STUDY NOTES FOR INSOLVENCY

Pg 1-7 Introduction to Insolvency Law in South Africa

Meaning of Insolvency:

• Definition: Inability to pay debts or having liabilities exceeding assets.

• Legal Test: Objective evaluation of debtor's liabilities vs. assets (Venter v
Volkskas Ltd 1973).
• Declaration: Occurs when debtor's estate is sequestrated by court order.

Purpose of Sequestration Order:

• Objectives: Orderly asset distribution, assessment of debt coverage,

equitable creditor benefit.
• Effects: Debtor loses control over estate, protection from creditor lawsuits,
chance for rehabilitation (s 129(1)(b)).
• Conditions: Granted if advantageous to creditors, not consuming debtor's
assets.

Meaning of Estate:

• Definition: Debtor's collection of assets & liabilities.

• Types: Individual, joint estate in community of property, trusts (not liquidated
under Companies Act 61 of 1973).

Meaning of Debtor:

• Definition: Person, partnership, deceased person, external company,

entity/association of persons with an estate or debt in ordinary sense.
• Exclusions: Body corporates under Insolvency Act, not liquidated.

Meaning of Creditor:

• Definition: Entities with justifiable claims against insolvent/debtor's estate.

• Inclusions: Individuals, entities, deceased person's estate, external
companies.

Jurisdiction of the Courts:

• Insolvency Matters: Heard in provincial/Local Divisions of High Court.

• Magistrate Court: Handles criminal offenses of insolvency.
• Criteria: Jurisdiction based on debtor's domicile, property, residence, or
business within the court's jurisdiction.
Historical Aspects:

• Roman Law: Evolution from debtor's slavery to estate execution.

• Roman-Dutch Law: Introduction of surrender to creditors (cessio bonorum).
• SA Insolvency Law: Derived from Ordinance of Amsterdam of 1977,
influenced by Roman-Dutch law.

Constitutional Considerations:

• Insolvency Law vs. Rights: Potential conflicts with Bill of Rights provisions.
• Case Law: S 21 declared constitutional (Harksen v Lane NO & others 1998).
S 66(3) partially invalid (De Lange v Smuts NO & others 1998).

The Master:

• Role: Custody of insolvent estate documents, fee collection, powers defined

by legislature.
• Authority: Can be reviewed if errors occur.
• Limitations: Not a judge, cannot issue court orders.

Condonation of Errors & Defects:

• S 157(1): Irregularities or defects don't invalidate unless substantial injustice

occurs.
• Discussion: Understand the impact of s 157(1) on insolvency proceedings,
types of errors & defects condoned, and associated requirements.

Note:

Further Reading: Explore specific cases and legal precedents related to insolvency
law in South Africa for a comprehensive understanding.
 QUESTIONS AND ANSWERS

1. Meaning of Insolvency & Historical Aspects:

Q1: What is the legal test of insolvency according to South African law?
A1: The legal test of insolvency in South Africa is whether the debtor's
liabilities objectively exceed his assets (Venter v Volkskas Ltd 1973).

Q2: How does the historical aspect of Roman law contrast with the approach
in Roman-Dutch law regarding insolvency?
A2: In Roman law, creditors could seize, sell, or even kill a debtor. In Roman-
Dutch law, the debtor was allowed to surrender his estate to creditors through
cessio bonorum.

2. Purpose of Sequestration Order:

Q3: What are the main objectives of a sequestration order in South African
insolvency law?
A3: The main objectives include securing the orderly and equitable distribution
of a debtor's assets, assessing if the debtor's assets cover all debts, ensuring
liquidation and distribution among creditors according to their order of
preference, and relieving the debtor from legal proceedings.

3. Meaning of Estate & Debtor:

Q4: Can a joint estate of spouses married in community of property be

sequestrated?
A4: Yes, a joint estate of spouses married in community of property can be
sequestrated. However, if they divorce after the sequestration order, their
estates will be separately sequestrated.

Q5: Is a body corporate sequestrated for non-payment of debts due to its

insolvency under the Insolvency Act in South Africa?
A5: No, a body corporate as defined under the Insolvency Act cannot be
sequestrated or wound up for non-payment of debts due to its insolvency
(Reddy v Board Corporate of Croftdene Mall 2002).

4. Jurisdiction of the Courts:

Q6: Which courts in South Africa have jurisdiction over insolvency matters,
and under what conditions?
A6: Only provincial or Local Divisions of the High Court have jurisdiction over
insolvency matters. Criteria include debtor's domicile, property ownership,
residence, or business within the court's jurisdiction.
5. Constitutional Considerations:

Q7: How does South Africa's constitution impact insolvency law, specifically
regarding fundamental rights?
A7: Insolvency law may pose conflicts with certain provisions of the Bill of
Rights, such as the right to equality, freedom and security of person, privacy,
access to information, property, and administrative action. However, not all
conflicts render an insolvency provision unconstitutional.

6. The Master & Condonation of Errors:

Q8: What powers does the Master have in insolvency matters, and can their
decisions be reviewed?
A8: The Master exercises custody of insolvency documents, charges fees,
and acts within the powers defined by the legislature. Any aggrieved party can
apply for a review if the Master's decisions infringe upon their legal rights (s
151).

Q9: Explain the application and significance of section 157(1) in South Africa's
Insolvency Act.
A9: Section 157(1) states that irregularities or defects under the Insolvency
Act are not invalid unless substantial injustice occurs, which cannot be
remedied by a court. This provision protects against minor errors causing
undue harm in insolvency proceedings.
Pg 8-15 Voluntary Surrender in South African Insolvency Law

Definition and Applicants:

Voluntary Surrender: Occurs when a debtor applies to a court to surrender their
estate voluntarily.
Applicants:
• Natural person (debtor or authorized agent)
• Executor (deceased debtor's estate)
• Curator bonis (prodigal's estate)
• Members of a partnership
• Spouses married in community of property

Requirements for Approval:

• Conditions for Approval:

- Debtor's estate must be insolvent.
- Debtor must own property of sufficient value to cover sequestration
costs.
- Sequestration must be advantageous for creditors.

Formalities and Notices:

• Notice of Intention to Surrender:

- Published in Government Gazette and local newspaper.
- Includes debtor's details, acceptance date, and court information.
• Notice to Creditors:
- Debtor provides copies to creditors and interested parties.
- Specific requirements for notice to trade unions, employees, and
SARS.
• Statement of Affairs:
- Prepared according to Form B, detailing assets, liabilities, debts, and
financial history.
- Affirmed by affidavit as correct and complete.

Insolvency Assessment and Free Residue:

• Insolvency Verification:
- Courts refer to debtor's statement of affairs to verify insolvency.
- Debtor must have more liabilities than assets.
• Free Residue:
- Portion of estate not subject to specific obligations.
- Used to cover administration and sequestration costs.
Effects of Voluntary Surrender:

• Stay of Sales in Execution: Prohibits sale of property attached by sheriff

after notice publication (exceptions for low-value property).
• Appointment of Curator Bonis: Master may appoint curator bonis to control
debtor's estate.
• Potential Compulsory Sequestration: Failure to comply may lead to
creditor-driven compulsory sequestration.
• No Withdrawal Without Consent: Notice cannot be withdrawn without
Master's consent and public announcement.
• Court Discretion and Costs:
• Court Discretion: Courts can reject voluntary surrender if debtor acts in bad
faith, displays negligence, or if sequestration isn't advantageous for creditors.
• Costs: Sequestration and surrender costs are paid from debtor's estate.
Unsuccessful creditor's opposition costs are paid by the opposing creditor.

