4) Insolvency Flashcards
what is insolvency?
a legal status assigned to natural and juristic persons when their L>A or they cannot pay their debts
when does a person become insolvent?
when declared legally insolvent by the HC
what are the aims of the Law of Insolvency?
1) allow creditors to be paid in order of preference
2) maximize assets for distribution among creditors
3) prevents debtor from further diminishing estate
who do the laws of insolvency ultimately aim to benefit?
the creditors (protect or benefit them the most)
who will be sequestrated?
natural persons, partnerships, trusts
who will be liquidated?
JPs
when can insolvency be terminated?
by rehabilitation
what happens to the assets of a person who is sequestrated?
they are divested of all their assets and placed in the hands of the trustee who sells them and distributes the proceeds to creditors
what happens to the assets of a person who is liquidated?
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.
what is concursus creditorum?
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
what are the types of claims creditors can have?
1) secured claim
2) preferent claim
3) concurrent claim
how does a secured claim work?
their is security over the debt that is sold and proceeds are paid to the debtor; balance goes to estate
who is an example of a preferent creditor?
SARS for taxes
what will the concurrent creditors get?
whatever is leftover – cannot later claim the rest of the money they are owed
who can make sequestration orders?
only the High Court
what kind of sequestrations are there?
voluntary and compulsory
what are the effects of insolvency on spouses ICOP?
their entire joint estate will be insolvent and placed in the hands of a trustee
what are the effects of insolvency on partners in a partnership?
all partners must apply for sequestration of their joint estate as well their individual estates
what are the requirements for voluntary sequestration?
(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
does the HC have to grant the seq order?
no, they have discretion and creditors can oppose it
who can apply for compulsory sequestration?
the creditor / group thereof
can compulsory sequestration still occur if debtor is under debt review?
yes, seq =/= debt enforcement
what are the requirements for compulsory sequestration?
(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
what are the acts of insolvency?
- 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
what is s8(g) about?
the notice of inability to pay
includes extension request
excludes dispute of debt
is applying for debt review an act of insolvency?
no
what happens once all req for compulsory seq are met?
- 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
what is friendly sequestration?
when an application for comp sequestration is made by a creditor at the request of the debtor with the cooperation of the debtor
what is friendly sequestration based on?
the s8(g) notice of inability to pay
what are the advantages of friendly sequestration for the debtor?
- 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
how would courts approach a friendly sequestration?
with caution; cannot reject it just because it is friendly
