Insolvency law

Question 1

What are the rules applicable to movable goods in terms of an instalment agreement?

Answer 1

Sec 84 ISA: When the estate of the buyer is sequestrated, the seller automatically acquires a hypothec over the res vendita (thing sold), whereby the balance outstanding under the agreement is secured.

Since no one can have a hypothec over his own property, ownership passes from the seller to the insolvent estate (Williams Hunt Ltd v Slomowitz).

Question 2

What effect does the sequestration have on the buyer’s estate?

Answer 2

The seller loses his right of ownership and simultaneously becomes a creditor with a hypothec over the prop.

If required by the seller, the trustee of the buyer’s estate must deliver the res vendita to the seller (so that he can hold it as security for his claim and has rights of a secured creditor to realise his security as prescribed by the Act)

Question 3

What happens to contracts of service when the employer is insolvent?

Answer 3

Sec 38 ISA:
1. The contract is suspended from the date of the liquidation order

2. During such suspension:
   a) the ee is not obliged to render services to the er
   b) the ee is not entitled to receive remuneration/ employment benefits arising from the contract
3. The ee is deemed unemployed and can claim from UIF
4. Ee can also claim compensation for loss suffered by the suspension/ termination of his contract

Sec 41 BCEA (also applicable to ees dismissed based on operational req):
1. Ee whose contract of service terminates due to sec 38 ISA, is entitled to severance pay (1 week remuneration per 1 uninerrupted year worked)
2. Severance pay doesn’t affect ee’s right to any other amount payable according to law
3. If there is a dispute re the ee’s entitlement to severance pay, ee can refer the dispute in writing to:
a) a council (provided the parties fall within the registered scope of that council);
b) the CCMA (if no council has jurisdiction)
c) if the dispute remains unresolved: can refer it to arb

Question 4

What is the test for insolvency?

Answer 4

Do the insolvent’s liabilities, fairly estimated, exceed his assets, fairly valued?

Question 5

When is a person considered insolvent?

Answer 5

When he is unable to pay his debts
OR his liabilities exceed his assets

Question 6

What is a sequestration order?

Answer 6

Formal declaration that a debtor is insolvent

Question 7

What are the 2 types of sequestration orders?

Answer 7

1. Voluntary
2. Compulsory

Question 8

What is the danger of contribution?

Answer 8

If there aren’t enough funds available to coer all the admin expenses/ liquidation costs, the concurrent creditors must contribute pro rate based on their claim.

Think twice before proing a claim!!

Question 9

What documents are required if you want to prove your claim?

Answer 9

1. Resolution
2. Affidavit as proof of the claim
3. Statement of account showing how the claim is made up
4. PoA authortising the creditor’s agent (liquidator) to appear before the Master of the HC at a meeting of creditors to prove a claim

Question 10

What is the procedure to prove a claim?

Answer 10

1. All the docs must be submitted to the liquidator who will submit them to the Master;
2. Master will conduct the 1st and 2nd meeting of creditors;
3. Creditor must ensure that the person nominated in the PoA is present at the meeting of creditors to formally prove the claim;
4. During the 2nd meeting:
   a) liquidator draws his account
   b) submits his account to the Master
   c) Master will inspect it, prep a list of queries or approve and allow liquidator to advertise it
   d) liquidator distributes in terms of the account and pays the dividends to the proved creditors

Question 11

What happens if a spouse is insolvent and married in COP?

Answer 11

The joint estate will be sequestrated

Question 12

What happens if a spouse is insolvent and married out of COP?

Answer 12

Only the estate of the insolvent spouse will be sequestrated (unless the other spouse signed a surety for the insolvent spouse)

Question 13

You are consulted by a lady who is married out of COP. Her husband who is in possession of most of her assets, is sequestrated. Advise her of the effects under the ISA and of possible remedies.

Answer 13

1. Those assets vest in the Master then in the trustee
2. Spouse can release those assets by proving her ownership:
   a) via affidavit or
   b) by HC application

Question 14

What happens to the property of the insolvent spouse?

Answer 14

Ito sec 24 ISA, it will be claimed by the trustee and such property will be deemed to be the insolvent’s and can thus be disposed of to settle claims against the insolvent estate.

Question 15

What can the other spouse do if the trustee of the insolvent’s estate take your property too?

Answer 15

1. Must prove your ownership and claim their release via affidavit and provide proof of acquisition & payment of the property;
2. If the trustee still refuses to release the property to you, you can apply to the HC for an order ordering the trustee to release the prop