Setting Aside Sequestration Order and Constitutional

Considerations:

• Setting Aside Order: Courts can cancel or vary previous orders if the initial
application was defective or other valid reasons exist.
• Constitutional Considerations: Certain provisions impacting debtor's
freedom and security were declared invalid, balancing creditor rights and
debtor protections.

Conclusion and Ethical Questions:

• Fairness and Imprisonment: Imprisonment provisions were invalidated,

ensuring debtors' rights but raising ethical questions about fairness in creditor-
debtor relationships.
• Criminal Activities and Insolvency: Debtors can face imprisonment for
activities related to insolvency, posing ethical dilemmas about the
criminalization of debt-related issues.

Note: It's essential to critically analyze the ethical implications and fairness of legal
provisions in the context of insolvency laws
 QUESTIONS AND ANSWERS

Question 1: What is voluntary surrender in the context of South African

insolvency law? Provide examples of applicants who can apply for voluntary
surrender.

Answer: Voluntary surrender occurs when a debtor willingly applies to a court to

surrender their estate. Applicants for voluntary surrender can include natural persons
(either the debtor or an authorized agent), executors (in the case of a deceased
debtor's estate), curators bonis (for a prodigal's estate), members of a partnership,
and spouses married in community of property.

Question 2: Explain the requirements that a debtor must fulfill for a court to
approve their voluntary surrender application.

Answer: To obtain court approval for voluntary surrender, the debtor must
demonstrate that their estate is insolvent, own property of sufficient value to cover
sequestration costs, and prove that sequestration is advantageous for creditors. The
debtor's application must meet these criteria for approval.

Question 3: Describe the formalities involved in the voluntary surrender

process, including the publication of notices and preparation of the statement
of affairs.

Answer: The debtor must publish a notice of intention to surrender in the

Government Gazette and a local newspaper. Within seven days of this publication,
the debtor must provide copies of the notice to creditors and other concerned
parties. Additionally, the debtor needs to prepare a comprehensive statement of
affairs, detailing assets, liabilities, debts, and financial history, which is then affirmed
by affidavit.

Question 4: What role does the concept of 'free residue' play in voluntary
surrender? How is it calculated, and why is it important in the insolvency
process?

Answer: Free residue refers to the portion of the debtor's estate not encumbered by
specific obligations. It is vital as it covers administration and sequestration costs. It is
calculated by deducting the costs from the total estate value. Goods bought by the
debtor on installments may fall under free residue if their market value exceeds the
outstanding balances.

Question 5: Discuss the discretionary powers of the courts in accepting or

rejecting voluntary surrender applications. What factors might lead to the
rejection of such an application?

Answer: Courts have the discretion to reject voluntary surrender applications under
certain circumstances. Factors such as gross negligence, lack of pressing creditors,
ulterior motives, incomplete or defective application papers, and cases that can be
dealt with under other laws might lead to rejection. The court assesses the
genuineness and validity of the application before making a decision.
Question 6: Explain the effects of a successful notice of voluntary surrender,
including the stay of sales in execution, potential compulsory sequestration,
and the appointment of a curator bonis.

Answer: A successful notice of voluntary surrender prohibits the sale of attached

property unless the property's value is below a certain threshold. It may lead to the
appointment of a curator bonis to oversee the debtor's estate. Failure to comply with
the requirements might result in creditor-driven compulsory sequestration, allowing
creditors to force the debtor into insolvency.

Question 7: How does the South African constitution influence insolvency

laws, particularly in cases where debtors' rights conflict with creditors'
claims? Provide examples of constitutional considerations in insolvency law.

Answer: The South African constitution plays a significant role in shaping insolvency
laws, ensuring a balance between debtors' rights and creditors' claims. Provisions
related to freedom and security have influenced the invalidation of certain
imprisonment provisions (such as those in sections 65A to 65M of the Magistrates
Courts Act) when applied to judgment debtors. Constitutional considerations ensure
fairness and ethical treatment in insolvency proceedings.

Question 8: Discuss the ethical implications of imprisonment related to

insolvency. Should debtors face imprisonment for financial obligations?
Provide arguments for and against this practice.

Answer: Imprisonment related to insolvency raises ethical dilemmas. Arguments in

favor cite the need for debtor accountability and fulfilling financial obligations.
However, opponents argue that imprisonment exacerbates financial hardship,
particularly for vulnerable individuals. They advocate for alternative measures, such
as debt counseling and restructuring, to address debt-related issues without
resorting to imprisonment.

Question 9: Analyze the impact of voluntary surrender on both debtors and

creditors. How does this process balance the rights of both parties?

Answer: Voluntary surrender impacts debtors by providing a structured approach to

managing insolvency and potential debt relief. For creditors, it ensures an orderly
distribution of assets. The process balances debtors' rights to financial rehabilitation
with creditors' rights to recover debts. However, it requires careful assessment to
prevent abuse and ensure fairness to all parties involved.
Question 10: Considering the legal framework and constitutional context,
propose reforms or improvements that can enhance the fairness and
effectiveness of voluntary surrender processes in South African insolvency
law. Justify your recommendations.

Answer: Reforms could include stricter criteria for voluntary surrender to prevent
abuse, standardized procedures for evaluating applications, and enhanced debtor
education. Additionally, exploring non-punitive approaches, such as debt
restructuring and counseling, can provide viable alternatives to imprisonment. These
reforms aim to maintain a balance between debtor rehabilitation and creditor rights
while upholding ethical principles and fairness.
Pg 17-27 Compulsory Sequestration & Friendly Sequestration

Compulsory Sequestration:

• Definition: Compulsory sequestration involves the court-ordered

liquidation of a debtor's estate due to insolvency, instigated by one or
more creditors.
• Requirements for Compulsory Sequestration:
- The applicant must have a claim justifying the sequestration.
- The debtor must have committed an act of insolvency or be
insolvent.
- There must be a reason to believe that sequestration benefits the
creditors.
• Acts of Insolvency:
- Failure to satisfy a court judgment.
- Absence from the Republic or dwelling to evade debts.
- Failure to apply for surrender or providing incomplete information.
- Disposition prejudicing creditors or preferring one creditor.
- Removal of property with the intention to prejudice or prefer.
- Offer of arrangement to release the debtor from debts.
- Notice of inability to pay debts.
- Inability to pay debts after the notice of transfer of business.
• Formalities for Application:
- Application by notice of motion and supporting affidavit.
- Affidavit must contain debtor’s details, nature of the claim, and
acts of insolvency.
- Application papers filed in a court of competent jurisdiction.
- Security for costs must be provided.
- Papers must be served on the debtor, interested parties, trade
unions, employees, and SARS.
• Provisional Sequestration:
- Interim order granted by the court based on prima facie proof.
- Provisional order necessary before a final sequestration order.
- Involves notice of motion, Master’s confirmation of security,
affidavit of search, and Master’s report.
- Rule nisi served to debtor and interested parties.
• Final Sequestration:
- Court requires sheriff’s return of service, opposing affidavits,
applicant’s reply, and provisional trustee’s affidavit.
- Court’s discretion in granting the final order, considering acts of
insolvency and applicant’s proof.
Friendly Sequestration:

