Study Unit 1 - Introduction to Insolvency Law Flashcards
What is the meaning / definition of “Insolvency”?
In terms of Section 2 of the Insolvency Act:
- Insolvent is a debtor whose estate is under sequestration & includes “debtor” before sequestration.
- Insolvent estate is an estate under sequestration.
In Everyday Language (common parlance):
* Person unable to pay his debts is only evidence of insolvency.
What is the Legal Test of Insolvency?
Debtor’s liability (fairly estimated) exceed his assets (fairly valued).
When will a person be treated as an insolvent for legal purposes?
Person will only be treated as an insolvent for legal purposes once his estate has been sequestrated by an order of the court.
What is a Sequestration Order?
A Sequestration order is a formal declaration that a debtor is insolvent.
How can an estate be sequestrated?
An estate can be sequestrated by:
- Debtor (voluntary sequestration)
- Creditor (compulsory sequestration)
When will the consequences of the Act apply?
Consequences of the Act will only apply after sequestration order is granted.
Section 26, 29, 30 & 31 make provision for some dispositions to be set aside. Although disposition takes place before sequestration, the relevant sections may only be invoked after the court sequestrated the debtor’s estate.
What is the purposed of a sequestration order?
The purpose of a Sequestration order is to ensure the orderly and fair distribution of a debtor’s assets where his assets are not sufficient to pay all his creditors in full.
When is Concursus creditorum established?
Concursus Creditorum (coming together of creditors) is established once an order of sequestration is granted
What does Concursus creditorum entail?
Concursus creditorum (coming together of creditors) entails that the:
- Interests of the creditors as a group has preference over the interests of individual creditor;
- Creditors who proved a claim have the right to share with other proved creditors in the proceeds of the estate assets.
- Creditor’s right to recover claims by judicial proceedings are replaced by the above right.
When will a court not grant a sequestration order?
The court won’t grant a sequestration order:
- if there is no advantage to the creditors;
- if there is only 1 (one) creditor;
- if the assets are not enough to cover the costs of sequestration
What is the consequences of the sequestration order on the debtor?
The debtor is divested of his estate and can’t burden it with more debts.
What is the meaning of “Estate”?
An Estate is usually conceived as:
- Estate that includes assets & liabilities;
- Estate that consists of liabilities only;
- Joint estate of spouses married in community of property;
- Separate estates of spouses married out of community of property;
- New estate of a debtor whose estate was sequestrated.
What is the meaning of “Debtor”?
A debtor may be:
- natural person;
- partnership;
- deceased person;
- person incapable of managing owner affairs;
- external company that does not fall within the definition of external company (ex: foreign company that has not established a place of business in South Africa;
- entity / association of persons that is not a juristic person (ex: Trust)
In terms of Section 2 of the Act:
* Debtor means a person / partnership / estate of a person / partnership which is a debtor in the usual sense of the word, except a body corporate / company / association of persons which may be placed in liquidation under the law relating to companies.
Thus a Body Corporate established in terms of the Sectional Titles Act is a Body Corporate as defined in the Companies Act and not a debtor for the purposes of the Act.
Which court may adjudicate upon Insolvency matters?
Only the Provincial or Local Division of the High Court may adjudicate upon an Insolvency matter but a Magistrate’s court may preside over prosecutions for criminal offences under the Act, setting aside of voidable dispositions and other matters if the jurisdictional limits are not exceeded.
Which court has jurisdiction over a debtor and his estate?
In terms of Section 149 of the Act a court has jurisdiction over a debtor and his estate if:
- on the date of lodging, the debtor is domiciled or owns / is entitled to property situated within the jurisdiction of the court;
- at any time of the 12 months immediately preceding lodging, the debtor ordinarily resides or carried on business within the jurisdiction of the court.