4) Insolvency

Question 1

what is insolvency?

Answer 1

a legal status assigned to natural and juristic persons when their L>A or they cannot pay their debts

Question 2

when does a person become insolvent?

Answer 2

when declared legally insolvent by the HC

Question 3

what are the aims of the Law of Insolvency?

Answer 3

1) allow creditors to be paid in order of preference
2) maximize assets for distribution among creditors
3) prevents debtor from further diminishing estate

Question 4

who do the laws of insolvency ultimately aim to benefit?

Answer 4

the creditors (protect or benefit them the most)

Question 5

who will be sequestrated?

Answer 5

natural persons, partnerships, trusts

Question 6

who will be liquidated?

Answer 6

JPs

Question 7

when can insolvency be terminated?

Answer 7

by rehabilitation

Question 8

what happens to the assets of a person who is sequestrated?

Answer 8

they are divested of all their assets and placed in the hands of the trustee who sells them and distributes the proceeds to creditors

Question 9

what happens to the assets of a person who is liquidated?

Answer 9

their assets are placed in the hands of the liquidator who sells them and distributes the proceeds to creditors. company will thereafter be dissolved and will cease to exist.

Question 10

what is concursus creditorum?

Answer 10

the ranking of every creditor that the debtor has is frozen as at the date of seq/liq and from that date onwards, no creditor may do anything to alter their position

Question 11

what are the types of claims creditors can have?

Answer 11

1) secured claim
2) preferent claim
3) concurrent claim

Question 12

how does a secured claim work?

Answer 12

their is security over the debt that is sold and proceeds are paid to the debtor; balance goes to estate

Question 13

who is an example of a preferent creditor?

Answer 13

SARS for taxes

Question 14

what will the concurrent creditors get?

Answer 14

whatever is leftover – cannot later claim the rest of the money they are owed

Question 15

who can make sequestration orders?

Answer 15

only the High Court

Question 16

what kind of sequestrations are there?

Answer 16

voluntary and compulsory

Question 17

what are the effects of insolvency on spouses ICOP?

Answer 17

their entire joint estate will be insolvent and placed in the hands of a trustee

Question 18

what are the effects of insolvency on partners in a partnership?

Answer 18

all partners must apply for sequestration of their joint estate as well their individual estates

Question 19

what are the requirements for voluntary sequestration?

Answer 19

(ALL)
1) actually insolvent
2) enough realizable assets to cover seq costs (legal costs, proceeds to give creditors)
3) seq will be to adv of creditors
4) if there are creditors whose agreements are governed by the NCA, debtor must prove that insolvency will > debt review to creditors by disclosing to court if they used DR procedures and if they did, get a report from counsellor to say whether they complied with restructuring plan
5) procedural requirements met

Question 20

does the HC have to grant the seq order?

Answer 20

no, they have discretion and creditors can oppose it

Question 21

who can apply for compulsory sequestration?

Answer 21

the creditor / group thereof

Question 22

can compulsory sequestration still occur if debtor is under debt review?

Answer 22

yes, seq =/= debt enforcement

Question 23

what are the requirements for compulsory sequestration?

Answer 23

(ALL)
1) creditors must be entitled to make the application (must have a R100 claim for 1; R200 for 2+)
2) debtor is insolvent (prove L>A) or has committed an act of insolvency
3) must be reason to believe that seq will be adv to creditors
4) all procedural requirements have been met

Question 24

what are the acts of insolvency?

Answer 24

• leaves RSA/home to avoid paying debt
• fails to pay a judgement debt
• attempts/makes a disposal of property which prejudices a creditor
• attempts/removes property with intention to prejudice (hide assets)
• makes offer of arrangement
• fails to timeously do voluntary surrender
• written notice of inability to pay
• unable to pay debts even after publishing notice of business sale

Question 25

what is s8(g) about?

Answer 25

the notice of inability to pay
includes extension request
excludes dispute of debt

Question 26

is applying for debt review an act of insolvency?

Answer 26

no

Question 27

what happens once all req for compulsory seq are met?

Answer 27

• court will grant a provisional order and will have discretion as before
• order will have return date on which objections may be made
• if obj fail / none are made, court MAY make a final order

Question 28

what is friendly sequestration?

Answer 28

when an application for comp sequestration is made by a creditor at the request of the debtor with the cooperation of the debtor

Question 29

what is friendly sequestration based on?

Answer 29

the s8(g) notice of inability to pay

Question 30

what are the advantages of friendly sequestration for the debtor?

Answer 30

• avoids time consuming voluntary procedures
• burden of proof for proving adv. to creditors is lighter
• easier to prove insolvency as you can rely on acts of insolvency

Question 31

how would courts approach a friendly sequestration?

Answer 31

with caution; cannot reject it just because it is friendly