• Definition: Friendly sequestration occurs when a debtor willingly

agrees to sequestration in collaboration with an amicable creditor.
• Verification Process:
- Locus standi of the creditor is verified.
- Explanation for lack of security in unsecured loans is required.
- Documentary evidence supporting the debt.
- Details of debtor’s realisable assets are essential.
- Affidavit explaining the need for extending the return date of rule
nisi.
- Prior notice to other creditors if debtor’s property is attached.
• Potential Issues:
- Risk of malpractice and collusion between creditor and debtor.
- Possibility of abuse to evade civil proceedings or release the
debtor from debts.
• Courts’ Role: Courts play a crucial role in ensuring the legitimacy of
friendly sequestration by thoroughly examining creditor's claims and
debtor's assets, preventing abuse and ensuring fairness in the process.

These notes provide a comprehensive overview of the processes involved in

compulsory and friendly sequestration, emphasizing the legal requirements
and the careful considerations necessary to avoid abuse and ensure fairness
in insolvency proceedings.
 QUESTIONS AND ANSWERS

Question 1:
Explain the concept of compulsory sequestration in detail. What are the key
requirements that need to be met for a creditor to apply for compulsory
sequestration?
Answer 1:
Compulsory sequestration refers to the court-ordered process of liquidating a
debtor's estate due to insolvency. Creditors can apply for compulsory sequestration
if they establish a valid claim, prove the debtor's act of insolvency or insolvency, and
demonstrate that sequestration is advantageous to the creditors. The applicant must
provide clear evidence of the debt, the debtor's acts of insolvency, and the potential
benefit to creditors.

Question 2:
Enumerate the acts of insolvency that can lead to compulsory sequestration. Provide
examples and explain the significance of each act in the sequestration process.
Answer 2:
Acts of insolvency include failure to satisfy a court judgment, absence from the
country or dwelling with the intent to evade debts, failure to apply for surrender
properly, disposition prejudicing creditors, removal of property with the intent to
prejudice or prefer, offer of arrangement to release the debtor from debts, notice of
inability to pay debts, and inability to pay debts after the notice of transfer of
business. Each act signifies the debtor's financial instability and can be grounds for
compulsory sequestration.

Question 3:
Describe the formalities involved in the application for compulsory sequestration.
What documents are required, and how does the process unfold in a court of law?
Answer 3:
The application for compulsory sequestration involves a notice of motion and a
supporting affidavit. The affidavit must contain the debtor's details, nature of the
claim, and acts of insolvency. The papers are filed in a court of competent
jurisdiction. Security for costs must be provided, and the papers are served on the
debtor, interested parties, trade unions, employees, and SARS. The court carefully
examines these documents to determine the legitimacy of the application.

Question 4:
Explain the concept of provisional sequestration. What is the purpose of a
provisional sequestration order, and what documents are necessary for its issuance?
Answer 4:
Provisional sequestration is an interim court order granted based on prima facie
proof of the debtor's insolvency. It serves to preserve the debtor's estate and
establish the creditor's claim. The necessary documents for provisional
sequestration include a notice of motion, Master’s confirmation of security, affidavit
of search, Master’s report, and the rule nisi served on the debtor and interested
parties. A provisional sequestration order is a preliminary step before obtaining a
final sequestration order.

Question 5:
Discuss the concept of friendly sequestration. What precautions should the court
take to ensure the legitimacy of friendly sequestration agreements?
Answer 5:
Friendly sequestration occurs when a debtor willingly agrees to sequestration with an
amicable creditor. Courts must verify the creditor's locus standi, the validity of the
debt, details of debtor’s realisable assets, and ensure prior notice to other creditors if
the debtor’s property is attached. This verification process is essential to prevent
malpractice, collusion, or abuse of the sequestration process for illegitimate
purposes. The court plays a crucial role in ensuring fairness and preventing abuse in
friendly sequestration cases.
Pg 29-36 Effects of the sequestration order

I. Effects on Legal Rights and Obligations of the Insolvent:

1. Ownership of Property:
- All property acquired by the insolvent belongs to the estate.

2. Validity of Contracts:
- Contracts entered by an insolvent are valid unless meant to dispose of
assets without trustee consent.

3. Restrictions on Business and Employment:

- Insolvent can’t engage in general trading or manufacturing without
trustee consent.
- Detailed records of assets and disbursements must be maintained.

4. Income and Assets:

- Trustee entitled to insolvent's professional earnings, apart from
pension and compensatory damages.

5. Legal Proceedings:
- Insolvent may be sued in own name.
- Liability for delicts committed during sequestration.
- Property claimable by trustee can be taken from insolvent's estate.

6. Contractual Restrictions:
- Certain contracts voidable without trustee consent.
- Unprohibited contracts valid; trustee consent not needed.
- Third parties protected if unaware of insolvency.

7. Rights After Sequestration:

- Insolvent can alienate property acquired after sequestration with
trustee consent.
- Sequestration imposes restrictions on capacity to conclude contracts.

8. Prohibited Contracts:
- Insolvent cannot dispose of estate property without trustee consent.
- Contracts affecting estate need trustee consent.
- Contracts voidable if without trustee consent.

9. Suspended Contracts:
- Employment contracts suspended during sequestration.
II. Effects on Insolvent's Contracts:

1. Completed Contracts:
- Rights to unfulfilled performance considered asset in estate.
- Insurance indemnity rights transfer to third parties.

2. Uncompleted Contracts:
- Contracts continue but trustee can choose to uphold or repudiate.
- Trustee's election must be made within specific time frames.

3. Contracts Unaffected by Sequestration:

- Lease of immovable property cannot be repudiated.
- Certain sales agreements continue despite insolvency.

4. Protection for Solvent Party:

- Clauses protecting solvent party’s interests in contracts

5. Legal Proceedings Initiated Before Insolvency:

- Criminal proceedings unaffected.
- Civil proceedings suspended until trustee appointed.
- Execution of judgments stayed upon sequestration order.

Note: Specific sections of the law (e.g., s 23, s 24) and relevant case laws (e.g.,
Spencer v Standard Building Society) are important for detailed understanding and
legal context in these matters.
 QUESTIONS AND ANSWERS

Q1: What are the key legal rights and obligations of an insolvent individual
after a sequestration order is issued?
Answer: After a sequestration order, all property acquired by the insolvent becomes
part of the estate. Contracts entered into by the insolvent are generally valid unless
meant to dispose of assets without trustee consent. The insolvent is restricted from
engaging in certain businesses without trustee approval. Detailed records of assets
and disbursements must be maintained, and the trustee is entitled to the insolvent’s
professional earnings. The insolvent can be sued in their own name, but they are
also liable for delicts committed during the sequestration process.

