1
Q
What does the collection process entail?
A
–
2
Q
Different alternatives to insolvency?
A
- Administration order
- Debt Review or counselling
- Enter Voluntary agreements with creditors
- Voluntary surrender
- Composition
3
Q
Alternative to insolvency: Administration order
A
- Debt less than R50 000
- Where such application is granted= debtor must make certain regular payments to administrator.
- -The administrator must draw up a list of creditors and must pay them from amounts received from debtors.
4
Q
Alternative to insolvency: Debt Review/ Debt Counselling
A
(“They review reason for one’s debt, as well as establish a way in which one can pay it back)
- Credit agreements which are regulated by NCA
- This process may lead to a situation where the credit is found to be RECKLESS or even invalid agreement.
- Or debtor will be found to be over indebted and the process of debt review will result in a formalised repayment plan.
5
Q
Alternative to insolvency: Enter into voluntary agreements with creditors
A
- Release
- Novation
- When the debtor proposes a release or gives written notice to the creditor it is an ACT OF INSOLVENCY, and the creditor has grounds to apply for the sequestration of the debtor.
6
Q
Alternative to insolvency: Voluntary surrender
A
- In terms of sequestration procedures
- Assets will be realised and the proceeds will be distributed among the creditors in accordance with the provisions in the Insolvency Act.
7
Q
Alternative to insolvency: Composition
A
Common law/ Statutory___Read up on this!!
8
Q
What does the law of insolvency refer to?
A
- Totality of rules regulating:
- Situations where the debtor cannot pay his debt.
9
Q
What is commercial insolvency?
A
Where the total liabilities are more (>) than the total assets.
10
Q
Factual insolvency?
A
Insolvency Act is based on two basic principles:
1. Right of secure creditors to have claims satisfied through process of execution against assets.
2. Concurrency of other creditors.
But there must be an advantage to creditors and this must be proved!
11
Q
What is debtor not allowed to do in terms of property and why?
A
A debtor cannot alienate or burden any property, as his contractual capacity remains limited until the date of his rehabilitation in South Africa.
12
Q
2 things the Insolvency Act 24 provide for:
A
- The Act provides for the setting aside of impeachable transactions, made before the date of sequestration to the detriment of the other creditors, or which prefer certain creditors.
- The Act further provides for procedures for the tracing and collection of estates property and for criminal liability for prohibit acts as stated in the Insolvency Act.
13
Q
Which courts may grant sequestration orders and why?
A
The High Court is the only court with the ability to grant sequestration orders.
- This is because sequestration affects a person’s status.
14
Q
When does a debtor lose control over his estate in the process of sequestration?
A
The moment the sequestration order is granted.
15
Q
Which courts are allowed to grant rehabilitation orders?
A
Only the High court as rehabilitation also affects a person’s status.
16
Q
To whom does the control of the estate transfer to once a sequestration order has been granted?
A
To the Master of the High Court until a trustee can be appointed.
17
Q
What does the concept “Concursus Creditorum” entail?
A
The interest of the creditors as a group held above the interest of the individual creditors.
18
Q
History of insolvency Law
A
- Ordinance of 1777=Basis of SA Insolvency Law.
- First complete insolvent legislation was Ordinance 64 of 1829, which was introduced into the former Cape Colony under English influence. - Ordinance repainted certain Roman-Dutch law procedures, like cession bonorum, but was replaced by the Cape Ordinance 6 of 1843, which abolished cession bonorum as well as surcheance of payment, and the Transvaal, Natal and the Orange free state.
- 1916= First uniform Insolvency Act 32 of 1916 introduced to former union.
- Act was amended by amended act 29 of 1926 :introduced the vesting go the assets of the solvent spouse in the insolvent estate of the former spouse. - Present Insolvenct Act 24 of 1936= replaced the 1916 Act as from 1 July 1936
19
Q
What was the Visser Article- De Jure based on?
A
SA insolvency is based on Roman dutch-Law.
20
Q
What customs (latin) are discussed in the Visser- De jure article?
