LECTURE11 LAWS OF INSOLVENCY Flashcards
THE TRUSTEE’S ACCOUNT:
- LIQUIDATE ASSETE
- PAY SEQUESTRATION COST
3.DISTRIBUTION AVAILABLE PROCEEDS TO CREDITORS
4.PREPARE A TRUSTEES ACCOUNT
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The basic account must consist of following components:
Liquidation Acc: Shows how the assets of the estate were realized;
Distribution Acc: Shows how the assets were distributed amongst the creditors;
Contribution Acc: to show any contribution that creditors had to pay towards the costs of sequestration.
REHABILITATION:
Rehabilitation refers to the restoration of the insolvent’s status either:
By order of court upon application for rehabilitation; or
Automatically at the expiry of 10 years from date of sequestration (unless opposed by an interested party).
CONSEQUENCES OF REHABILITATION:
Estate of insolvent is sequestrated but person of insolvent is rehabilitated.
Insolvent absolved from all remaining debts.
Restrictions in respect of legal capacity (contract/hold office/litigate) are terminated.
Fresh start financially.
COMPANY LIQUIDATION:
Liquidation is a procedure by which a company’s assets are sold, its debts paid and any residue divided among members according to their rights.
Both solvent and insolvent companies may be liquidated for various reasons.
May be done through the court, by way of application (creditors), or
Voluntarily by either creditors or members of the company. In both instances, a special resolution is needed.
Liquidation by Court (reasons):
Special resolution passed by members at a general meeting;
Premature commencement of business;
Failure to commence or continue with business;
Where public company’s members fall below 7;
Inability of company to pay its creditors.
Voluntary Liquidation:
If company has adopted a special resolution that company should be liquidated.
Members – Only where Co. is able to pay its debts in full;
Creditors – Were Co. is unable to pay its debts
BUSINESS RESCUE:
A Company that’s in financial distress has 2 alternatives to winding up:
Business rescue
Compromise with creditors
Section 128(1)(b) CA of 2008:
proceedings to facilitate the rehabilitation of a Co. that is financially distressed by providing for:
temporary supervision of the Co., management of its affairs, business and property;
a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
the development & implementation, if approved, of a plan to rescue the Co. by restructuring its affairs, business, property, debt, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or,
if that is not possible, a plan that would achieve a better return for the company’s creditors than the payment they would have received if the company had simply been liquidated immediately.
A Company will be in financial distress if it:
Appears to be reasonably unlikely that the Co. will be able to all its debts as they become due & payable within the immediately ensuing 6 months; or
Appears to be reasonably likely that Co. will become insolvent within the ensuing 6 months.
Proceedings may be commenced by;
Voluntary business rescue (resolution adopted by board of directors);or
Compulsory business rescue (application for a court order.