Q2: Explain the implications of the sequestration order on the insolvent's

contracts.
Answer: The sequestration order affects both completed and uncompleted contracts.
For completed contracts where the insolvent has fulfilled their part but the other
party’s performance is outstanding, the right to that performance is considered an
asset in the insolvent's estate. Uncompleted contracts continue, but the trustee can
choose to uphold or repudiate them within specific time frames. Certain contracts,
such as leases of immovable property, cannot be repudiated. Clauses protecting the
interests of the solvent party in contracts are also recognized.

Q3: How does the sequestration order impact the employment contracts of the
insolvent?
Answer: Sequestration of the employer's estate suspends employment contracts
between the employer and employees. During suspension, employees are not
required to render services or receive a salary. They may claim damages for any
loss suffered during this period. No employment benefits accrue to the employees
during the suspension.

Q4: What legal protections exist for third parties who unknowingly enter into
contracts with the insolvent?
Answer: Section 24(1) provides protection to third parties who unknowingly contract
with the insolvent. However, the burden of proof lies with the third party to
demonstrate that they were unaware of the insolvent's status. If a third-party claims
that a contract entered into with the insolvent was invalid, they must prove their
allegations.

Q5: Can an insolvent individual sue or be sued during the sequestration

process?
Answer: Yes, the insolvent can sue or be sued in their own name on matters related
to their status, claims for compensation, pensions, compensatory damages, and
delicts committed by the insolvent. However, all legal proceedings against the
insolvent are stayed until a trustee is appointed.

Q6: What are the trustee’s powers regarding contracts made by the insolvent
without consent during sequestration?
Answer: If a contract is concluded by the insolvent without the trustee’s consent, the
trustee has the option to set aside the contract. In such cases, the trustee can
recover the performance rendered by the insolvent and must restore the benefits to
the affected third parties.

Q7: Explain the trustee’s role in determining the fate of contracts during
sequestration.
Answer: The trustee has the power to elect whether to uphold or repudiate contracts
made by the insolvent. Once the trustee makes an election, it is binding, and the
trustee cannot later change their decision. Failure to make a timely election can
allow the other party to apply for a cancellation order in court and sue the insolvent's
estate for non-fulfilment of performance.

Q8: How does the sequestration order impact the insolvent’s ability to hold
certain offices or positions?
Answer: An un-rehabilitated insolvent is disqualified from holding various offices,
including trustee of an insolvent estate, member of parliament, director of a
company, or a business rescue practitioner. Permission from the court is required for
such appointments.

Q9: What happens to legal proceedings that were initiated before the
insolvency process began?
Answer: Criminal proceedings are not affected by sequestration. Civil proceedings
initiated by or against the insolvent in their own name are stayed until a trustee is
appointed. If a party wishes to continue with stayed proceedings against the
insolvent's estate, they must notify the trustee or Master within three weeks.
Execution of judgments against the insolvent is stayed upon the issuance of a
sequestration order. **

Q10: Can the trustee repudiate any type of contract made by the insolvent
during the sequestration process?
Answer: No, certain contracts, such as leases of immovable property and sales of
land or goods on instalments, cannot be repudiated by the trustee. Additionally,
contracts involving informal markets and transactions on exchanges may terminate,
but the trustee's powers are limited in such cases.
Pg 38-45 Effects of the sequestration order

I. Effects on the Assets of the Insolvent:

1. Attachment of Property: A registrar can deliver the sequestration order to

the sheriff to attach the debtor/insolvent's property (s 17).
2. Appointment of Trustee: A trustee or provisional trustee can be appointed to
take control of the debtor's estate (s 18, 18A, 18B).
3. Divestment of Estate: The debtor is divested from their estate, which is
vested in the Master and later in the trustee (s 20(1)(a), s 54(5)).
4. Management of Assets: The trustee manages, collects, realizes, and
distributes the assets to creditors.
5. Duration of Vesting: Assets remain vested with the trustee until discharge of
the sequestration order, acceptance of a composition offer, or rehabilitation of
the debtor.
6. Effect on Civil Proceedings: Civil proceedings instituted by or against the
debtor may stay until a trustee is appointed (s 23).
7. Protection of Certain Assets: Certain assets like pensions, compensation
for personal injury, and unemployment insurance benefits are protected and
do not form part of the insolvent's estate.

II. Effects on the Assets of the Insolvent's Spouse:

1. Vesting of Solvent Spouse's Estate: The estate of the solvent spouse may
vest in the Master until a trustee is appointed if they were not separated at the
time of the insolvent's sequestration (s 21).
2. Release of Solvent Spouse's Assets: The trustee may release specific
assets of the solvent spouse if they can prove ownership, e.g., assets owned
before marriage, under a marriage settlement, or acquired with valid title
during the marriage.
3. Protection from Prejudice: The court may postpone the vesting if it would
prejudice the solvent spouse, and conditional postponement can be granted if
arrangements are made to protect the insolvent's estate.
4. Rights of Creditors: Solvent spouse creditors who prove their claims share
proceeds with other insolvent spouse's creditors.
5. Sequestration of Solvent Spouse's Estate: The solvent spouse's estate
can be sequestrated if they commit an act of insolvency after the insolvent's
estate is sequestrated.

III. Exclusions from Insolvent's Estate:

1. Excluded Assets: Certain assets like wearing apparel, remuneration,

pensions, compensation for defamation or personal injury, and trust property
do not form part of the insolvent's estate.
2. Protection of Specific Rights: Rights such as share accrual, certain
insurance policies, and benefits payable to minors are excluded from the
insolvent's estate.
IV. Disposal of Estate Property:

1. Limitation on Disposal: The insolvent cannot dispose of estate assets.

2. Recovery of Proceeds: If disposed unlawfully, the trustee can recover the
proceeds from the insolvent or persons who acquired assets knowingly or
without giving sufficient value in return.

V. Rights and Procedures of Solvent Spouse:

1. Lodging Statement of Affairs: Solvent spouse must lodge a statement of

affairs with the Master within seven days.
2. Release of Property: Solvent spouse can apply for the release of their
property, proving its nature and title.
3. Effect of Release: Property release by the trustee does not debar them from
proving later that it belongs to the insolvent estate.
4. Court Intervention: The court may interdict the solvent spouse from selling
property or set aside transactions related to the acquired property.

VI. Rights of Creditors and Sequestration of Solvent

Spouse's Estate:

1. Creditor's Rights: Creditors can prove claims against the insolvent estate
and share in the proceeds of the solvent spouse's property.
2. Sequestration of Solvent Spouse's Estate: If solvent spouse commits an
act of insolvency, their estate can be sequestrated.

VII. Additional Considerations:

1. Insolvency Act: The Insolvency Act regulates insolvency law in South Africa.
2. Parties Involved: Spouses include legally married couples, common-law
partners, and same-sex couples.
3. Postponement of Vesting: Court can postpone vesting if it prejudices the
solvent spouse, with conditional postponement if protective arrangements are
made.

