Law BAcc

Question 1

When will someone become insolvent

Answer 1

Liabilities exceed assets

Question 2

When will insolvency have any legal effect

Answer 2

When liabilities exceed assets, and the debtor is unable to pay debts (cash flow problems) a sequestration order will passed by the high court

Question 3

What is the purpose of sequestration

Answer 3

A formal court order that debtor is insolvent to fairly and orderly distribute the debtors assets amongst meeting of creditors (treat creditors as a whole not individual interests)

Question 4

What is sequested from debtor

Answer 4

The debtors estate including all assets and liabilities

Question 5

What is sequested when marriage in community of property

Answer 5

The common estate of both partners

Question 6

What is sequested in a partnership

Answer 6

The partnerships estate as an entity, as well as the individual partners separate estate

Question 7

Can a company be sequested

Answer 7

No a company is not a jurist in person and is therefor liquidated

Question 8

What court has jurisdiction to hear applications for sequestration

Answer 8

High court

Question 9

What forms of sequestration are available

Answer 9

Voluntary sequestration and compulsory sequestration

Question 10

Who may apply for voluntary sequestration

Answer 10

Debtor/authorized agent (curator bonis)
Deceased: executor of estate
Partnership: all partners
Married in community of property: both partners

Question 11

What are the requirements for voluntary sequestration

Answer 11

1) the estate must be insolvent
- liabilities exceed assets

2) debtor has sufficient costs to cover sequestration costs in free residue

3) sequestration must be to the advantage of the creditors as a whole
- depends on facts of case but normally 20c to the Rand

4) formalities
- notice of surrender published in Government Gazette and local newspapers 14-30 days before application
- Statement of affairs lodged with information on financial position

Question 12

What are the effects of publishing a notice of voluntary surrender

Answer 12

Suspended sale of debtors assets
Master of high court:
-Curators bonis appointed
- appraiser appointed to value assets

Question 13

What would be the advantage of applying for voluntary sequestration if you are a debtor

Answer 13

• creditors cannot contact and harass debtor for payment
• assets will not be taken (ie house/car)
• salary/income not taken
• only have to repay a percentage of the debt

Question 14

What are the requirements for compulsory sequestration

Answer 14

1) creditor has locus standi (R100 Debra due)
2) debtor is insolvent or has committed and act of insolvency
3) sequestration will be to the benefit of the creditors as a whole

Question 15

What are the 8 deeds of insolvency

Answer 15

• evades payment by leaving RSA
• ignores court order to pay
• disposes/attempts to dispose assets to benefit of one creditor
• removes/attempts to remove of property to benefit one creditor
• debtors settles or makes settlement offer
• debtors publishes notice but fails to lodge statement of affairs/statement materially incorrect/fails to apply for voluntary sequestration at date mentioned
• notifies creditor in writing unable to pay debt/portion
• selling business/goodwill/assets not in ordinary course of business

Question 16

How does the requirement of “advantage to creditors” differ from voluntary and compulsory sequestration

Answer 16

In voluntary sequestration the advantage must be around 20c

In compulsory sequestration the advantage can be anything as long as it is more that status quo therefor easier to meet the requirement

Question 17

What assets form part of insolvent estate

Answer 17

All property at date of sequestration and property received during insolvency
All movable and immovable property
Contingent rights
Inheritance during solvency (unless repudiated)

Question 18

Which assets are excluded from insolvent estate

Answer 18

Living necessities (clothing linen furniture)
Remuneration for work after sequestration (limited to required to maintain life/dependents)
Insurance benefits (3yrs prior and assets bought within 5yrs prior)
Pension benefits
Compensation for defamation/personal injury
Marriages out of community of property
Trusts and trust funds

Question 19

What is the effect of sequestration on the contractual capacity of the insolvent

Answer 19

Contractually capacity limited

• may not enter into contracts to dispose of property within estate
• required trustee written consent to enter into contracts that may adversely affect the estate
• only trustee has capacity to enforce contracts
• contracts entered into without capacity are voidable
• protection against bona fide purchasers

Question 20

What is the effect of sequestration on the insolvents capacity to earn a living

Answer 20

Free to follow any profession
Except
- trustee of insolvent estate
-member of parliament
- requires written consent of Trustee to
1) carry of business of general trader or manufacturer
2) employee of general trade/manufacturing
3)director/management of closed corporation

Question 21

What is the effect of sequestration on the contractual capacity of the insolvent

Answer 21

Contractually capacity limited

• may not enter into contracts to dispose of property within estate
• required trustee written consent to enter into contracts that may adversely affect the estate
• only trustee has capacity to enforce contracts
• contracts entered into without capacity are voidable
• protection against bona fide purchasers

Question 22

What is the effect of sequestration on the insolvents capacity to earn a living

Answer 22

Free to follow any profession
Except
- trustee of insolvent estate
-member of parliament
- requires written consent of Trustee to
1) carry of business of general trader or manufacturer
2) employee of general trade/manufacturing
3)director/management of closed corporation