7) Realization & Distribution of Assets Flashcards
what is the process of realizing and distributing assets?
1) appointment of the trustee/liquidator
2) meetings of creditors
3) proof of claims
4) different classes of creditors, distribution
how is the trustee/liquidator appointed?
at the first creditors meetings by majority number of creditors and majority in value of claims
who cannot be a trustee/liquidator?
- minor / legally disabled person
- an insolvent or relative
- non-resident
- JP or prev. director thereof
- creditor of the insolvent
what are the requirements for creditors meetings?
- 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
how and why do creditors provide proof of claims?
- 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
what happens once the creditors prove their claims?
- trustee will realize assets
- draw up estate accounts (liq and dist accounts, setting out what each asset realized and who gets paid what)
where are the liq/dist accounts available?
at the office of the Master for creditors to inspect/dispute them
what if realization proceeds are insufficient to cover all costs of seq/liq?
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
what is the order of preference of creditors?
1) preferred (1. secured and 2. preferrent)
2) concurrent
what are preferent creditors entitled to?
are entitled to be paid out of the free residue before concurrent
what is the free residue?
part of the estate remaining after secured creditors are paid. the proceeds of other assets sold are added to this.
what is the ranking of the preferent creditors?
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
what happens if the secured creditor’s property over which they hold security does not cover entire claim?
they can claim balance as concurrent, but may not want to at risk of incurring costs
what is composition?
(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
what is compromise?
(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
who must accept the offer comp?
creditors – 75% in both value and number
how can rehabilitation come about?
- automatically after 10 years
- by application of court before 10yr expiry
what is the section number for rehabilitation?
s127(A)(1)
what must an insolvent do to end insolvency before 10yrs?
- must make an appl. to HC
- court has discretion
when can the debtor end insolvency early?
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)
what are the requirements for a lapse of time?
- 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
what are the requirements for no claims met?
- no claims proven at time of application
- not convicted of fraud
- not prev. seq
who should use the no claims thing for insolvency?
partners where the p/ship estate is insolvent
effects of rehab?
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)
what is business rescue used for?
to prevent a company that is financially distressed from going into liq (to save jobs and company)
what is financially distressed?
- reasonably unlikely that can pay its debts in next 6 months OR
- appears reasonably likely that will be insolvent in next 6 months
what are the effects of business rescue for a company?
- 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
what does the business rescue plan hope to acheive?
restructuring of company debts/affairs/equity in a way that will maximize likelihood of comp. continuing as solvent
how can bus rescue be initiated?
- voluntary
- court order
what happens with voluntary bus rescue?
- board resolution if they believe financially distressed pass with CIPC
- appoint practitioner
- resolution is published to all relevant stakeholders
can business rescue be initiated during liq proceedings?
no, if voluntary
yes, if court order
what can stakeholders do if they oppose the bus rescue?
can apply for court order to set it aside / set aside appointment of practitioner if not happy with her
how is court order bus rescue initiated?
any affected person apply to court and appl. copy must be served on CIPC, comp, affected persons
when MAY court grant bus rescue order?
if satisfied that:
- company is fin. distressed OR
- failed to pay employment amts
- is j/e for financial reasons
- reasonable prospect of rescue
when MAY court grant bus rescue order?
if satisfied that:
- company is fin. distressed
-
when is practitioner elected?
first meeting of creditors
what is the start of the process of bus rescue?
practitioner to investigate comp affairs and see if reasonable prospect of rescue
what if no reasonable prospect of rescue?
inform everyone and apply for liq court order
what if there is reasonable prospect of rescue?
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
who is bound to the plan if adopted?
the company, creditors (even those who didn’t prove claims) and shareholders
when is bus rescue terminated?
- 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)
