for the sequestration of the debtor's estate, that the
debtor has committed an act of insolvency or is insolvent, and that there is reason to believe that the
sequestration of the estate would be to the advantage of the debtor's creditors.
Explain the concept "liquidated claim" and state three examples of such
a claim
A liquidated claim is a claim for money, the amount of which is fixed by agreement, judgment, or
otherwise.
The examples of such a claim given by Hockly include the following: a claim for the price of goods sold
and delivered; a claim based on judgment for provisional sentence; and a claim for the return of the price
paid under a sale which has been cancelled because of the seller's repudiation
State which property is covered by the term "disposable property" in
r e l a t i o n to section 8(b) (failure to satisfy a judgment).
"Disposable property" in relation to section 8(b) means property that may be attached and sold in
execution, even if situated in some other locality. It may be immovable, movable, or incorporeal.

It does not include immovable property that has been mortgaged,

unless the applicant for compulsory sequestration is the first mortgagee
A owes R40 000 to B and R30 000 to C, and both debts should have been paid a y e a r a g o .
A's sole asset of any value is a motorcar worth R80 000. A sells it to D for
R50 000. On these facts, determine whether A has committed an act of
i n s o l v e n c y, a n d g i v e r e a s o n s f o r y o u r a n s w e r .
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.
A's sale of the motorcar falls within the definition of a "disposition" in section 2. In the examination of the
e f f e c t of this disposition (not the intention with which it was made) it is relevant that more than one of
A's debts have fallen due and have not been paid. Either B or C would be entitled to apply for the
compulsory sequestration of A's estate, on the ground that the sale of the motorcar to D has prejudiced
them.
The applicant 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 A 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 A has committed an act of insolvency in terms of section 8(c).
C o m p a r e s ec t i o n 8 ( c ) w i t h se c ti o n 8 ( d ) o f t h e I n s o l ve n c y Ac t b y p o i n t i n g
o u t two differences between them.
First, 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 e f f e c t of the debtor's disposition or attempted disposition is important, but
in section 8(d) the i n t e n t i o n of the debtor to prejudice his creditors or to prefer one of them above
another is important

C publishes a notice of surrender of his estate. The statement of affairs

w h i c h he lodges with the Master does not state that one of his creditors, Mr
D , h a s a c l a i m f o r R 3 0 0 0 0 . Ad v i s e C o n t h e i m p l i c a t i o n s o f t h e s e f a c t s .

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 C's
creditors in deciding whether to oppose C's application for voluntary surrender.
It follows that C has committed an act of insolvency.