5) Effects of Insolvency

Question 1

how long do the effects of insolvency last?

Answer 1

until terminated by rehabilitation

Question 2

what are all the effects of insolvency?

Answer 2

1) absolution from debts
2) effect on property
3) effect on solvent spouse
4) personal status and contractual capacity
5) uncompleted contracts
6) winding up

Question 3

how does absolution from debts work?

Answer 3

debtor will be absolved of all debts incurred before sequestration – their creditors cannot sue them personally but must make a claim against the insolvent estate. trustee will distribute the assets.

Question 4

what effect will insolvency have on property of the debtor?

Answer 4

divested of all assets and controlled now by trustee

Question 5

what is the general rule for property which falls into the insolvent estate?

Answer 5

• all property belonging to insolvent at the date of sequestration, AND
• all property acquired during sequestration

Question 6

which property is not included in the insolvent estate?

Answer 6

• remuneration; to the extent that it is needed for reasonable support of insolvent + dependents
• money received from litigation for defamation and personal injury (before or after)
• means of sustenance
• all pensions
• insurance policies taken out at least 3 years before
• any property acquired with the money mentioned above

Question 7

which insurance policies are included?

Answer 7

• life insurance
• health / disability insurance
• funeral cover
• credit life insurance

Question 8

when will assets acquired using insurance proceeds not fall into the insolvent estate?

Answer 8

if acquired within 5 years of the payout date

Question 9

what happens to the insurance policy proceeds if the insolvent dies before rehabilitation?

Answer 9

• the proceeds from policies will not fall into the deceased estate if he is survived by a spouse, parent, child/step-child as long as the policy was taken out at least 3 years before
• life insurance, funeral cover, credit life insurance

Question 10

which section dictates the effect insolvency will have on the solvent spouse?

Answer 10

section 21

Question 11

what effect will insolvency have on the solvent spouse?

Answer 11

(OCOP) the property of the solvent spouse will automatically vest in the insolvent spouse’s trustees hands/estate but certain property will be released back
- do not actually have to be married

Question 12

will the solvent spouse be sequestrated?

Answer 12

NO!

Question 13

why are the solvent spouse’s assets vested in the trustee?

Answer 13

insolvent may move their assets into the solvent spouse’s estate if they know they are heading for sequestration

Question 14

which property MUST be released back to the solvent spouse?

Answer 14

• if owned before marriage / cohabitation
• if acquired under antenuptial contact
• acquired by solvent spouse with own funds during marriage OR gifts received
• property acquired with the proceeds of any of the above property

Question 15

why are certain properties released back to the solvent spouse?

Answer 15

they are items which could not have been transferred in a collusive manner to defraud / deceive creditors

Question 16

what effect will insolvency have on earning a livelihood?

Answer 16

the insolvent can follow basically any profession except the following (without trustee consent):
- carry on the business of a trader who is a general manufacturer/dealer
- be employed in the business of a trader who is a general manufacturer/dealer

Question 17

what is a general dealer?

Answer 17

trader who trades goods of ALL kinds

Question 18

what effect will insolvency have on holding office?

Answer 18

• insolvent CANNOT be a director of a company without court permission
• MAY not continue practicing as an attorney
• WILL not be allowed to continue practicing as an accountant

Question 19

what effect will insolvency have on contractual capacity?

Answer 19

insolvent may enter into a valid contract without the trustee’s approval, except for:
- contracts to dispose of estate property
- contracts to adversely effect the estate

Question 20

what happens if an insolvent enters into a contract which contravenes the Act?

Answer 20

will be voidable at instance of trustee

Question 21

what is an uncompleted contract?

Answer 21

a contract entered into before seq/liq which is incomplete (performance not made / not all obligations discharged at date of seq/liq)

Question 22

which laws can govern uncompleted contracts of insolvents?

Answer 22

Common Law
Statute

Question 23

which specific uncompleted contracts are automatically terminated under common law?

Answer 23

• partnership by insolvency of a partner
• agency contract by insolvency of principal

Question 24

what are the consequences for other uncompleted contracts under common law?

Answer 24

• they generally continue but the trustee cannot be compelled to perform – they decide to abide or repudiate (in reasonable time)
• other party is bound by the decision

Question 25

what if trustee chooses to repudiate an uncompleted contract under common law?

Answer 25

• it will constitute breach and normal remedies apply, except specific performance
• any damages payable will rank as a concurrent claim unless there is security

Question 26

what if trustee chooses to abide by an uncompleted contract under common law?

Answer 26

trustee steps into insolvent’s shoes and other party has a preferent claim for money due under contract

Question 27

uncompleted cash sale of immovable where the purchaser is insolvent?

Answer 27

• governed by statute
• trustee cannot repudiate if it would leave purchaser homeless

Question 28

uncompleted cash sale of immovable where the seller is insolvent?

Answer 28

common law will apply

Question 29

uncompleted cash sale of movable where the purchaser is insolvent?

Answer 29

if insolvent purchaser is insolvent fails to pay for goods delivered when pmt is due, seller can reclaim the property from the estate if, within 10days of delivery, he has given notice to purchaser/trustee of intention to do so. will only get concurrent claim if fails to meet req.

Question 30

uncompleted credit sale of movable where the purchaser is insolvent?

Answer 30

governed by statute

Question 31

uncompleted lease contract where lessee is insolvent?

Answer 31

• same as common law – trustee can abide/repudiate
• if trustee does not notify lessor within 3 months, deemed to terminate contract after period

Question 32

uncompleted lease contract where the lessor is insolvent?

Answer 32

governed by common law “huur gaat voor koop” principle – trustee has no right to repudiate and succeeding lessor is bound to lease agreement. the lease will continue and if the property must be sold, the tenant will remain

Question 33

uncompleted lease contract where the lessor is insolvent and there is a mortgage over the property which pre-dates the lease?

Answer 33

the trustee must first try to sell the property subject to the lease. if he cannot get enough money to pay off mortgage bond, he can evict the lessee and sell the property.

Question 34

uncompleted employment contracts where employer is insolvent?

Answer 34

• contracts will be suspended and they won’t need to work / won’t get paid
• trustee may terminate contracts only after consulting trade unions and employees on measures to save the business. if none – terminate.

Question 35

what can employees claim if their employment contracts are terminated because their employer is insolvent?

Answer 35

• severence (retrenchment pay)
• arrear wages
• leave pay
  (any balance would be a concurrent claim)