A
- “Legis action per manus injectionem”
- “Missio in possensionem”
- “Cessio Creditorum”
21
Q
What does “legit action per manus injectionem” mean and in which article was this discussed?
A
- Discussed in Visser article.
- Legis action per manus injectionem
–Person’s execution
–Debtor has 30 days to pay creditor
–If debtor doesn’t pay, creditor can place him in’ jail’ (keep him in a place) for 60 days.
-3 Consecutive market days
–Creditor would call out debt that is owned (amount), in public in front of the Praetor.
–Where the debtor didn’t pay or no compromise was reached= debtor is KILLED to SOLD AS SLAVE (on third market day)
–More than one creditor?
=Once slave is killed, they each can have apiece of the body (all get something)
=Or, jailed for a longer period in order to work off debt.
22
Q
What was the the start of the movement towards the modern day system, with reference to article?
A
Missio in Possesionem
-ARTICLE= Visser de Jrure
23
Q
What does Missio in possessionem entail?
A
- It’s used against the person OR the assets.
- Allowed for the execution of the debtor;s belongings as apposed to the debtor’s person (killing etc)
-Upon order by praetor- creditor would be entitled to seize the debtor’s things, a public proclamation would ensure that all creditors are informed of this seizure and after prescribed period had elapsed, the praetor would order all creditors to convene a meeting to elect a magister bonurum to oversee the sale of the seized goods by way of an auction.
- The seizure of the debtor’s things didn’t however prevent the seizure of any things acquired by the debtor afterwards, nor against further execution of the debtor;s total means
(Only in cases where the debtor was a high ranking person, would the creditors have to choose ultimately to execute the debtor’s total means or only his assets)
24
Q
What does Cessio Creditorum entail and in which article was it discussed?
A
- -It was discussed in the Visser article
- It doesn’t allow any person execution
- -Assets acquired afterwards by debtor?= sold in execution and debts paid off.
- -Adress the lack of protection of the debtor due to the creditor-focus of the above mentioned procedures,
- this allowed creditors to forfeit their entire means in favour of creditors, and thereby avoid execution of his person.
–Things which the debtor acquired after he forfeited his things could still, howe be executed to settle his debt.
25
In which article is the South African Insolvency System critically discussed in terms of International Insolvency?
In the Roestoff & Coetzee 2012 SA Marc LJ 53 article.
26
How does SA compare to other Insolvency Law Systems?
Roestoff
- World-wide the system is rend to accommodate overburdened debtors in seeking debt relief where as the
- -SA Insolvency Law system has remained largely creditor orientated/centered.
27
How does the SA Insolvency System compare to the system in the USA? (which article?)
Roestoff and Coetzee
- USA= their systems has two main aims:
* Rehab of overburdened debtors
* Equal treatment of credits
- Debt Relief is one of the main aims of the American System, and is obtained by providing for a discharge of debt resulting in a fresh start.
- Contained in the Bankruptcy Reform Act
28
How does the SA Insolvency Law system compare to that of England and Wales? (which article)
Roestoff and Coetzee
* System allows debtors to apply for debt relief order.
* NINA (Allows debtor with no income and no assets to repay debt, to apply to the official receiver, through an approved intermediary , for a debt relief order.
- -This order intends to operate with no court involvement (Cutting the court saves expenses, much more convenient and helpful to NINA debtors than in SA)
--It still also preserves creditors interests as the debtor may only apply for this form of debt relief once every 6 years.
29
How does the insolvency System mainly operate in South Africa?
* Creditor orientated
* Not a procedure for complete debt-relief
* Court is involved and must be involved for an estate to sequestrated which make it extremely expensive, especially for the NINA debtors.
* Legal uncertainty with regards to the interpretation of many of the provisions of the different statutes, and procedures are mainly COURT driven- which again makes it more expensive to use.