These notes provide an overview of the effects of a sequestration order on the

assets of the insolvent and their spouse, outlining the rights and limitations of each
party involved. Understanding these aspects is crucial in navigating the complexities
of insolvency laws in South Africa.
 QUESTIONS AND ANSWERS

Question 1:
Explain the process of attachment of property under a sequestration order and its
significance for managing an insolvent's estate.
Answer 1:
Under a sequestration order, a registrar can deliver the order to the sheriff for
attaching the debtor/insolvent's property. This process is crucial because it enables
the orderly management of the insolvent's assets. Once attached, the assets are
placed under the control of a trustee, who manages, collects, realizes, and
distributes them to creditors, ensuring a fair and equitable distribution of resources
among the creditors.

Question 2:
What criteria must be met for a solvent spouse's assets to be released under the
Insolvency Act? Explain the implications of this release for both the solvent spouse
and the trustee.
Answer 2:
For a solvent spouse's assets to be released, they must prove ownership, such as
assets owned before marriage, under a marriage settlement, or acquired with valid
title during the marriage. When the trustee releases these assets, it means they are
not part of the insolvent's estate. This benefits the solvent spouse, allowing them to
retain their rightful property. However, the trustee retains the right to challenge the
release later, especially if new evidence arises suggesting the assets should be part
of the insolvent's estate.

Question 3:
Describe the types of assets that are excluded from the insolvent's estate according
to the South African Insolvency Act. Provide examples of such assets and explain
the rationale behind these exclusions.
Answer 3:
Several types of assets are excluded from the insolvent's estate. These include, but
are not limited to, wearing apparel, remuneration, pensions, compensation for
defamation or personal injury, certain insurance policies, benefits payable to minors,
and trust property. The rationale behind these exclusions is to ensure that essential
items, personal income, and specific legal rights remain protected even during
insolvency. This protection helps maintain the dignity of the insolvent individual and
prevents undue hardship during the insolvency process.

Question 4:
Discuss the role of the court in postponing the vesting of assets in the case of a
solvent spouse. Under what circumstances can the court postpone the vesting, and
what factors does it consider in making such decisions?
Answer 4:
The court can postpone the vesting of assets if it believes that immediate vesting
would prejudice the solvent spouse. Conditional postponement can also be granted if
the court is satisfied that the solvent spouse will make arrangements to protect the
insolvent's estate. Factors considered by the court include the potential prejudice to
the solvent spouse, the likelihood of protective measures being implemented, and
ensuring fairness in the distribution of assets. The court's decision aims to balance
the rights of the solvent spouse with the interests of the creditors and the overall
integrity of the insolvency process.

Question 5:
Explain the trustee's rights and limitations concerning the disposal of estate property.
How does the trustee recover proceeds if the insolvent disposes of property
unlawfully?
Answer 5:
The trustee has the right to prevent the insolvent from disposing of estate assets. If
the insolvent disposes of property unlawfully, the trustee can recover the proceeds.
This recovery can be made from the insolvent, the person who knowingly acquired
the assets from the insolvent's estate, or even from the person who unknowingly
acquired the assets without giving sufficient value in return. The trustee's ability to
recover proceeds ensures that assets are not dissipated fraudulently, maintaining
the integrity of the insolvency proceedings
Pg 47-53 Effects of sequestration order on impeachable dispositions

Definition of Disposition:
- Disposition refers to any transfer or abandonment of rights to property and
includes sales, leases, mortgages, deliveries, payments, releases,
compromises, donations, or any other contracts. It does not include
dispositions in compliance with a court order.
- Property encompasses both movable and immovable assets in South Africa,
including contingent interests, and extends to foreign assets, indicating the
extra-territorial application of insolvency laws.

Types of Dispositions Subject to Set-Aside:

1. Not for Value:
- Dispositions made without receiving any value can be set aside under Section
26(1).
- Payment of a lawful debt is not considered payment without value since it
involves a counter-value of discharge.
2. Voidable Preference (Section 29):
- Dispositions made within 6 months of sequestration, preferring one creditor,
can be set aside.
- Objective test: Mere effect of preferring one creditor is sufficient.
- Claims proved against the estate serve as prima facie proof of the insolvent's
liabilities at the date of sequestration and immediately after the disposition.
3. Undue Preference (Section 30):
- Dispositions made with the intent to prefer one creditor over others can be set
aside.
- Subjective test: Intent to prefer one creditor must be established.
- Factors considered include the main purpose of the disposition, contemplation
of insolvency, the insolvent's ability to exercise free choice, and any existing
relationships between the insolvent and the creditor.
4. Collusion (Section 31):
- Dispositions made in collusion with another party to prejudice creditors or
prefer one creditor can be set aside.
- Collusion refers to an agreement made with fraudulent intent between the
insolvent and another person.
5. Fraudulent Dispositions (Actio Pauliana):
- Dispositions can be set aside if they are intended to defraud creditors.
- Elements to prove include the diminishment of the debtor's or insolvent's
assets, the recipient not receiving their own assets, intention to defraud, and
actual occurrence of fraud.
Exceptions and Defenses:

• Certain dispositions are exempt from being set aside, such as settlements in
antenuptial contracts and dispositions made in the ordinary course of
business.
• Dispositions made in the ordinary course of business must meet specific
criteria, including being lawful and conforming to normal business methods.
• A beneficiary of a voidable preference may have a defense if the disposition
was made in the ordinary course of business and not intended to prefer one
creditor over others.

Conclusion:
Understanding the complexities of impeachable dispositions under a sequestration
order is crucial for trustees and creditors alike. Knowledge of the conditions under
which different types of dispositions can be set aside or exempted ensures a fair and
just distribution of assets during insolvency proceedings.
 QUESTIONS AND ANSWERS
Question 1:
Explain the concept of "impeachable dispositions" in the context of insolvency law.
Provide examples of dispositions that can be set aside under the South African
insolvency laws.
Answer 1:
Impeachable dispositions refer to certain transactions or transfers of assets made by
an insolvent individual that can be challenged or set aside under insolvency laws. In
South Africa, these dispositions include those made without receiving any value
(Section 26), voidable preferences (Section 29), undue preferences (Section 30),
collusive dispositions (Section 31), and fraudulent dispositions (Actio Pauliana). For
example, a disposition made by an insolvent person to prefer one creditor over
others within six months of sequestration can be set aside under Section 29.

Question 2:
What criteria must be met for a disposition to be considered a voidable preference
under South African insolvency laws? How does the court determine whether a
disposition qualifies as a voidable preference?
Answer 2:
A voidable preference, under Section 29 of South African insolvency laws, involves a
disposition made within six months of sequestration that prefers one creditor over
others. To qualify as a voidable preference, the disposition must:
• Be made by the insolvent.
• Have the effect of preferring one creditor above others.
• Occur when the insolvent's liabilities exceeded their assets.
The court determines voidable preferences based on an objective test, considering
the mere effect of preferring one creditor over others, not necessarily a direct
disposition to a specific creditor.

