7) Realization & Distribution of Assets

Question 1

what is the process of realizing and distributing assets?

Answer 1

1) appointment of the trustee/liquidator
2) meetings of creditors
3) proof of claims
4) different classes of creditors, distribution

Question 2

how is the trustee/liquidator appointed?

Answer 2

at the first creditors meetings by majority number of creditors and majority in value of claims

Question 3

who cannot be a trustee/liquidator?

Answer 3

• minor / legally disabled person
• an insolvent or relative
• non-resident
• JP or prev. director thereof
• creditor of the insolvent

Question 4

what are the requirements for creditors meetings?

Answer 4

• first meeting = appointing the trustee/liquidator
• second = for creditors to prove their claims and receive a trustee’s report on the estate / company affairs
• may be more if necessary

Question 5

how and why do creditors provide proof of claims?

Answer 5

• so they can get their money from the estate and so they vote on admin matters
• with an affidavit which sets out facts and nature about the claim

Question 6

what happens once the creditors prove their claims?

Answer 6

• trustee will realize assets
• draw up estate accounts (liq and dist accounts, setting out what each asset realized and who gets paid what)

Question 7

where are the liq/dist accounts available?

Answer 7

at the office of the Master for creditors to inspect/dispute them

Question 8

what if realization proceeds are insufficient to cover all costs of seq/liq?

Answer 8

trustee/liquidator will draw up a plan of contribution which sets out how much each concurrent creditor who has proved a claim will have to contribute

Question 9

what is the order of preference of creditors?

Answer 9

1) preferred (1. secured and 2. preferrent)
2) concurrent

Question 10

what are preferent creditors entitled to?

Answer 10

are entitled to be paid out of the free residue before concurrent

Question 11

what is the free residue?

Answer 11

part of the estate remaining after secured creditors are paid. the proceeds of other assets sold are added to this.

Question 12

what is the ranking of the preferent creditors?

Answer 12

1) death expenses (for insolvent, spouse, child, max R300)
2) seq costs (first Sheriff, then Master, then everyone else)
3) execution costs
4) arrears salaries/retrenchment pay (12000) or leave pay (4000)
5) money ito of statutory provisions
6) SARS
g) claim under GNB

Question 13

what happens if the secured creditor’s property over which they hold security does not cover entire claim?

Answer 13

they can claim balance as concurrent, but may not want to at risk of incurring costs

Question 14

what is composition?

Answer 14

(only NPs)
at anytime after first creditor meeting, insolvent may offer composition to trustee in which they offer to pay all debts in full/part over extended time period

Question 15

what is compromise?

Answer 15

(only JPs)
at anytime after first creditor meeting, insolvent may offer composition to trustee in which they offer to pay all debts in full/part over extended time period

Question 16

who must accept the offer comp?

Answer 16

creditors – 75% in both value and number

Question 17

how can rehabilitation come about?

Answer 17

• automatically after 10 years
• by application of court before 10yr expiry

Question 18

what is the section number for rehabilitation?

Answer 18

s127(A)(1)

Question 19

what must an insolvent do to end insolvency before 10yrs?

Answer 19

• must make an appl. to HC
• court has discretion

Question 20

when can the debtor end insolvency early?

Answer 20

a) composition of no less than 50c in the rand (insolvent must get Master confirmation thereof that concurrent accepted)
b) lapse of time after confirmation of first liq/dist account (12 months after)
c) no claims proven
d) full payment of claims (plan approved by Master)

Question 21

what are the requirements for a lapse of time?

Answer 21

• may not apply less than 4yrs after seq unless Master recommends
• can only apply after 5yrs if convicted of fraud relating to one of his seqs
• if not first seq, 3yrs must pass

Question 22

what are the requirements for no claims met?

Answer 22

• no claims proven at time of application
• not convicted of fraud
• not prev. seq

Question 23

who should use the no claims thing for insolvency?

Answer 23

partners where the p/ship estate is insolvent

Question 24

effects of rehab?

Answer 24

1) end of seq
2) ends debts pre-seq
3) relieves insolvent of legal disability
4) property vested in trustee stays there for creditors benefits, unless composition agreements states otherwise / basis of rehab = no claims)

Question 25

what is business rescue used for?

Answer 25

to prevent a company that is financially distressed from going into liq (to save jobs and company)

Question 26

what is financially distressed?

Answer 26

• reasonably unlikely that can pay its debts in next 6 months OR
• appears reasonably likely that will be insolvent in next 6 months

Question 27

what are the effects of business rescue for a company?

Answer 27

• temporary suspension of company and mgmt/business
• temporary suspension of claims against comp/property
• dev/impl. of a bus rescue plan by practitioners / plan that is better than liq for SH/creditors

Question 28

what does the business rescue plan hope to acheive?

Answer 28

restructuring of company debts/affairs/equity in a way that will maximize likelihood of comp. continuing as solvent

Question 29

how can bus rescue be initiated?

Answer 29

• voluntary
• court order

Question 30

what happens with voluntary bus rescue?

Answer 30

• board resolution if they believe financially distressed pass with CIPC
• appoint practitioner
• resolution is published to all relevant stakeholders

Question 31

can business rescue be initiated during liq proceedings?

Answer 31

no, if voluntary
yes, if court order

Question 32

what can stakeholders do if they oppose the bus rescue?

Answer 32

can apply for court order to set it aside / set aside appointment of practitioner if not happy with her

Question 33

how is court order bus rescue initiated?

Answer 33

any affected person apply to court and appl. copy must be served on CIPC, comp, affected persons

Question 34

when MAY court grant bus rescue order?

Answer 34

if satisfied that:
- company is fin. distressed OR
- failed to pay employment amts
- is j/e for financial reasons
- reasonable prospect of rescue

Question 34

when MAY court grant bus rescue order?

Answer 34

if satisfied that:
- company is fin. distressed
-

Question 35

when is practitioner elected?

Answer 35

first meeting of creditors

Question 36

what is the start of the process of bus rescue?

Answer 36

practitioner to investigate comp affairs and see if reasonable prospect of rescue

Question 37

what if no reasonable prospect of rescue?

Answer 37

inform everyone and apply for liq court order

Question 38

what if there is reasonable prospect of rescue?

Answer 38

they begin with rescue process:
- BRP to meet w empl/creditors to prove claims
- prepare a rescue plan and call a meeting to approve (by 75% value creditors)
- SH, empl can also attend meeting

Question 38

who is bound to the plan if adopted?

Answer 38

the company, creditors (even those who didn’t prove claims) and shareholders

Question 39

when is bus rescue terminated?

Answer 39

• if court converts to liq
• if plan rejected
• plan adopted and BRP files notice of substantial impl. of plan (success)
• no longer fin distressed (success)