30
General overview of insolvency:
| 1. Estates which can be sequestrated
- Section 2 of the Insolvency Act definition of debtor
| - Natural person (sequestration) estate v juristic person (liquidation) estate
31
General overview: 2. Jurisdiction: s149 of Insolvency Act
- Domicile
- Assets
- Ordinary residue
32
General overview: 3. Application of Proceeds and Contributions
- Secured creditors
- Statutory referent creditors (contained in the Insolvency Act)
- Concurrent Creditors
33
General overview: 4. Sequestration Process
* Voluntary surrender: "factually insolvent"
| * Compulsory surrender: "Debtor committed an act of insolvency"
34
General overview:
| 5. Effect of sequestration:
- Insolvent Estate (s20 Assets)
- Solvent Spouse (s211)
- Insolvent (Only the High court has the power/ jurisdiction to grant the order of insolvency/ sequestration
- Uncompleted contracts
- ->Types of contract
- ->Who is sequestrated
- ->Where is the ownership
* Purchase and sale (immovable)
* Purchase and sale (movable)
* Employment contracts
* Lease agreements
35
General overview: Voidable Disposition
- -Disposition made not for value (s26)
- -Voidable/undue preference (s29-30)
- -Collusion(s30)
- -Void transfer of business
36
General overview: 7. Composition
* Common law
| * Statutory (s119)
37
General overview: 8. Rehabilitation
"Rehab is for the person not the estate"
* Time 10 years for automatic rehabilitation
* Application... "Apply to the High Court"
38
General overview: 9.Administration of estates
- Trustee
- Creditor meetings
- Selling of assets
- Liquidation and Distribution account
* s150: Appeal
- -Any person aggrieved by an order of final sequestration or the setting aside an order of provisional sequestration may, appeal against such an order.
* Section 151: Review
39
Sources of Insolvency law
* Insolvency Act (main source)
* Other forms of legislation ,e.g. Companies Act (Both 1973 and 2008)
* Judgements from court cases, including Constitutional Court decisions
* Common law
* Regulations
- -> Enacted by the Minister of Justice, provided they are not contrary to the Act.
40
Difference between factual and commercial Insolvency
Commercial Insolvency : Assets exceed Liability, but the debtor has cash flow problems
Factual Insolvency: Balance sheet: Liabilities exceed Assets.
41
Which persons play a role in insolvency law?
* Debtor
* Master of the High Court: -The master is a creature of statute and has various powers ascribed to it by statute.
- The master makes the final decision on the appointment of the trustees.
- The master is bound by s32&33 of the Constitution of the Republic of SA
* Trustee: the trustee has to fulfil his duties under the control of the Master, subject to orders and wishes of the creditors.
* Sherif: fulfils an important function by attaching the property of the insolvent after he is sequestrated.
* Creditors
42
Estates which can be sequestrated:
s2 "definitions" of a debtor:
- A person/partnership/estate of person/ partnership or a deceased's insolvent estate.
*Exceptions:
---> Company
---> Juristic person
##NB: Wound up in terms of the Companies Act
1973 CA "We still use chapter 14 to liquidate insolvent company"
2008 CA "use the previous Act to liquidate an insolvent estate"
- Other debtors (e.g. trusts, club or juristic person): Can use the insolvency Act to sequestrate, provided that no other Act regulates the winding up.
- Body corporate of sectional title scheme: No reference to how we sequestrate Body Corporate.
- A deceased's estate is administered in terms of S 34 of the Administration of Estates Act without first being sequestrated.
-Spouses married IN COP
Application for sequestration shall be made against both spouses. When joint estate is sequestrated BOTH parties will be affected.
- It is possible for an unrehabilitated insolvent to acquire an estate that will be protected against his or her trustee. This is due to the fact that certain assets and income do not form part of the insolvent estate.
43
Jurisdiction: What can high court do?
The high court can take away orders and can give effect to orders affecting your contractual capacity.
44
Which High Court has jurisdiction?
a) Is domiciled within the area of jurisdiction of the court; or
b) Owns or is entitled to property located within the are of the court's jurisdiction; or
c) At any time during 12 months immediately preceding the date of application, ordinarily resided or carried on business within the area of court' jurisdiction.
45
Concurrent jurisdiction?
