Insolvency Flashcards
Define Insolvency
If a person’s liabilities exceed the assets then the person is insolvent. In many cases, however, impending insolvency is evidenced by an inability to meet debts as they fall due.
who gets Sequestrated and who becomes liquidated
An individual’s estate is sequestrated, a company and a close corporation is liquidated.
FORMS OF INSOLVENCY
Voluntary surrender
Compulsory sequestration
‘Friendly’ sequestrations
Requirements for Voluntary surrender
• The debtor’s estate is actually insolvent (i.e. assets < liabilities).
• There is sufficient free residue (i.e. property that is not subject to a right of preference by reason of any special mortgage, legal hypothec, pledge
or right of retention) to pay for the costs of sequestration.
• That sequestration will be to the advantage of creditors, i.e. the debtor must prove an actual advantage for the creditors in that they must
receive a dividend.
Requirements for Compulsory sequestration
- The creditor has established a claim in terms of section 9(1) of the Act. This means that the creditor must have a liquidated claim of not less than R100 or two or more creditors must have an aggregate claim of not less than R200. A creditor is not prevented from making an application if he holds security.
- That the debtor has committed an act of insolvency or is factually insolvent.
- There is reason to believe that sequestration will be to the advantage of creditors. This means that the dividend that must be paid cannot be negligible. In the words of Judge Roper who was the presiding official in Meskin & Co v Friedman “the facts put before the court must satisfy that there is a reasonable prospect – not necessarily a likelihood, but a prospect which is not too remote – that some pecuniary benefit will result to creditors”.
Requirements for ‘Friendly’ sequestrations
• Full details of the claim. • Documentary evidence that the creditor did actually perform in terms of
the agreement (usually a loan), for example, by providing bank
statements, cheques, etc. •
Full details of the debtor’s realisable assets.
• Proof of notice to all creditors and in particular, to creditor(s) who have
already attached the debtor’s property.
• As the ‘friendly sequestrating creditor’ often does not attempt to take
the matter further, i.e. to obtain a final order for sequestration, he must provide an affidavit in which full reasons are set out for the extension of the return day.
• Assignment of an estate.
A debtor commits an act of insolvency:
- Absence from South Africa/dwelling
If he leaves South Africa or remains absent outside of South Africa, or departs from his dwelling, or otherwise absent himself, with the intention of evading or delaying payment of his debts. - Failure to satisfy judgement
If judgement for a sum of money is given by a court against the debtor and if the debtor fails to satisfy the judgement or is unable to point out sufficient disposable assets to satisfy the judgement to the deputy sheriff and messenger of the court in the case of judgements of the High Court and the Magistrates’ Court respectively. - Disposition prejudicing creditors/preferring one creditor
If he makes or attempts to make any disposition of any of his property which has or would have the effect of prejudicing his creditors or of preferring one creditor above another. - Removal of property with intent to prejudice/prefer
If he removes or attempts to remove any of his property with intent to
prejudice his creditors or to prefer one creditor above another. - Offer of arrangement
If he makes or offers to make any arrangement with any of his creditors
for releasing him wholly or partially from his debts. - Failure to apply for surrender
If, in the case of voluntary sequestration, he publishes a notice of surrender, and does not thereafter lodge as required a statement of his affairs with the Master, or lodges a statement which is incorrect or incomplete in any material respect, or fails on the date given in the notice to make application for the acceptance by the court of the surrender of
his estate, i.e. a failure to surrender. - Notice of inability to pay
If he gives notice in writing to any one of his creditors that he is unable
to pay any one of his debts. - Inability to pay debts after notice of transfer of business
If, being a trader, he has given notice of alienation of his business in terms of section 34(1) of the Act, and is thereafter unable to pay all of his debts, i.e. an inability to pay debts after notice of transfer of business.
PROPERTY OF INSOLVENT WHICH DOES NOT FALL INTO INSOLVENT ESTATE
- Necessary wearing apparel, bedding and household furniture, tools and other means of subsistence.
- Remuneration or a salary earned by the insolvent after the sequestration. However, the Master can issue a certificate stating that there is a surplus because surplus forms part of the estate.
- Pension to which the insolvent is entitled.
- Any compensation recovered by the insolvent, before or after sequestration, as a result of defamation or personal injury, for example, injuria.
- Compensation payable to an employee in terms of the Compensation for Occupational Injuries and Diseases Act.
- Benefits payable to a minor.
- Benefits payable in terms of the Unemployment Insurance Fund Act.
- Certain insurance policies are also excluded from belonging to the estate.
- Share in accrual: thus a solvent spouse of an unrehabilitated insolvent where they were married out of community of property with accrual, is entitled to his share in the accrual on the dissolution of the marriage.
- Funds and property held in trust.
- Rights of labour tenants to land or to a right to land in terms of the Land Reform Act.
- Property acquired with money from the above.
Rehabilitation
Automatic rehabilitation
After a period of 10 years from the date of sequestration of an insolvent’s estate, the insolvent will be deemed to be rehabilitated.
Rehabilitation on application to Court
An insolvent may apply to the Court to become rehabilitated before the 10-year period has lapsed,