Question 3:
Explain the subjective test applied to undue preferences under South African
insolvency laws. What factors does the court consider when determining whether an
insolvent had the intention to prefer one creditor over others?
Answer 3:
Undue preferences involve dispositions made by an insolvent with the intention to
prefer one creditor over others, as per Section 30 of South African insolvency laws.
The court applies a subjective test, considering various factors, including:
• Whether the primary purpose of the disposition was to prefer a specific
creditor.
• Whether the insolvent contemplated insolvency at the time of the disposition.
• Whether the insolvent was in a position to exercise a free choice during the
disposition.
• The relationship between the insolvent and the creditor involved.
If the court finds that the disposition was intended to prefer one creditor and the
insolvent was aware of their impending insolvency, it can be deemed an undue
preference.
Question 4:
What is the significance of the Actio Pauliana in the context of impeachable
dispositions? Explain the elements that need to be proven for a disposition to be set
aside under the Actio Pauliana.
Answer 4:
The Actio Pauliana allows dispositions to be set aside if they were made with the
intention to defraud creditors. To invoke Actio Pauliana, the plaintiff must prove the
following elements:
• The disposition diminished the debtor or insolvent's assets.
• The recipient did not receive their own assets in return.
• There was an intention to defraud creditors.
• Actual fraud took place.
If these elements are proven, creditors can use Actio Pauliana to recover assets
disposed of fraudulently by the insolvent individual.

Question 5:
Under what circumstances can a beneficiary of a voidable preference have a
defense against the setting aside of a disposition? Explain the requirements that
must be met for such a defense to be valid.
Answer 5:
A beneficiary of a voidable preference can have a defense if the disposition was
made in the ordinary course of business and not intended to prefer one creditor over
others. To be a valid defense, the beneficiary must prove two key elements:
1. Ordinary Course of Business: The disposition must have been made
in conformity with ordinary business methods of solvent individuals.
This involves an objective assessment of whether the disposition aligns
with normal business practices.
2. Lack of Intent to Prefer: The beneficiary must demonstrate that there
was no intention to prefer one creditor over others. If the disposition
was a regular business transaction and not motivated by a desire to
give unfair advantage to a specific creditor, it can be considered a valid
defense.
Pg 55-57 Administration of insolvent estate part 1

Introduction:

• Meetings of Creditors: Series of meetings by creditors post-insolvency.

• Creditor Definition: Persons with debts before sequestration.
• Exclusion: Post-sequestration creditors lack voting powers (Cranko v
Borosch's Trustee 1924 TPD 645 at 648).

Types of Meetings:
1.First Meeting:
• Purpose: Prove claims, elect a trustee.
• Notice: Published in Gazette 10 days prior (s 40(1)).

2. Second Meeting:
• Purpose: Prove claims, receive trustee's report, instruct trustee (s 40(3)(a)).
• Notice: Published in Gazette and local newspaper.
3. Special Meeting:
• Purpose: Proof of claims, interrogate the insolvent.
• Request: Can be initiated by any interested party, who pays expenses (s
42(1)).
4. General Meeting:
• Purpose: Administer estate instructions, consider composition offers.
• Convening: By trustee or upon Master's or creditors' request.

General Provisions on Meetings:

• Date & Venue: Determined by Master (first meeting), trustee (others).
• Presiding Officer:
- Master’s office: Master or public service officer.
- Elsewhere: According to Master's instructions; reasons needed if not
magistrate (s 39(4)).
• Record of Proceedings:
- Must be kept by the presiding officer and submitted to the Master.
- Minutes considered as a record of proceedings (s 68(1) & (2)).
• Privileged Statements: Statements made in meetings are as privileged as
court statements (s 39(6)).

Conclusion:

• Further Study: Students should explore relevant case law and prescribed
textbooks for in-depth understanding.
• Disclaimer: These notes provide an overview; comprehensive understanding
requires deeper research and engagement with additional resources.
 QUESTIONS AND ANSWERS

Question 1:
Explain the purpose of the first meeting of creditors in the administration of an
insolvent estate. What is the role of the Master in convening this meeting?
Answer 1:
The first meeting of creditors in the administration of an insolvent estate serves the
purpose of allowing creditors to prove their claims against the estate and to elect a
trustee. The Master convenes this meeting by giving notice in the Gazette at least 10
days prior to the meeting. The notice includes the time, date, and place chosen by
the Master for the meeting.

Question 2:
Describe the differences between the second meeting and the special meeting in the
process of administering an insolvent estate. What are the specific purposes of these
meetings, and who can request a special meeting?
Answer 2:
The second meeting is scheduled after the first meeting and the appointment of the
trustee. It allows creditors to prove their claims, receive a report from the trustee
about the state of the estate, and instruct the trustee on how to administer the estate.
On the other hand, a special meeting is convened by the trustee after the second
meeting and can be requested by any interested party. The special meeting focuses
on proof of claims by creditors and can also involve the interrogation of the insolvent.

Question 3:
Explain the general meeting in the context of the administration of an insolvent
estate. What are the purposes for which a general meeting can be convened, and
who has the authority to request it?
Answer 3:
A general meeting in the administration of an insolvent estate can be convened by
the trustee at any time. It can also be requested by the Master or the creditors. The
purposes of a general meeting include providing instructions to the trustee on how to
administer the estate, considering offers for composition, and informing creditors
about the offer of composition. Unlike special meetings, general meetings can serve
various purposes beyond interrogating witnesses.

Question 4:
Discuss the role and responsibilities of the presiding officer in meetings of creditors
during the administration of an insolvent estate. What are the requirements for the
venue of these meetings?
Answer 4:
The presiding officer in meetings of creditors can be the Master or a public service
officer if the meeting is held at the Master's office. If the meeting is held elsewhere, it
must be conducted according to the Master's instructions. If a magistrate does not
preside, the presiding officer must provide reasons for this decision. Regarding the
venue, the Act does not specify a particular location but states that the meetings
must be conducted in a place accessible to the public.
Question 5:
Explain the concept of privileged statements in the context of meetings of creditors.
Why are statements made during these meetings considered privileged, and how
does this privilege compare to statements made in a court?
Answer 5:
Statements made during meetings of creditors are considered privileged, meaning
that their publication is protected. These statements are as privileged as statements
made in a court of law. This privilege ensures that participants can openly discuss
matters related to the administration of the insolvent estate without fear of legal
repercussions, encouraging transparency and effective communication during these
meetings.
Pg 59-62 Administration of insolvent estate part 2

Proof of Claims:

• Creditors must prove their claims at prescribed meetings to participate in

asset distribution, vote, or challenge trustee actions.
• Proof of claims establishes standing and the debt's existence (Grufin Finance
Co. v Cohen & others NNO 1991).
• Some creditors, e.g., employees, exempted from proving claims for
salary/wages.
• Creditors can register their claims with the trustee, but failure by the trustee to
notify the creditor breaches duties.
• Solvent spouse's estate creditors share proceeds if claim against the
insolvent's estate is proven (s 21(5)).
• A proof of claim provides similar rights but no voting powers or share in
separate assets (s 21(9)).