- --Magistrates courts "NO" jurisdiction to grant order but
- -Any related matter to this application, i.e. when you have uncompleted contracts or voidable dispositions, it is possible to dispute these matters in the Magistrates Court.
46
Definition of Court (s2):
-In relation to any matter means the provincial or local division of the Supreme Court which has jurisdiction in that matter, The "court includes a magistrate's court which has jurisdiction in regard to the offence or matter in question.
47
Debtor: (S2)
In connection with the sequestration of the debtor's estate, means a person or a partnership or a estate of a person or partnership which is a debtor in the usual sense of the word, except body corporate or a company or other association of persons which may be placed in liquidation under the law relating to Companies.
48
Insolvent: (s2)
When used as a noun, means debtor whose estate is under sequestration and includes such a ddebror before the sequestration of his estate, according to the context.
49
Magistrate: (S2)
includes an additional magistrate and an assistant magistrate.
50
Master (s2)
In relation to any matter, means the Master of the Supreme court within whose area of jurisdiction that matter is to be dealt with and includes an Assistant Master.
51
Trustee:
Means the trustee of an estate under sequestration, and includes a provisional trustee.
52
Which case dealt with the definition of a debtor pertaining to a "trust"?
Magnum Financial Holdings v Summerly
53
What was found in the Magnum Financial v Summerly case? (based on trust & definition of a debtor)
- Was found that a trust was "a debtor' in the usual sense of the word.
- Furthermore to was not a body corporate or a company or other association of persons which may be placed in liquidation under the law relating to companies. Therefore it was found that sequestration and not liquidation is the appropriate remedy even though a trust is defined as a Juristic person.
54
Secured Creditors
A creditor that has real security right that must have ALREADY vested at time of sequestration of the insolvent. These creditors enjoy a form of real security over the property of the Insolvent.
- Personal and real security
- Security: An asset that a person has a right
- REAL (bond, pledge, tacit, hypnotec) security over property of the insolvent.
- Right of security is recognised in the Act
- Real (a right over property)
- Personal (a specific person stands as security, e.g. surety.)
55
Unsecured Creditors
* Has no form of real security over the property of the insolvent.
1. Statutory referent creditors (listed in the Act)
2. Concurrent creditors
56
Why is it important to know the order of preference?
- Creditors get in order of preference
- Distriution of a dividend
- Duty to contribute (concurrent is the first to contribute to sequestration, but LAST to get)
57
Out of what are the secured creditors paid?
Paid out of the Proceeds derived from realisation of securities.
58
Out of what are the unsecured creditors paid?
Paid out of the FREE RESIDUE of the estate (the amount of money left after the secured creditors are paid)
59
Preference: S2
In relation to any claim against estate:
| - Right of payment of that claim out assets of the state in preference to other claims.
60
Security: s2
In relation to a claim of a creditor in his estate:
Property that estate over which the creditor has a preferent right by virtue of any:
* Special mortgage: a mortgage bond hypothecating any immovable property or a notarial bond over movable property in terms of s 1 of the Security by Means of Movable Property Act, or such a notarial mortgage bond registered before 7 may 1993 in t o s 1 of Notarial bond Act, but exlecudes any other mortgage bond ...
*Landlord's legal and tacit hypothetic
*Pledge
*Right of retention/lien
61
Free residue (s2)
in relation to an insolvent estate, means that portion of the estate which is not subject to any tight of preference by reason of any special mortgage, legal hypothec, pledge or right of retention.
62
Secured Creditors (s2)
...
63
Special Mortgage (s2)
: means a mortgage bond hypothecating any immovable property or a notarial mortgage bond hypothecating specially described movable property in terms of section 1of the Security by Means of Movable Property Act
but excludes any other mortgage bond hypothecating movable property
64
What is the exception with a mortgage bond?
| s88 elements
When a mortgage bond does not give rise to real security and thus the creditor being a secured creditor:
- Passed for securing the payment of a debtor
- Not secured previously
- Which is NOT conditional
- Which was incurred more than 2 months prior to the lodging of the bond for registration, will NOT confer any preference
- If the estate of the mortgage debtor is sequestrated within 6 months of the lodging
*If the estate is sequestrated 9 months later it will be secured.
