Discuss composition
- insolvent avoids sequestration by entering into compromise with creditors
- two forms of compromise = common law compromise and statutory compromise
Define common law compromise and discuss its conditions and advantages
- written contract to pay dividends on creditor’s claims
- on the condition that trustee gets released of debt and the provisional order of sequestration gets discharged
- all creditor’s must agree in order for this to take place
- this compromise puts the insolvent and the creditor in better positions
- creditors will get higher dividends and paid earlier
- insolvent does not have to be sequestrated and face the consequences
Discuss statutory compromise
- Section 119 = majority vote of creditors bind minority of creditors
- 75% must approve
- basically creditors vote determines what will happen
- insolvent is still unrehabilitated and has the disadvantages thereof
- insolvent can however apply for early rehabilitation
What is the procedure for statutory compromise
1) submission of offer - trustee may submit offer of insolvent anytime after first meeting; trustee may also refuse to accept then the insolvent may apply to the Master
2) meeting - meeting must take place 14-28 days after offer is made
Limitations and conditions regarding compromise
- restrictions are impose by the insolvency act
1) promise of security - if offer contains promise of security, nature of security needs to be specified
2) entitling another creditor - prejudice another creditor for benefits they would have received if insolvent was seq.
3) condition of rehab - has no effect, may be no condition in offer made, need to act as if insolvent will be seq. - Zuluman and other v Scholtz
Name the consequences of accepting composition
1) all concurrent creditors are bound
2) trustee has to frame accounts, administer composition and report to creditors
3) restoration of property of insolvent - no transfer/delivery; revesting takes place
4) restoration to solvent spouse - not binding on solvent spouse’s creditors
5) right to prompt rehab
When can a offer(composition) be criminal
- when one accepts a benefit as a consideration for the agreement
- to undertake a grant benefit to induce the person to accept the benefit
- person accepting benefit is liable to pay penalty: amount of claim; value of benefit; amount paid/to be paid under composition
Discuss rehabilitation
- it takes away disadvantages of being insolvent
- creditors retain rights
- two types of rehab : automatic and application for rehab
When may rehab be sought
1) composition more that 50 cents in the rand
2) lapse of prescribed period after first account
3) no claims proved after 6 months
4) full payment of claims
Steps to be taken for rehab
1) notice of intention to apply - composition; lapse of period of time; no claims proved; full payment of proved claims
2) security for costs
Application for rehab
1) form and content of application (affidavit) - composition; lapse of time; no claims proved; payment in full
2) master’s report
3) opposition to application
4) adjudication to application
Discretion of the court for rehab
- courts may:
1) postpone rehab
2) grant rehab subject to conditions - ex parte meine; ex parte fowler, section 127(3)
3) refuse rehab
4) make considerations in favour of unconditional rehab
Effects of rehab
- ends seq. period
- relieves insolvent of disadvantages and debts
- Section 25(1)
- property of insolvent doesn’t vest in them again, unless: compensation provides that estate will reinvest in insolvent OR there are no claims proved after 6 months
Declaratory order for property (rehab)
- if no claim for asset is proved, insolvent can apply for order for entitlement of asset.
- requirements that need to be met: published notice of intention to apply in GG; serve copy of notice to Master, trustee and creditors; prove that trustee’s and creditor’s have full knowledge regarding claim
- if creditor objects = insolvent not entitled to property