Time for Proof of Claims:

• Claims can be proved before final distribution (s 44(1)).

• After 3 months from the second meeting, Master's approval is required for late
claims (s 44(1)).
• Trustee's submitted distribution plan excludes late claims unless approved by
the Master (s 104(1)).

Procedure for Proof of Claims:

• Claims proven through prescribed affidavits detailing the basis, source, and
acquisition (s 44(4)).
• Documents must be lodged within 24hrs from the advertised time; untimely
submissions are rejected.
• Interrogation of creditors can occur under oath (s 44(7)).
• Trustee analyzes claims; disputed claims may proceed to adjudication by
action of law.

Voting and Resolutions of Creditors:

• Every proven creditor can vote in meetings, except in specific circumstances

(s 52(1)).
• Voting power based on claim value (s 52(2)); majority decides on issues (s
53(2)).
• Trustees contesting, compromising, or admitting a claim requires creditor
votes (s 53(1)).
• Creditors can vote through agents but not certain prohibited individuals (s
53(2)).
• Resolutions are binding, recorded in minutes, and enforceable; can be set
aside if improperly adopted or against the estate’s interest (s 53(3) & (4)).
 QUESTIONS AND ANSWERS

Question 1:
Explain the importance of proof of claims in the administration of insolvent estates.
What are the exceptions to the general rule that every creditor must prove their claim
to participate in the estate's distribution?
Answer 1:
Proof of claims is vital in insolvent estate administration as it establishes a creditor's
standing, proving the existence of the debt. Without proof, creditors cannot vote,
challenge trustee decisions, or share in the estate distribution. Exceptions include
employees who do not need to prove claims for salary/wages and creditors of the
solvent spouse's estate who can share proceeds if the claim against the insolvent
estate is proven (s 21(5)).

Question 2:
Describe the procedure for proving claims in insolvent estates. What documents are
required, and what happens if the creditor fails to meet the deadlines?
Answer 2:
To prove claims, creditors submit prescribed affidavits detailing the basis, source,
and acquisition of the claim. These documents must be lodged within 24 hours from
the advertised time. If documents are not submitted timely, the claim is rejected, and
the creditor loses the right to participate in the estate's distribution.

Question 3:
Discuss the voting powers of creditors in insolvent estate meetings. How is voting
power determined, and in what situations might a creditor's voting rights be limited?
Answer 3:
Creditors generally have voting power based on the value of their claims. Voting
power is determined by both the value and number of votes. However, a creditor's
voting rights might be limited if their claim was acquired through cession after
sequestration, they are a secured creditor (limited to matters of security), their claim
is conditional and will be fulfilled within a year, or when decisions about contesting
their claim or preference are being considered.

Question 4:
Explain the concept of creditors' resolutions in insolvent estate meetings. How are
these resolutions recorded, and under what circumstances can they be set aside?
Answer 4:
Creditors' resolutions are decisions made at meetings and are recorded in minutes.
These resolutions are binding and enforceable. They can be set aside if improperly
adopted, not in the interest of the estate, or if they affect the rights of other creditors.
A court can also set aside resolutions if a creditor, who did not prove a claim but is
prima facie a creditor, is affected, and their rights are infringed upon by a particular
direction.
Pg 64-67 Administration of insolvent estate part 3

Interrogation of the Insolvent and Witnesses:

Interrogation serves to investigate the insolvent's affairs and ascertain their true
financial position. It can occur at any meeting of creditors and may involve the
insolvent and witnesses who possess relevant information.

When and Where Interrogation Takes Place:

• Persons Interrogated: The insolvent, anyone present at the meeting

summoned for interrogation, persons possessing the insolvent's property,
those indebted to the insolvent’s estate, and individuals with material
information about the insolvent or their affairs.
• Conducting Interrogation: Interrogation can be done by the trustee,
creditors who have proven claims, the presiding officer, or their agents.
• Interrogation by the Master: The Master can summon any party to provide
relevant information. The Master's inquiry must be investigative, observing
procedural fairness but without necessarily applying the audi alteram partem
rule.

Consequences of Failure to Attend or Submit to Interrogation:

• Failure to attend may result in a warrant of arrest.

• Non-compliance with producing documents or answering questions may lead
to imprisonment.
• Interrogation proceedings must adhere to the fundamental principles of justice
and may not infringe upon constitutional rights.

Privilege:

• Applies when giving evidence or required documents.

• Evidence given is admissible in any proceedings.
• Certain professionals, like bankers, may be compelled to produce relevant
documents.

Realisation of Estate Assets:

• Types of Creditors: Concurrent creditors (paid from the free residue),

secured creditors (paid from the proceeds of the property subject to security),
preferent creditors (paid before concurrent creditors based on specific
criteria).
• Types of Security Conferring Preference: Special mortgage, landlord's
legal hypothec, pledge, right of retention.

Ranking of Claims:

1. Encumbered Assets: Initial costs, secured claims (immovable & movable

property).
2. Unencumbered Assets (Free Residue):
 o Funeral expenses, death-bed expenses.
o Costs of sequestration, costs of execution.
o Salary of employees, statutory obligations.
o Concurrent creditors' claims, claims secured by general and
special bonds.

Understanding the hierarchy of claims and the procedures related to interrogation is

crucial for the effective administration of insolvent estates. Students should refer to
the relevant legal provisions and case law for a comprehensive understanding of
these concepts.
 QUESTIONS AND ANSWERS

Question 1:
Explain the purpose and significance of interrogation in the context of the
administration of insolvent estates. What are the various scenarios where
interrogation might occur, and who can be interrogated during these proceedings?
Answer 1:
Interrogation in the administration of insolvent estates serves the purpose of
investigating the insolvent's financial affairs. It helps creditors and trustees ascertain
the true financial position of the insolvent. Interrogation can occur at any meeting of
creditors and involves questioning the insolvent as well as individuals possessing
relevant information. The parties that can be interrogated include the insolvent,
anyone present at the meeting summoned for interrogation, persons possessing the
insolvent's property, those indebted to the insolvent’s estate, and individuals with
material information about the insolvent or their affairs.

Question 2:
Describe the consequences of failure to attend or submit to interrogation during the
administration of an insolvent estate. What legal measures can be taken against
individuals who do not comply with the interrogation process?
Answer 2:
Failure to attend or submit to interrogation can lead to serious consequences. If a
person who is duly summoned fails to appear or attend, the presiding officer may
issue a warrant of arrest against them. Unless the person provides a reasonable
justification, the presiding officer may commit them to prison. If a person appears but
fails to produce required documents or answer questions, the presiding officer can
also issue a prison commitment. However, it’s important to note that the presiding
officer's actions must comply with fundamental principles of justice, and individuals
have certain rights during the interrogation process.

Question 3:
Explain the concept of privilege in the context of interrogation during the
administration of insolvent estates. How does privilege apply to the information
provided and the individuals involved in the interrogation process?
Answer 3:
Privilege, in the context of interrogation, implies that certain information disclosed
during the proceedings is protected. It applies when giving evidence or required
documents. The evidence given at an interrogation is admissible in any proceedings
against the person who provided the evidence. However, individuals being
interrogated may not refuse to answer questions based on the grounds that the
answers may incriminate them or cause prejudice. Certain professionals, like
bankers, may also be compelled to produce relevant documents.