65
Unsecured creditors & Free residue: What is free residue?
That portion of the estate which is NOT subject to any security, As well as the surplus remaining after settling a secured claim from the proceeds of a security.
66
Unsecured creditors: Who is paid out of the free residue account?
* Statutory Preferent Creditors.
| * Concurrent creditors
67
Statutory creditors: Order of Statutory Preference in terms of ACT. (Exact order)
1. Funeral Costs
2. Death Bed expenses
3. Sequestration costs
4. Sherrif charges
5. Salary or wages due to employees.
6. Statutory Liabilities
7. Income Tax due by the insolvent
8. General and special Notarial Bonds
(Funny Does Sexy Secret Salsa Sex In General)
68
5. Salary and wages list
1. The salaries and wages in arrear for a period NOT exceeding 3 months, (max R12000)
2. Payments in respect of any period of leave or holiday due to the employee which has accrued as a result of his or her employment by the insolvent in the year of insolvency or previous year (max R4000)
3. Any payment due in respect of any other form of paid absence for a period not exceeding 3 months prior to date of liquidation (max R4000)
4. Any severance or retrenchment pay due to the employee in terms of any law, agreement, contract, wage regulating measure or as a result of termination in terms of section 30 (max R12000)
5. A maximum amount of R12 000 payable thereafter in respect of any contributions payable by an insolvent, including contributions payable in respect of his or her employees, to any pension or provident fund, medical aid or unemployment fund.
69
What salary and wages has preference above the rest?
Salary and wages in arrears for period not exceeding 3 months- (Max 12 000)
70
What is the max for unpaid leave or holiday?
R4000
71
What will the balance of claims not converted as Statutory claims be regarded as?
Concurrent Claims
72
Concurrent creditors:
* Any balance after payment of Statutory preferent Creditors, the Concurrent Creditors are paid in portion ("pro-rata") With their claims (s103(1)) They receive a dividend.
* Secured creditors who did NOT rely on their security (portion that they did not rely on)
73
Concurrent creditors are entitled to interest provided that:
- Claim paid in full
- Fom date of sequestration to date of payment of claim
- 8%
74
What happens to any remaining balance after the concurrent creditors have been paid?
Any remaining balance is deposited in the Master's Guardian Fund
-It will be paid to insolvent after rehabilitation.
75
Encumbered Assets Account:
* All assets with security
* Sell assets (assets are sold)
* Pay-out s 89 costs
76
What can be regarded as "security"
- Mortgage bond
- Pledge
- Lein
- Hypothec
77
Free Residue account
* Statutory preferent Creditors
| * Concurrent creditors
78
Contributions:
If NO free residue or free residue is insufficient to meet all expenses, certain creditors who have proved claims against estate will have to contribute in order to pay shortfall.
79
Contributions S106
Concurrent Creditors who have proved their claims.
| -Secured creditors who did not rely on security: MUST Contribute in proportion of proved claims
80
Contributions and liability of statutory preferent creditors.
* No direct mention of this in the Act
* S 106(c): Where all creditors of the free residue have withdrawn claim and deficiency still remains, all other creditors who have claims against the free residue are liable to contribute.
81
Contributions: If no creditor has prove a claim?
- Applicant creditor will be liable for contribution irrespective of whether he has proved a claim.
- Apply to compulsory sequestration
- In the case of voluntary sequestration: trustee is at risk to contribution
82
Contributions: Creditors who withdraw claims
-STILL LIABLE for pro rata amount up to date of withdraw.
83
Contributions: Trustee collects the contributions after notice in government gazette.
*30 days to pay
84
Have you read ss 84, 85, 88, 89, 95-103 of the Insolvency Act
2. Security by Means of Movable Property Act 57 of 1993
3. Ss 14(3); 89(l) and 106 of the Insolvency Act
4. Snyman v The Master and Others 2003 1 SA 239 (T)
5. Burdette 2003 THRHR 521.?
Yes= 5
| No=0
ISR 310
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