Question 4:
Outline the different types of creditors and their rights in the realisation of estate
assets. How are the claims of concurrent, secured, and preferent creditors ranked
during the distribution process?
Answer 4:
There are three types of creditors in the realisation of estate assets:
 • Concurrent Creditors: They do not have any advantage over other creditors
and are paid from the free residue.
• Secured Creditors: They hold security for their claims and are paid from the
proceeds of the property subject to the security.
• Preferent Creditors: They are entitled to receive payment before other
creditors. Their claims may be related to funeral expenses, costs of execution,
salary or remuneration of employees, statutory obligations, or certain bonds.
The ranking of claims is structured in a hierarchical manner. Encumbered assets are
first considered, including initial costs and secured claims. Unencumbered assets or
the free residue are then used to pay funeral expenses, death-bed expenses, costs
of sequestration, costs of execution, salary of employees, statutory obligations,
concurrent creditors' claims, and claims secured by general and special bonds.

Question 5:
Discuss the powers and limitations of the Master and other presiding officers during
the interrogation process. What role does the Master play in conducting inquiries,
and what criteria are followed to ensure fairness during these proceedings?
Answer 5:
The Master has the power to summon parties for interrogation, ensuring relevant
information is obtained. The inquiry must be investigative, not adversely affecting
anyone's rights. The Master can administer an oath and interrogate any party
concerned. During the inquiry, the presiding officer is not required to follow a specific
procedure, and the examinee does not have the right to representation unless they
are a presiding officer being interrogated. While the court's power of review is
limited, it can intervene if the Master acted mala fide, ensuring procedural fairness is
maintained.
Pg 69-72 Distribution, compromise and rehabilitation

Distribution of the Estate:

• Task of the Trustee:

- Liquidation Account: The trustee prepares a liquidation account
detailing amounts received and expended. It includes a plan for
distributing proceeds (s 91).
- Notice: Once accounts are confirmed, the trustee issues a notice in
the Gazette, distributing the estate and collecting contributions from
liable creditors (s 113).

Composition & Rehabilitation:

• Composition:
- Occurs when a debtor in financial distress compromises with creditors
to prevent insolvency. Two types: common law (requires approval from
all creditors) and statutory (majority creditor approval) (s 119).
- Common Law Compromise: Involves a written agreement approved
by all concurrent creditors. If not approved, creditors can apply for
sequestration (s 119).
- Statutory Compromise: Majority creditor decision binds all creditors;
the insolvent remains un-rehabilitated but can apply for early
rehabilitation.

• Rehabilitation:
- Automatic Rehabilitation (After 10 Years): Insolvent is automatically
rehabilitated after 10 years, unless court orders otherwise or interested
parties object before the expiry (s 127A).
- Rehabilitation by Court (Within 10 Years): Court discretion;
considers the insolvent's conduct and trading history. Insolvent can
apply for rehabilitation under certain conditions, e.g., composition of 50
cents in the rand, no claims proved after six months, full payment of all
proved claims (s 124).
- Preliminary Steps for Rehabilitation: Notice of intention to apply in
the Gazette; providing security for costs (s 124, 125).
- Effects of Rehabilitation:
o Ends sequestration process.
o Relieves insolvent of all debts except fraud-related debts.
o Does not affect composition rights, duties, or powers.
o Doesn’t re-invest insolvent with former estate except in specific
cases (s 129).
o Undistributed property remains with the trustee; registration of
immovable property after caveat expiration deemed valid (s 25).
Key Terms and Concepts:

• Composition: Compromise between insolvent and creditors to prevent

insolvency.
• Common Law Compromise: Requires approval from all creditors.
• Statutory Compromise: Majority creditor approval binds all creditors.
• Automatic Rehabilitation: Insolvent is rehabilitated after 10 years
automatically.
• Rehabilitation by Court: Court discretion based on insolvent's conduct and
payment status.
• Preliminary Steps: Notice of intention to apply, security for costs.
• Effects of Rehabilitation: Ends sequestration, relieves debts (except fraud-
related), does not impact composition terms, does not reinvest insolvent’s
former estate (except in specific cases).
• Unaffected: Composition rights, duties & powers, surety liabilities, penalties,
trustee's control over undistributed property.

These concepts form the framework of distribution, compromise, and rehabilitation in

insolvency law, ensuring a balance between debtor relief and creditor rights.
 QUESTIONS AND ANSWERS

Question 1: What is the role of the trustee in the distribution of the insolvent
estate?
Answer: The trustee's role in the distribution of the insolvent estate involves
preparing a liquidation account detailing the amounts received and expended. Once
confirmed, the trustee issues a notice in the Gazette, distributing the estate and
collecting contributions from each liable creditor (s 91, 113).

Question 2: Differentiate between common law and statutory compromises in

insolvency law.
Answer: Common law compromise requires approval from all creditors and involves
a written agreement, while statutory compromise requires majority creditor approval
and does not depend on the participation of all creditors. Statutory compromise binds
all creditors and allows the insolvent to apply for early rehabilitation under certain
conditions (s 119).

Question 3: Explain the concept of automatic rehabilitation in insolvency law.

Answer: Automatic rehabilitation occurs after 10 years from the date of sequestration
unless the court orders otherwise or interested parties object before the expiry. It
relieves the insolvent of all debts except fraud-related debts, marking the end of the
sequestration process. The Registrar enters a caveat against property transfers,
which remains in force until rehabilitation (s 127A).

Question 4: Under what conditions can an insolvent apply for rehabilitation

before the 10-year period?
Answer: An insolvent can apply for rehabilitation before the 10-year period if they
have obtained a certificate from the Master indicating creditors' acceptance of a
composition where payment was made or security given for at least 50 cents in the
rand. Alternatively, if no claims have been proved after six months from
sequestration, or if full payment of all proved claims has been made, the insolvent
can apply for early rehabilitation (s 124).

Question 5: What are the effects of rehabilitation in insolvency law?

Answer: Rehabilitation ends the sequestration process, relieving the insolvent of all
debts except fraud-related debts. It does not affect composition terms, reinstates the
insolvent's former estate only in specific cases, and leaves undistributed property
with the trustee. Additionally, registration of immovable property after caveat
expiration is deemed valid (s 129, 25).

Question 6: Describe the preliminary steps an insolvent must take when

applying for rehabilitation.
Answer: The insolvent must give notice of their intention to apply through an
advertisement in the Gazette and provide security for costs, which must be at least
R500, to cover the expenses of any opposition to the application (s 124, 125).

Question 7: Explain the concept of statutory compromise and its implications

for creditors in insolvency cases.
Answer: Statutory compromise is a type of compromise where the decision of the
majority of creditors binds all creditors. Unlike common law compromise, it does not
require approval from all creditors. Creditors are bound by the terms of the
compromise, and the insolvent can apply for early rehabilitation under specific
circumstances, making it a significant mechanism in insolvency law (s 119).